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I guess there is a need to clarify something on the propaganda that Demonetisation was a failure by many liberals and intellectuals.
First of all, unlike what these intellectuals would like to believe, Demonetisation was not an economic tactic. It was a political tactic. No economist would actually recommend Demonetisation because it has huge risks. Only a political leader having some clout could do it. It was a political move to demonstrate that the government is serious in not only tackling the black money stashed outside but the black money stashed here in India too.
Secondly the biggest toll of Demonetisation was on small and medium traders and businessmen who mostly trade in cash and do what is known as No:2 business (without bill). They also are traditionally the biggest supporters of the BJP. Now why would BJP want to antagonise one of its strongest support bases and the biggest funders of the party?
The reason is that no amount of logic or reasoning would make them transit to the mainstream economy, so a shock was required to make them do it. Why should they be mainstreamed? Because GST was to follow. Today you see the number of GST registrations that have increased, and GST revenue shooting up was possible only with Demonetisation. Without that, there would still be resistance and tendency to continue in cash dealings. Not that No:2 is totally done away with, but a lot of business is happening in No:1 today thanks to the fear instilled by Demonetisation.
Third, the Benami act and the Real Estate bill would have been toothless without Demonetisation. Because the cash in the system was accounted back now, the cash being used for Benami transactions and real estate has reduced. If you don’t believe me, ask any Chartered Accountant dealing in this and also ask anyone who has been trying to buy a property in 2016 but could not afford it, and has since bought property.
Fourth, the argument that the cash would never come back but now that the cash has all come back so it is a failure, is again bogus. Cash never coming back was a utopian situation. If it hadn’t come back, the Government may have made a one time gain! Now that it has come back, what the Government would now make are long term gains! Because they now have Data of who deposited the cash! And so more than 2 lac shell companies were deregistered and already about 80,000 crores of deposits from some of these companies still remain unclaimed! Investigations are on. See the increase in IT filings that have happened post Demonetisation, and all these will continue to pay taxes henceforth. Had all the black cash not returned, RBI would have written off their liabilities to that extent for one time, but the hoarders and depositors would have remained untraceable!
The argument that terrorism is now back is nonsensical. Terrorism is based on fake currency and foreign currency. Though fake currency would have stopped for a while, foreign currency would still be coming in. So terrorism may still flourish and Demonetisation is not supposed to end it forever! However you can see its effect in Maoist insurgency having come down, so that is definitely a gain.
Many State Utilities and enterprises that were not being paid arrears for many years by corrupt politicians and business men stood to gain collecting their arrears. UPSEB for instance was a major beneficiary as during SP’s time, it was never able to collect arrears otherwise.
Yes, some sectors like farm produce suffered because they thrive on middlemen mafia who deal in cash and hold buffer stock. But it was temporary pain. Slowly farmers were forced to look at other avenues which have now diminished the clout of this mafia and would help farmers realise better margins and also will bring down end-user prices as we are seeing now.
I can go on and on, but let me stop here. To conclude one should never look at Demonetisation as an isolated event with just one or two goals to achieve. Demonetisation was a tactical intervention in a long chain of strategic reforms undertaken by the Modi Government starting from Jandhan, Digital India, GST, Benami act, Real Estate reforms, and a new agricultural infrastructure and platform that would slowly replace middlemen mafia and bring farmers to market their produce directly, which has begun!