Demonetisation is not some minor inconvenience. Its shoddy implementation has caused a financial emergency. Unless strong and urgent steps are taken to mitigate its impact, it could amount to economic genocide. Going forward, here are five things to consider about its impact on the economy:
1) The 50-day jumla
: The government has asked the country for 50 days of inconvenience before the proverbial and mythical "achhe din
" arrive. One can't be sure if this number is a consequence of incompetence or duplicity. Let's do a reality check.
Reliable estimates, including from former Finance Ministry officials, suggest that working at full capacity, the country's currency mints can print close to three billion notes per month. Since 15 trillion notes have been taken out of circulation, at this rate, it will take almost a year for currency supply to return to the pre-November 8 normal.
2) The missing rural banks: Printing currency notes is only the first step. Making sure they reach every village and basti
is a much larger battle. 80 per cent of Indian villages do not have banks. Most areas do not have round-the-clock power or mobile connectivity for a Point Of Sale device. Not every household has access to a bank account.
Like a broken record, the government continues to pivot to Jan Dhan bank accounts as a solution, but the reality on the ground is very different. For example, it is near impossible for migrant workers to open bank accounts as banks require certification of a local address over and above the Aadhaar card. Are these people to be left to their own devices?
3) The economic shock: The high-value Rs 500 and Rs 1,000 notes were not just a store of wealth but also widely used for transactional purposes. In the absence of cash, economic activity over the next few weeks and months is going to be very sluggish. Sales of certain goods have already declined by over 50 per cent. Retail and hospitality, especially small eateries, where customers don't have credit cards to flaunt, have suffered.
Daily labourers are unable to get work. Farmers are encountering difficulties in selling perishables. The credit supply chain has broken. All of this will result in at least a three per cent dip in GDP growth this quarter. How long the recovery will take is difficult to estimate with the country gearing up for GST implementation. It is clear that we are headed towards times of great economic uncertainty.
4) The welfare shock: If one considers the hundreds of millions of Indians who are just above the poverty line - not absolutely poor but not rich or even middle class - one realises that just one major illness could drive such a family back into poverty. Health expenses also contribute, studies have suggested, to farmer suicides.
The Delhi farm-house crowd, whose thinking dominates the BJP-led government as it had many previous governments, has no idea of how people in actual farms live and how vulnerable are those dependent on the cash economy. A daily-wage worker faced with the cost of standing in queues for usable cash and losing a day's worth of wages - or maybe several days, since many people came back to queue up day after day after repeated disappointment - will invariably be forced to borrow from informal lending networks to bridge the gap.
This "short term inconvenience" caused by demonetisation will do to these families exactly what an unplanned medical situation, drought, flood does to them - push them back into debt traps and impoverishment. Informal credit networks exist in our villages, but charge Shylock-like interest rates. The government has just given a business stimulus to our home-grown Shylocks.
5. Stifling small businesses: Inadequate supply of cash has coerced anyone with a debit card and/or smart phone with Internet access away from his or her neighbourhood grocery and retail store - to a big store or e-commerce platform. Small businesses that have been fighting against FDI in retail have been dealt a heavy blow from an unexpected quarter. They are the silent victims of demonetisation.
On the other hand, e-commerce platforms that were thus far spending sizeable amounts on customer acquisition have been presented with a windfall of new customers. Small businesses are reporting declines in sales of 60 per cent and more. Many of these businesses will not survive the cash crunch. For the ones that do, regaining lost customers will remain an uphill battle. Their business model will be crippled forever.
The government has to be answerable for all this and the leadership of the government needs to give an explanation for such a situation in parliament. Making that demand, as the Trinamool Congress and the opposition have been doing, is fair and legitimate. The government cannot respond with just slogans, jargon, hilarious app surveys and fantasy.
Epilogue: The world's greatest mobile app poll. He sets the questions. He gives the options. He decides the points. He checks the paper. He announces results. Hubris: excessive pride or self-confidence before nemesis.Derek O'Brien is leader, parliamentary party Trinamool Congress (RS), and Chief National spokesperson of the party.Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.
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