We came to know that Modi can take bold and tough decisions. But
political mastery does not necessarily equate with mastery over economics. So
the benefits of demonetization were overestimated and the inconveniences were
underestimated by his close aides. And they had to learn hard way that poor
execution can spoil a good strategy. Newly printed Rs.2,000 notes became an
exchange for black money and created a large scale corruption. It proved that the
majority of Indians are not ready to pay taxes they owe to the system.
Let us look at the negative effects first. Take a glance at
credit growth rates, it shows that it has gone to 50 years low. Bad times for
banks. Vehicle sales have plummeted. Construction industry is seeing a set
back. What India badly needs is job creation but the jobs are being lost as the
mass employing sector like construction is seeing a set-back. You think it is a
temporary phenomenon, well, it is difficult to estimate when the turnaround
will come. Forget growth, going back to past levels of valuation will take
couple of years for the real estate industry, so there is not much motivation
for investors.
There are many positives too. Interest rates are down, inflation
is under check. Money in banking system has gone up. Cash to GDP ratio is
reduced. Tax collections will see an upside. Indians learnt to use Paytm. Debit
cards are not limited to withdraw cash at ATM’s and consumers as well as
retailers are demanding for use of POS machines. All these will help offset the
negative impacts over few years period. Unless monetary system is tampered
again, India would absorb this shock and post higher growth rates.
Collectively, over a period of years, benefits may over weigh the
injuries done by the demonetization. But the expectations were set very high
that India would be clean in 50 days, which was quite unrealistic.They digged
for Gold but what they found was Copper. It too has some value.
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