• IPC 2017

Demonetization and the politics

By GovernanceToday
In Editorial
December 27, 2016

In India, nothing bypasses politics and no political activity is less than boisterous. In this light, the recent demonetization move of the government and the ensuing political one-upmanship is worth noticing. The move, which was made to check the black money and cash hoarders, has been defended by the government according to which the opposition to the move is totally unwarranted. On their part, opposition parties are claiming that the government’s decision has led to multiple deaths and that the government is not concerned about the well being of the poor. In all this brouhaha, the real point has been missed as is always is the case.

Banning of higher denomination notes is a calibrated move to bring out the stock of black money in the system. While it is true that a large portion of black money is quickly converted into realty and gold or leaves the country to safe accounts in tax heavens, there is still a huge trove of money stashed in the country that requires to be dug out and brought into the system. The move attempts to do the same. There may be merit to the argument that the move could not eradicate the scourge of black money as it leaves the institutional system of creating black money intact, the  move will definitely impact the stock that has already been created.

What is more important for common man, however, is the hardship the move has brought on the  system. The cash that has been sucked out of the system, is being replaced at a slow rate and as such, people are not able to get enough of cash to go about their daily life. The lack of Rs 500 notes has made routine shopping tough and the result is that retail market has taken a hit. But small businesses are not the only one to be hit. The construction sector, which has a high cash business segment, has seen activity dry up and daily wage workers who mostly get paid in cash, are forced to return home as employment vanishes. As cash runs dry in system, scuffles have been seen in many places. Undoubtedly, the preparation for rolling out the move could have been better. Hopefully things would improve in coming days, as government says.

Another point, not getting enough attention amid bigger, more vocal and emotive issues is that this move is a nudge to move towards a cashless system, which is indeed a laudable intent. A cashless system would be more transparent, clean and would restrict the creation and sustaining of black money. It would also improve in tax collection and economy. But such a move could be challenging as the necessary infrastructure is still not well developed. People are not very comfortable is digital transaction as they fear for security of transaction. Thankfully, government is working on multiple fronts such as unified payment system and payment banks that intend to create an enabling environment.

We hope that the problems of common people will vanish soon and the efforts of hurting black money bears fruit.

Best regards
Ajit Sinha

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