Demonetisation: Modi’s won the debate

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Demonetisation: Modi’s won the debate

Note ban is akin to a systemic solution to the problem of black money, corruption and terror funding

Exactly a year ago on this day Prime Minister Narendra Modi made a tryst with New India's destiny by announcing demonetisation of Rs 500 and Rs 1,000 currency notes. It was an audacious decision by a bold leader, determined to do new things to purge India of some its most horrific curses. Even as a stunned political Opposition hankered for half-baked, and often naked narratives, the poor and the middle class rejoiced for this was a definite onslaught on the rich and the mighty, hoarders of unaccounted money. TV channels drooled over the serpentine queues in front of the banks, and hastened to write the political obituary of Modi by anticipating massive political backlash in the Uttar Pradesh Assembly election. Demonetisation was a politically suicidal move, skeptics said, and economists churned out reams of research to demonstrate how demonetisation would spell doom for the Indian economy. A year on, as the dust settles, Modi is having the last laugh.

Let's take a look at some basic facts. According to Government data, deposits in the banking system increased by around Rs 3 lakh crore and this additional liquidity helped reduce interest rates by 100 basis points. We also witnessed a surge in digital payments which increased by 56 per cent from 71.27 crore transactions in October 2016 to 111.45 crore transaction in May, 2017. Digital payments at Rs 50,000 crore in October 2017 are up by 41 per cent year-on-year. More than one crore workers were added to EPF and ESIC system post demonetisation and bank accounts for about 50 lakh workers were opened to get their wages credited directly in their accounts. Advance tax collections of personal income-tax grew at 41.79 per cent over same period of last year while personal income-tax under self-assessment tax grew at 34.25 per cent over same period last year. As per data till August 2017, there was a 38 per cent increase in admission of undisclosed income from Rs 11,226 cr to Rs 15,496 cr. And 2.24 lakh shell companies which were inactive for long were struck off official records.

Civil Aviation Minister Jayant Sinha nicely summed up the “material changes” caused by demonetisation by highlighting four “high-frequency and quantitative indicators” — cash to GDP ratio, volume of digital payments, number of new registered taxpayers and estimate for “unaccounted for” money and number of tax notices sent. Until June 30, 2017, 1.26 crore new tax payers including both those who file returns and those who don't were added. Also, there are more people applying for PAN cards, apparently to conform to the tax and transaction framework. “The cash-to-GDP ratio is now down to 9.7 per cent, from 11.3 per cent pre-8 November last year. This cash is now in the banking system which has helped swell the current accounts and savings accounts balances of banks: This will allow them to lend and invest more, and at lower rates,” Sinha wrote in a business daily. All this clearly shows that there has been positive impact on “formalisation of the economy, improving the tax base and use of digital payments,” he added.

Naturally, the Opposition has been adamant at not acknowledging any of these benefits — how could they?  — and slam the Government for what it terms the demonetisation failure. They fail to appreciate that any systemic change takes time to materialise and despite the initial hullabaloo, we have reason to believe that the bold move has realised substantial gains. Congress leaders, who have been opposing the move, should take a leaf out of what former Prime Minister Rajiv Gandhi had once said: “We were in quest of managerial solutions to unresponsive administrations. We were looking to simplify procedures, grievance-redressal machinery, single-window clearances, computerisation and courtesy as the answers to the problems. As we went along, we discovered that a managerial solution would not do. What was needed was a systemic solution.”

Demonetisation is akin to a systemic solution to the problem of black money, corruption and also of terror funding and Modi must be lauded for this. The thunderous electoral victories in Uttar Pradesh and Uttarakhand were clearly a reassertion of people's faith in what Modi did. If the projections and trends are to be believed, BJP is poised for victory in upcoming Assembly elections in Himachal Pradesh and Gujarat too. For a country steeped into a culture of short-cuts and momentary gains, Modi has always asserted that he is out there to bring systemic changes intended to bring about big changes in the long run. Those not willing to wait for the long haul could take solace in the substantial short-term gains in the form of an expanding tax base, higher digitalisation of payments and better liquidity of banks. A year after demonetisation, Modi has clearly won, politically and otherwise.

(The writer is a strategic communications professional)

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