Demonetization: A Political Suicide or a Masterstroke
November 8, 2016 marked a day in the history of Indian politics and economy. The Prime Minister announced a move that effectively turned 86% of the cash in circulation into literal ‘pieces of paper’. The days after that have been followed by frenzy, discussions and constant changes of rules by RBI leading to widespread confusion.
The purpose of the move was threefold:
- Tackling the issue of hoarded black money
- Crackdown on the counterfeit currency industry
- Promoting a cashless economy in view of digital India
It is widely known that barely any ‘black money’ stays within the shores of India and that too, in the form of cash. In the hopes of finding hoarded cash under beds, the Indian Government effectively overturned the entire nation. With reports suggesting that almost 14.5 lakh crore has been deposited out of the expected 15 lakh crore, it is quite clear that the costs of this overturning have been far more than the returns. It is, however, important to note that the Income Tax Department is still investigating and if not anything else, more people may declare their actual income from now onwards.
The crackdown on counterfeit currency, on the other hand, has been quite effective so far. By being strapped of funding, the rebel groups in Jammu and Kashmir have quieted down. Same can be seen in the case of Naxalites where lack of cash has strapped them of their abilities to conduct their rebellious operations. However, this industry is likely to bounce back after this setback in the far future.
The third purpose of this move has seen the highest response and also seems to be gaining momentum as the purported purpose. The Prime Minister has been promoting the idea of a digital economy and cashless transactions with full gusto. We can expect more accountability in transactions, the reduction in the unorganized labor sector and promotion of the cashless economy.
The non-attainment of the primary goal, that is, attacking the black money hoarders, makes the move ineligible to be called a ‘masterstroke’. However, it certainly was no political suicide as the support for the ruling party still remains strong.
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