But the planning and execution has certainly left a lot to be desired. As we wrote recently, of the Rs 15.4 trillion of black money in circulation before the move, Rs 15 trillion is likely to return to the banking system. The much-hyped revolution could at last turn out to be much ado about nothing...
Until you take note of the casualties.
Namely: money, time, and resources
Printing new currency...people in queues rather than at work...loss of lives and livelihoods...abandoned projects - a lot has been sacrificed for the failing experiment.
The biggest blow has been to the rural economy and the small players in the unorganised sector. The informal sector runs mostly on cash and accounts for 48% of India's total output and 80% of employment.
The GDP growth rate comes next. And we believe that the pain will be worse and more prolonged than predicted. The move could even delay the implementation of GST. Low deposit rates for savers are already a reality.
One can gauge the government's confidence by the turn the narrative has taken in last one month - from demonetisation to a cashless economy.
Parts of India have indeed been rendered cashless... and helpless. And the elephant in the room is political funding that happens mostly in cash and is unaccounted.
Meanwhile, a new twist emerges...
Thanks to the latest amnesty scheme, the crooked will be allowed to come clean if they declare their unaccounted income and pay a penalty of 50%...and then keep the other 50%. If they had the sense to invest this unaccounted income in assets, even better. The honest taxpayer is made to look like a fool.
From threats of tax plus 200% penalty on deposits, Jan dhan account holders who helped convert black money into white for a 'cut 'are now being openly encouraged by Mr Modi (as suggested by his speech in 'Parivartan' rally in Moradabad, Uttar Pradesh). Those who weren't a part of this laundering scheme must be wondering how they can get in on the action.
No one is asking what happened to the pre-election claims of bringing back black money stashed abroad. Nor is anybody asking what demonetization does to target black money stored not in cash but in assets such as real estate and gold. And how about preventing the creation of black money in the future?
- 'It's easier to fool people than to convince them that they have been fooled.' - Mark Twain
- 'Only when the tide goes out do you discover who's been swimming naked.' - Warren Buffett
- The above is from Richa Agarwal of Equitymaster.