Beyond the conundrum
With reference to the editorial, “The demonetisation puzzle” (November 7), if we consider the note ban exercise in isolation, it appears to be a conundrum extraordinaire. The cost of disruption clearly outweighed the intended objectives in the short term. However, if seen as a piece in a jigsaw puzzle, the economic events and measures unfolding in the aftermath of demonetisation are not that surprising.
It is a no-brainer that the menace of black money cannot be wished away by simply banning old high-denomination notes. Instead, a multi-pronged approach covering the structural issues has to be adopted. The government has decided to address the bigger issue of corruption and black money in a comprehensive way, covering both short-term and longterm measures. Continued stress on digital payment, deregistering of shell companies and a sharp focus on benami properties point to such an approach.
Implementation of the goods and services tax, with a resolve not seen in the past, indicates the government’s intention to make the overarching taxation architecture transparent and technology-enabled. No doubt, it is still a work in progress and the teething troubles of varying intensity will get smoothed out over time. With a high proportion of people coming into the tax (both indirect and direct) network, the government will have more leeway to make the tax structure less burdensome and thereby obviate the propensity to evade taxes.
Economic decision-making, especially of the nature and proportion of India’s demonetisation gamble a year ago, is fraught with unknowns and hence could entail serious consequences. Yet, a year is not enough to judge the efficacy and impact of such a measure on the economy and on the behavioural dynamics of people.
When demonetisation is seen as part of several reforms, it becomes easier to appreciate its limited role, at least in the short term.
Santanu Sarma Barua Mumbai Letters can be mailed, faxed or e-mailed to: The Editor, Business Standard Nehru House, 4 Bahadur Shah Zafar Marg New Delhi 110 002 Fax: (011) 23720201 · E-mail: letters@bsmail.in All letters must have a postal address and telephone number