Demonetization : Can we kill Godzila with an Arrow?

Class 8th economy lesson taught us

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This is what this govt has done. This current move of demonetization is nothing but killing a Godzila with an Arrow. Yes you can kill with arrow, but you have to be lucky.

I may be sounding skeptical by just reading heading of this article. I am not at all against the measures taken by this current government to curb Black money. Its Because of series of efforts of this current govt , that india has improved its rank from 100th to 76th in corruption.

Total size of Indian Black money in India is approx 23% to 26% of GDP. Almost 1/5th of total Indian economy is unaccounted. Out of the total Black money, Interestingly,  just 12% to 15% is in the shape of cash, rest all is in the shape of Benami properties, P Note , Bullions, Gold,  Foreign bank deposit etc etc. Recent reports shows that Indians  deposit in swiss bank is 1.4 trillion Dollor. This current demonetization will have Zero impact on this 85% of  black money.

This clearly means that, demonetization of Rs 500 and Rs 1000 is going to hardly curb just 10%to 15% of this Black money segment, until its followed with drastic steps to curb reemergence of this menace as it happened in 1978 after demonetization of 1000 and 5000 notes. With in no time the same will be replaced by new notes of Rs 2000. This kind of measure temporarily, may help to only paralyze a little but can not kill Godzila.

 After the public relations effect of Modi’s address to the nation wears off, it will be back to business soon. Politicians and Businesses across the country who have influence over cooperative banks will have enough time to change their notes and get fresh 2000 rupee notes which will be easier to carry in smaller gunny bags. Therefore this demonetising 500 and 1000 rupee notes is not going to change much at ground. In fact, election next year in UP Punjab and Gujarat will see bundels of freshly printed 2000 rupee notes delivered by all  political parties.

The government today is effectively saying it wants a cashless economy. The millions of small traders, farmers and workers in the informal sector who works in by and large honest cash economy are scrambling to get their few thousand rupees changed. Where as the dishonest cash economy controlled by big business is allowed to continue and thrive. They can continue to over-invoice imports, use the stock market route to generate black money.and they do not use cash too.

In any case,  you can’t transform the basic structure of the black economy by such one-time measures. We have had demonetisation in the past too but the basic structure of the parallel economy did not change. That continued to thrive and flourish and will continue to thrive and flourish until drastic measures are taken to break the nexuses of Politician and Business houses.

minocha-ji

By Pramod Minocha

President, Roatary Club Faridabad Green

President GREFA

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