This article has been written by Amrit K.N. Pradhan. Amrit is a student at Rajiv Gandhi National University of Law, Patiala.
I was only able to open my brains out after getting on track to appear for my CLAT (2015) examinations. It involved multi-various way of preparations. Mine was largely based on getting hooked-on to The Hindu and two dozen of Non-fiction books. Getting into a National Law University was next step on the ladder.
Divulging views are like an alarm clock; they take you out of your ‘comfort zone’. At the same time, it also offers you the option of waking up to the world or setting it on snooze mode. Similar is the strands of views of people on the initiative of ‘Demonetization’ lead by PM Modi to dismiss Rs.500(introduced in 1997) and Rs. 1000 (introduced in 2000) as legal tender. In its place, new form of Rs. 500 and Rs. 2000 notes will be issued as legal tender.
Initially, there will surely be hindrances in the economy in the ‘very short-term’ as duly acknowledged by the PM. But short-term pain will also result in long-term gain for the Indian economy.
The quirky press conference addressed by PM Modi was out-of-the-blue. It was ‘nothing like anything’ of the previous PR events organized under his helm at the Race Course Road. This major ‘surprise’ was, however, an impressive way of starting his helm at the newly named Lok Kalyan Marg.
It caught majority of public off-guard and set them on a whirlwind late-night emergency tour across the ATMs till late into the morning. It also set cat-among-the-pigeons of bullion traders in the informal market (similar would be the case of diamond traders in Surat who do their daily deals majorly in hard cash form.), informal securities market (dabba traders), our nearby kirana stores among others. The I-T Department was also quick on its feet by raiding these informal ‘black money’ handlers into the early hours of next morning (Nov.9).
This step surely will prima facie in the short-term take out wipe out ‘black-money’ of the economy for a temporary period. Other major benefits to be accrued of such a major ‘brave policy’ initiative is mentioned ahead.
The palpable change which has occurred with the change in regime at the Centre is in the ‘visibility quotient’ of Leader of the fastest major economy in the world. Remember the Madison Square Garden event, a first of many International diasporic events organized to strike a chord with the Indians residing abroad. Not only strike a chord, but also hope they would return to avail the ‘transforming era’ in the country and ultimately serve their motherland.
This ‘Demonetisation’ surprise was his eccentric way of trying to turn black money into white. Not only black money into white, to help the Indian economy reach its full potential when private investment is at an all-time low since the 1991 Reforms. The Government however commendably has plugged in this gap by increasing its role in the market by way of public investment.
The inability of banks to advance loans to the private sector due to previous advances turning bad (known as ‘Non-Profitable Assets.) has been a major clog in attracting private investment.
Public investment, however, has a limited scope in the future. Limited scope due to the Centre’s aim of maintaining a 3 per cent Current Account Deficit (CAD = value of Exports – value of Imports into the country.) in near future. The latest statistics of the Reserve Bank of India (RBI) show a positive picture and room for the government to pump in more investment in the economy. In April-June quarter of FY17, India’s CAD was0.1 per cent in deficitcompared to 1.2 per cent in the last quarter of FY16.
Under the previous regime of RBI commander-in-chief Dr. Raghuram Rajan the policy of issuing license to payment banks was introduced. It allows users to deposit up to Rs. 1 lac in these accounts and earn interest. It however, does not allow these ‘payment banks’ to forward loans to customers.
This step was a complementary step in equation with Jan Dhan Yojana of the Central Government which allowed opening bank accounts for free for rural consumers.
‘Creative Destruction’ (Regards – Schumpeter)
The likes of PayTM, Mobikwik, Freecharge (now-owned by e-commerce major Snapdeal) will be delighted with the step (first signs visible of their delight when one of these companies acknowledged the PM through newspaper adverts). This ‘brave act’ by Modi will mean the ‘creative destruction’ of black money will be achieved (even if marginally) through the innovative e-wallets of various payment banks, albeit in the short-term. But surely setting up the platform to eradicate in the long-term.
It is calculated among anonymous sources that around Rs. 30,000 crores of daily trade occur in the economy in form of ‘black money’. In the long-term, it will need other transformations in the economy in form of easing accounting standards, tax structure (GST will surely help.) et al.
A good start, but a long way to go. (Meanwhile, Snapdeal has come up with an innovative way around COD or cash-on delivery users by offering ‘Wallet on Delivery’, wherein those customers availing this facility will pay through their wallet on delivery of their consignment.)
The November book bucket