A Reflective View on the 2016 Demonetization: 10 Months Later
The decision of demonetization in November 2016 marked a significant turning point in the Indian economy, and the impact has been both transformative and complex. Ten months have passed since the seemingly drastic change, but the ripple effects continue to be felt across various sectors, from informal businesses to the formal economy.
Adaptation and Belief in Hard Work
One of the striking observations is the adaptability and belief in hard work shown by many citizens. During the initial reckoning, it was fascinating to see how uneducated individuals, including street vendors and small business owners, embraced the change with confidence. Unlike wealthy individuals who often avoid taxes, these less fortunate citizens followed the directives of the Prime Minister and continued their hard work without unnecessary complaints. This resilience and belief in a brighter future, despite the challenges, is a testament to the spirit of the common man. Their unwavering faith in the system deserves respect, and it is crucial to avoid sowing doubts that could undermine their confidence.
Economic Undercurrents and Governing Factors
Demonetization was more than just a symbolic move; it was a game changer that forced a wholesale re-evaluation of economic practices. For individuals who had accumulated wealth without paying taxes, the change made them vulnerable. They now find themselves in a difficult position. If they choose to convert their cash into property or gold, they risk being caught by regulatory scrutiny. This dilemma has led to a significant reduction in liquidity in the market, prompting the Reserve Bank of India (RBI) to consider lowering interest rates to encourage spending and investment.
Furthermore, the government's strengthening of the banking system's tools for recovery has deterred borrowing, particularly among small and medium-sized enterprises (MSMEs). These enterprises often benefited from dealing in subsidized goods but now face closure due to the direct transfer of subsidies to beneficiaries. This shift not only impacts individual businesses but also the broader economic landscape, leading to a slowdown in growth.
Expected Consequences and Economic Stability
The demonetization and subsequent measures like GST were expected to lead to a short-term slowdown in the economy. The rational argument is that these measures, while disruptive, are essential for long-term economic stability. Restructuring the economy to address bad loans and ensure that loan accounts are no longer perpetually in arrears is a necessary step in the right direction. However, the teething problems and the associated strain on employment have been considerable.
While it's true that the GST and the JAM (Jan-Dhan, Aadhaar, Mobile) trinity have had adverse effects on the economy, it's important to understand that these are temporary sacrifices for a systemic overhaul. To stabilize and strengthen the economy, it's necessary to temporarily halt or redirect certain sectors. This approach, while painful, can lead to a more robust and sustainable economic structure in the long run. Just like a car needs to be taken to the garage to fix issues, the economy needs similar interventions to repair and streamline its operations.