While the jury is still out on whether the positives of demonetisation outweigh its negatives or vice-versa, here’s how I see it through an industry lens. First, the pros:
A shot in the arm for e-banking and e-commerce
What demonetisation helped immensely was the digitisation of the economy. The digitisation of the money transactions has gone up in the last few months. E-commerce has become an important pivot of growth for many. As digital transactions rise, there will be a lot more tax compliance. We are not close to seeing a cashless economy, but moving slowly to a “less cash regime".
Fence sitters would have started complying with tax laws
I believe there has been a substantial increase in the number of people under the tax net. Direct tax collections have been said to have risen in double digits. Also, with the centre’s severe implementation on demonetisation and following up on leads given by banks, there is a fear that has set in dealing with cash.
Warm up prior to GST implementation
Goods and services tax (GST), which followed demonetisation, expects all registered dealers to upload their sales and purchase transactions on the integrated GST Network. This would eventually enhance the visibility and enable higher compliance. Traders not accustomed to formal compliance needed to get their house in order for operating in GST. Demonetisation would have forced them to revisit their business models in the run up to GST go-live.
Having said that, it seems demonetisation success is suspect:
Loss of consumption
Demonetisation sucked the cash out of the system which temporarily impacted consumption for at least one quarter.
Huge disruption in trade
Demonetisation impacted a large part of trade ecosystem, which is used to doing business only in cash. No cash meant no business and would have certainly impacted small businesses and hampered employment.
Cash has come back…
Almost all the cash that was withdrawn has come back in the form of new currency. The Rs1,000 note has been replaced by Rs2,000 notes.
One wonders if it has made it easier to hoard black currency. So at the moment, one has to wait and watch if the positives of demonetisation outweigh the negatives.
Harsh Mariwala is chairman of Marico Ltd.