Demonetisation its Effects on the Indian Economy

Demonetisation is one of the major revolutionary initiatives undertaken by the current government under Mr. Narendra Modi

While there are three groups of people who are watching the events taking place in our country. Those who are the worried lot, the other group which is not effected as hard as the worried lot and the third group who are fence sitters who are unaffected and are viewing the next chain of events going to take place after the initial fortnight. While the Prime Minister has clearly asked for 50 days by which time he claimed he will more are less settle the major problem and the economy will absorb the shock treatment and start bouncing back when remonetisation starts taking place. There are plenty of loopholes to he plugged by taking action as quickly as possible. The success of the major reform on which the government has staked its credibility and the people all over the country especially the poor and the lower middle income groups has made a great sacrifice going by the Prime Ministers words. Now the time to deliver has come and the government should make sure that the implementation which they tried to do to the best of their ability has been found wanting and actions to developing situations have been slow to come by, they have a chance to improve on the record of the past fortnight as they would have got a hand on the events by now and should be able to steer the economy and reduce the difficulty to different sectors of the economy by giving impetus to restoring the situation which was in existence before this move was made on the 08th November 2016. A few suggestions which can be thought of and implemented are mentioned below:

1. The regular day to day announcements being made by Reserve Bank of India and Finance Ministry officials after consultation with the finance minister to improve the situation have to reach point of distribution to the end unit that is the beneficiaries at a speed of at least 10 times to the present timing.

2. Each and everything cannot be left for the Prime Minister to shoulder even though he would be pleased to do so as can be seen from his interactions with the people.

3. The points where there is some ambiguity have to be clarified so that the people and the opposition are satisfied. Peoples representatives who are elected have to be taken on page and the opposition should not also be wasting peoples time and money which is a criminal waste. Whatever the differences have to be sorted by the both the ruling and opposition in the parliament. There is no excuse for not letting parliament to not function. A new law has to be brought where people who are wasting tax payer money have to be made accountable and should not be allowed to get away with disruptive acts.

4. The industry and trade in all sectors industries is going to take a hit as there will be a major blip. The government should take preventive measures atleast three to six months in advance starting from 15 January 2017 to lessen the shock as it has a very negative impact physically and plays on the minds of the people.

5.Government should search for indirect ways of encouraging people to go for less cash and more plastic or e wallets by conducting gram sabha and similar programmes for people in semi urban and urban towns. The intention should be people should embrace change which is essential willingly than by coercion or force. Lots of media information and people to people contact is required by all political parties to effect this smooth transfer.

6. Banks which are now plush with funds must see to it that they reduce their NPA’s and lend at a interest level with 100 percent surety that funds will return with interest and people are served by loans when it is most required. They also have to innovate and market themselves well and come out with out of the box solutions as the success of this measure will depend on the banks, government, buearocrats who are the link between various agencies and departments. These people cannot work at a slow pace to face the challenge arising now.

7. Government should go after the big fish if peoples confidence is to be reposed in them as many are asking when are they going to be targeted. Government has raised the expectation very high and has to be careful to see that perception matches the reality on ground. They have to put the money where their mouth is. Plain talk will not help and will have a rebounding negative effect on democracy as a whole which is very dear to all Indians.

8. Some of the big sectors like real estate, manufacturing, poultry, automobile, land and pharmaceutical to name a few have to be given fresh impetus by injecting more funds.

9. India has to come forward with one more radical reform of removing all taxes and to have only a one time tax on all people staying in India in a particular financial year. It has to be per unit per rupee basis, the required mechanisms have to be worked out by the government as if thought about not is impossible. Where there is a will there is a way. This will help in eliminating corrupt practices as tax is one time and everything is digitized. Each product or service or anything which is traded or an income should be having a one time tax at the point of sale generation. Reducing tax and inspector raj along with coming hard on red tape and babudom will result in MAKE IN INDIA a strong reality as we are a big market. Macro and Micro economics and economies of scale with different ratios and analysis play a big role in this process and have to be tuned into a fine art.

10. Citizens of India should also feel comfortable paying a one time tax in a year which may be any where between 1 to 3 percent. If you have an economy which relies on income from tax it is a disincentive for people to save and will not allow money flow into India which is a negative trend which is to be stopped. So should be permit raj.

Hope this article was of use as this sort of a economic measure has been done only in military and dictatorship economies in small countries but never in a country like India with a huge population and a big geography and most importantly a democracy. It is a very good case study for economists and interested parties the world over. Every one is watching whether the government will rise to the occasion and this demonetisation process which is a big ticket reform succeeds. Any doubts raised regarding the same has to be clarified clearly in theory. practice and implementation.