DE­MON­ETI­SA­TION EF­FECT

SMEs HIT HARD, IN­DIA STILL A CASH ECON­OMY.

Business Today - - CONTENTS - By PROS­EN­JIT DATTA IL­LUS­TRA­TION BY RAJ VERMA @pro­saicview

SMEs hit hard, In­dia still re­mains a cash econ­omy.

THE RE­SERVE BANK of In­dia an­nual re­port says that 99.3 per cent of the high value notes that were de­mon­e­tised have come back. It also says that peo­ple have started keep­ing their sav­ings in cash again. Mean­while, the in­tro­duc­tion of new cur­rency notes, with the much touted se­cu­rity fea­tures, has not stopped the pro­duc­tion and cir­cu­la­tion of fake cur­rency. Other re­ports on the RBI web­site show that Small and Medium En­ter­prises (SMEs) were hit pretty hard be­cause of de­mon­eti­sa­tion when it came to get­ting credit. (A Mint Street Memo on the RBI site says that de­mon­eti­sa­tion hit an al­ready de­cel­er­at­ing credit growth to MSMEs). The other stated ob­jec­tives of de­mon­eti­sa­tion -- from re­duc­ing cor­rup­tion to be­com­ing a less cash econ­omy – have only been par­tial suc­cesses. And whether the gov­ern­ment economists and min­is­ters agree or not, the growth in GDP fell quite sharply post de­mon­eti­sa­tion. (Some economists still de­fend de­mon­eti­sa­tion say­ing that it can­not be proved that growth fell be­cause of de­mon­eti­sa­tion, though they have failed to give explanations on what else caused the growth to fall). The loss in pro­duc­tiv­ity, the cost of print­ing new notes and re­cal­i­brat­ing the ATMs were not in­signif­i­cant ei­ther leav­ing aside the loss of lives and hu­man suf­fer­ing it caused. The sole ben­e­fit of de­mon­eti­sa­tion is prob­a­bly the rise in di­rect tax com­pli­ance, though whether that in­crease needed a dras­tic mea­sure such as de­mon­eti­sa­tion is de­bat­able.

Per­haps that is why Prime Min­is­ter Naren­dra Modi did not men­tion de­mon­eti­sa­tion among the list of achieve­ments in his In­de­pen­dence Day speech. By now, it would be ap­par­ent even to him that for­mer RBI gov­er­nor Raghu­ram Ra­jan was right: the short term eco­nomic costs as­so­ci­ated with such a de­ci­sion was far higher than any long term gains.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.