It’s been barely a week since demonetisation hit us, with 85% of notes in circulation turning invalid. Prime Minister Modi’s knock out decision is directed at a stark truth. Only about 1% of India’s population pays income tax. A drastic action was long in waiting and Effects of Demonetisation are clearly visible in the market.
A month from now, cash-based industries, both black and white will be moving back to normalcy. GDP growth will temporarily slow down, it is expected to hit the ground running, five-six months later. With a drastic reduction in consumption, this is bound to happen. Political parties will be hard hit, already there are whispers how the surprise decision occurred just before the elections and Punjab, Gujrat and Uttar Pradesh assembly elections won’t be the same this time.
At the other end, the poorest of India’s citizens and low-income groups will continue to be hard hit. The rich will be hit too, but the damage will be marginal. The middle class will be hassled for several months now. But there is a lingering hope that all this trouble is worth it, that things will get better. Modi’s appeal for patience and bearing ’50 days of pain’ addresses the middle class. But the everyday people, domestic servants, roadside sellers, dhaba owners and waiters will feel the pinch.
The 2000 rs note introduction is a quaint addition. The suspicion that it will be revoked to net black money, is a plausible reason for it. But a month onward, currency circulation is expected to return to normal. The long queues at banks and ATMs are expected to recede. Gradually, every little money source is expected to be accounted for. This ‘surgical strike‘ on black money has been described in media circles as ‘chemotherapy’ for the unaccounted money cancer. But complete eradication is still a long distant road ahead.
Let’s just say, we have made a stumbling, but important start.