Money lost its colour

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Money lost its colour
Narayan Krishnamurthy - 31 August 2017

If you think this edition of ShunTrend is about badgering the decision to demonetise – it is not. The economic impact of demonetisation is very complex to be easily gauged by the state of the economy from the time demonetisation commenced. On its part, the Income tax department is pouring over bank accounts where it feels that the transactions are suspicious, based on cash deposited in the demonetisation phase. The number of such accounts run in a few lakhs and may be the quantum of monies in such suspicious accounts could run into several crores.

Once these accounts are scrutinised there will be clarity on the quantum of black money in the economy that existed and got killed post demonetisation. The black money economy as suggested by former finance minister P. Chidambaram was to the tune of Rs 400 crore, which was challenged by Niti Aayog member Bibek Debroy, to be somewhere in the range of Rs 2,000 crore. This was also the sum which was repeatedly mentioned as about the total value of counterfeit or fake Indian currency. Of course, the data in RBI’s annual report mocks at this figure too.

Digital economy

What the past ten months has managed to do is make money, lose its colour the way we were used to. I don’t mean the new pink colour notes and green coloured notes; the usage of cash has diminished and this is exactly what is being talked by finance minister Arun Jaitley, who has spoken of demonetisation giving way to digital currency and digitised economy gaining. I am tempted to refer the success of demonetisation outcome to what Delhi Chief Minister’s odd-even formula did – pollution did not go down, traffic did.

So, what if the desired outcome was not achieved, the experiment did pay off – it reduced traffic on the road. The Delhi government did commend itself and made it sound like a victory. In war, the end matters – not the means. So, it seems to be the case with government action to demonetisation. For most part of the past ten months the RBI was never able to give a clear figure on the number of notes it had collected post demonetisation and if it was all that was in circulation. So, even now, it is not very clear on how much money is in circulation and of it, how much has not come back into the systems and so on.

Going by its annual data – there seems to be an increase in household savings. People have got used to new ways of transaction instead of cash – cards, wallets, UPI and so on. All of this was possible just the way people in Mumbai walked their way to home post incessant rains a few days ago. The Fallout of democracy is that, we have no say in the decisions taken by a government that we vote to power. The only way for us to react is at the time of the next elections – this fundamental lacuna in the system, does not allow us to have a way to participate in government initiatives that benefit all stake holders.

Larger good

The mutual fund industry today is benefiting from the greater good that was envisaged by former SEBI chairman, U K Sinha, who instructed the industry to spend 2 basis points from the assets it managed towards investor awareness and education. The impact of the clarion call is visible today, even though the call came into play about four years ago. There are new investors getting into investing and the assets managed by the industry are rising. People, politicians, economists and commentators should not overly analyse the cost benefit of demonetisation or the fact that 99 per cent of demonetised notes are deposited back in the banks.

The larger benefit of the call – we are less cash dependent today. We will be a fast mover to a cashless society. The government has taken several measures to end black money, and its efforts are commendable, something that nobody can take away. There’s a lesson here for all of us—seek out and understand information that disagrees with our existing belief. Talk to people who don’t share your opinion, and listening to their reasoning rather than arguing your own point. Remember, the iconic film Sholay was written off by critics, who now eat their own words, as the film that was released 4 decades ago has a cult following across generations.

The argument that nobody knew what the impact of demonetisation would be is akin to nobody knowing how despite the Mumbai rains earlier this week, people were back to work the next day or that life in flood-hit Bihar and Assam is coming back to normal. There is something called the spirit of Indians which is oft repeated and that is actually changing the outlook of money – black or white, digital money is here to stay.


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