Almost every discussion on the social/virtual or actual meet-ups and get together is about the demonetisation of Rs 500 and Rs 1000 notes. I hear many passionate outbursts about the fact that this sudden cash crunch will be terrible for the economy and would lead to severe slowdown and on the other hand there are some who seem absolutely convinced that this move could surely herald a new phase in the country’s growth curve.
Though I am no economist and would not dare to give any estimate or projections, something what a well known institutional investor said a few days back, made a lot of sense. Samir Arora of Helios Capital tweeted, “People with black money lose as their cash has no value, people with white money lose as stock market crashes, when all lose, no one loses……smile.” Well well please don’t be in a rush to assume that I am supporting the fact that we are all losing. No,, not at all. What I appreciate the fact is that even if it is momentary, without long-term benefits and poll gimmickry (as many believe), suddenly the average tax payer is basking in the glow generated by the premium on honesty now.
A recent conversation with an auto driver and for that matter my regular dialogues with the maid, milk man and all those people were real eyeopeners. While the handloom clad, elite voices would have us believe that the average and under-privileged section of the community are being highly inconvenienced, it took my vegetable vendor to clarify how a majority of these parallel service economies in the rural and urban areas are credit driven and this temporary cash crunch is not capable of making a huge dent. So you can question is my vegetable vendor ‘voice of India’? Of course not but surely it is indicative of a trend prevalent in certain sectors that I was unaware till date.
As the mobile micro ATMs started by various banks did the rounds of the office areas for the convenience of the average office goer, it was heartening to know from many how several auto drivers and cab operators are open to accepting electronic transfers. If India is moving towards a digitised future, you have to accept that this is that indispensable part of our society that also has move forward matching steps with all of us who have already started taking our baby steps towards it.
I took the opportunity to read up on some of the key facts highlighted by leading economists over the last few days. Most are of the opinion that “demonetisation could lead to double digit growth over the longer term as more of the informal economy becomes formal.” A country that has a dubious distinction of being amongst the top 5 countries witnessing illegal financial outflow, it is not hard to imagine this.
Of course short-term disruptions can’t be wished away. Most economists believe that the current liquidity situation is worrying and unorganised trade and the proceedings there would remain volatile in the short-term, the economy is likely to gain momentum in the medium to long-term. Of course sectors with direct linkages to unorganised trade like consumer durables, commodities and agriculture are all likely to feel the heat and consumption levels on an average would slump significantly in the shorter term. However the positive aspect as most bring to light is that there is slow and subtle nudge to change and absolutely reset the entire spending pattern towards a more and more self servings and cashless economy and that could in itself create growth avenues within the economy.
Most foreign investors have also welcomes this move citing the almost instantaneous impact it will have on the bank recapitalisation drive, NPAs would come down as cash comes in and CASA levels will rise higher. CASA implies the Current account and savings account levels. Interest rates too as a result are expected to move southwards eventually. Of course it goes without saying that the Government cannot just sit idle and relax, it has to continuously work towards maintaining the momentum and helping the economy recuperate from the blow it received.
Well am I convinced by these points and counter points? For me I would rather be part of the group that can proudly claim to my son yes I participated in the entire exercise of nation building and did not mind dealing with the short-term inconveniences. I live in the hope my son will live in a far less corrupt and skewed up economy than what I grew up in! What if I failed, at least I know I was in the group that tried its best and did not just rant.