On the one-year anniversary of prime minister Narendra Modi’s demonetization announcement, experts and politicians on all sides have been debating whether this risky move was a success or a failure.
The decision to demonetize Rs 500 and Rs 1000 currency notes was part of the government’s overarching agenda to crack down on black money, to fight counterfeiting, to move towards a cashless economy and to include digitization and to boost the number of tax payers.
There has been mixed reactions to the consequences after a year. On one hand Senior BJP leader Yashwant Sinha reprimanded demonetization and said “Notebandi has failed as its objective was not fulfilled. There is no black money return,” adding that 99 per cent of the currency had returned. On the other hand, analysts and economists have praised and acclaimed the slow and steady digital India transformation post Nov 09, 2016.
To sum it up, there have been critical changes in economy post the implementation of demonetization.
Formalizing Indian economy
Formalizing Indian economy and ensuring better jobs for the poor have been a major leap. Fifty lakhs labourers got their bank accounts active according to Modi’s Twitter account and 1.03 crore registrations of labourers took place in ESIC (Employee’s State Insurance Corporation).
Unprecedented growth of imports is another positive consequence. It rose by 23 per cent in a year. Comparing the escalating rise in India’s imports from China, the country’s import in first half of 2016-17 stood at Rs 1.96 lakh crore, whereas in 2017-18 it was increased to Rs 2.41 lakh crore.
Rise in bank deposits
All cash withdrawn has been translated into a rise in bank deposits. After the cash ban was announced last year, only about a third of the Rs 15.44 lakh crore of invalidated bills wasn’t deposited into banks, while the rest of the money has raised the bank deposits. Hence the potential of storing black money is so much reduced. Every citizen is doing the same economic activity with the money in circulation.
Spending hours in long queues to withdraw money led to deaths. After one month of the announcement of demonetization, in 720 hours, there were 720,000 deaths, as reported by Forbes on December 8, 2016.
Labourers in the textile, footwear, plastic and metal industry got adversely affected. Labourers from Delhi have been compelled to leave National Capital Territory after demonetisation as they are unable to get money.
Infrastructure for digital payments
What about infrastructure for digital payments? The year-on-year growth in the number of point of sale (PoS) terminals (till August 2017) shows a sharp increase compared to the previous years as does the number of credit cards in the country.
Sectors like real estate, manufacturing and finance have been under stress over the past year. Even agrarian discontent, which has been witnessed across various states, including Madhya Pradesh, Tamil Nadu and Maharashtra, with farmers protesting and demanding loan waivers during the summer month, has been attributed to demonetization.
But PM Modi still views it as a key structural reform measure he had to take as part of his government’s efforts to combat insidious corruption and tax fraud in India. However the positive effects may be slow and steady, that will be revealed in coming years.