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Demonetisation was a very bold decision and such a step could have only been taken by a prime minister like Narendra Modi who came to power with a massive mandate. Demonetisation is not a small reform. It is a complete overhaul of the economy. It is a risky move but it will ultimately succeed. There will be problems initially but India will emerge stronger after this.

Addressing the menace of black money is one part of the demonetisation process. The other part is digitization. Bringing the parallel economy into the formal system will give a boost to tax revenues.

The cash crunch that followed the government’s announcement could not have been avoided. The government could not have printed the notes beforehand to ensure secrecy. This was true especially for the new Rs500 notes. The Rs2,000 notes were printed but people were finding it difficult to accept change. But the situation has eased as supply of new notes has increased.

What the government probably did not foresee is the massive scale of involvement of bank officials in conversion of this black money into white money or the massive increase in the deposits in the Jan Dhan accounts. But the central government has been actively dealing with this issue now.

In states like Bihar and Odisha, availability of cash is not a major problem unlike some of the major urban centres. The rural areas are seeing increased levels of rabi sowing. In a state like Bihar, cooperative banks are very few and agricultural loans given by them are less than 1% of the total agricultural loans given by the banking system. Because of this, the impact on the agricultural sector has been limited. The small shopkeepers were initially hit. But the situation is normalizing and their turnover now is around 80% of pre-demonetisation levels.

Revenues of the central and state governments will also increase in the long term on account of demonetisation. It may not happen in the near future as there will be teething problems. Even in the case of another major reform like the goods and services tax (GST), there will be problems in the first one year as everyone will move towards a new system.

Demonetisation has impacted state revenues, especially the land registration department as property registrations have seen a big fall. This is mainly because of the huge component of black money in such property transactions. States will see an impact on their revenues in November and December but things should normalize after that. States like West Bengal and Kerala have tried to use demonetisation as a reason for delaying GST rollout. The centre does not want to push through a decision in the GST council through voting and is instead trying to build a consensus.

The opposition by other parties to the central government’s decision to cancel the legal tender of the old Rs500 and Rs1,000 notes is purely political. They tried to encash on demonetisation but could not get the public’s support. If the public were enraged, there would have been riots and looting.

Nitish Kumar (chief minister of Bihar), sensing the ground reality and the positive feedback to the Modi government’s move, has supported demonetisation, thereby increasing his stature. He is trying to portray himself as a leader who is different from a Rahul Gandhi or a Mamata Banerjee.

The poor and downtrodden are happy with demonetisation because the rich tax evaders have suffered a big loss. The middle class has been impacted to some extent. There have been some job layoffs in small-scale industries. But this retrenchment is for a short span. In one or two months, this situation will improve.

It is not that the cash economy will get wiped out completely from rural areas. But even if a small proportion moves to digital, it will be a big change in the economy.

Till around two decades ago, the level of mobile penetration that has been achieved today was unthinkable. But today every person—irrespective of whether he is rich or poor, lives in an urban or rural area—has a mobile phone. So even if we manage to increase digital transactions to around 40-50% of all the transactions, it will be a big achievement.

Narendra Modi, the Bharatiya Janata Party and the National Democratic Alliance will get political dividends from demonetisation. But ultimately, the biggest gainers will be the common people and the nation as a whole.

Sushil Kumar Modi is the former deputy chief minister of Bihar and a leader of the Bharatiya Janata Party.

As told to Remya Nair

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