The Good & the Bad of Demonetization
By: Amit Bhushan Date: 12th Nov. 2016
The Demonetization was hailed as a masterstroke on day by most studio Journos with a few exceptions. Now with the chaos in major cities regards non-working or malfunctioning ATMs (due to note fitment issue) and Branches unable to handle crowds, the rhetoric seem to be changing. Basically, the tenet of not getting into the skin of Aam Admi by politicians and journos remain intact and the reason of increased chaos is being blamed on lack of planning mostly about the size/scale of change alone. We may still not be having the view of the villages and what is Kisaan household who is habitual of selling produce for Cash making of such a move. While lack of planning it indeed is, however it is more about a lack of full appreciation about ‘game’ and how different people segment are likely to react tackling the situation while just looking at the black and white economy segments in segregated manner.
What has happened is many people such as small shop keepers and many households are now planning to pay their staff by cheque even if for a temporary period. This implies an additional score of people who would otherwise not visit banks, will now try to get withdrawals as well as get some of their cash exchanged. Now this might be a good thing for the economy per se although people may still not be clear about the legal implications of such a move over the long or even the short term. Similarly, a number of small services businesses such as Home Décor, small food joints/Dhabas etc. may also be constrained to explore such options but their voice/queries remain unanswered as the journos would want to focus on what may be broadly visible and of political interest alone. Such a move may not be bad for the economy, but is not being explored or encouraged.
What may be bad is people with life events like marriages, death, health issues or similar familial problems which need immediate support may have been left in rather tight situation where even their loved ones may not be able to help as they might be battling their own issues related to currency exchange. While some of it is being attempted to be mitigated through scaling up of Cards and wallet transactions, however people may still not have access to such instruments and providers within easy reach due to numerous issues. What the confusion in media depicts is a lack of understanding of the drivers of various events. To the extent that such events remain unsolved, it is a cause of frustration and disenchantment which is sought to be highlighted. And then of course we have a huge lot of people being burdened with the task of rather unproductive or more precisely remunerative work of seeking the exchange of notes which otherwise would not have been required. Now this may be the rather challenging part of the drive.
As long as the government can unearth a significant amount of black money or the economy can rid itself off this significant amount even if not unearthed in the traditional sense, it is likely to improve the overall opportunity spectrum for the tax compliant guys and would be better for the economy even if there are no political dividends as being sought by some leaders while the punishment being sought by others. However this may require the government and media as well as service providers to concentrate on the guys who have not supported banking transactions because of perceived inconvenience to the lower classes not comfortable with large bureaucracies like the banks, where they do not resonate in languages they may be comfortable with. Some incentivization as well as required clarifications may be the need of the hour as some education and information flow may already be happening. Banks also seem to be seized with current chaos to concentrate expansion of bank and anyways have nearly always perceived such customers as burden rather profit segments probably for reason that the more cash rich customer have same interest rates as ones with low deposits and the richer customers do not easily switch to banks offering higher interest rates on account of brand perception issues.
So some further changes in banking may help in greater push besides banks becoming more aware of different social segments and right marketing of right product. This is just to push the white economic segment to deepen its roots and reducing the opportunities for the black segment to easily canvass business from such segments and accumulate money in the process by camouflaging transaction (either there overall number or size or both). Some incentives like government negotiating a bulk rate with banks for free installation of Point-of-Sales machines for 3 years at retail outlets, so that creation of black money can be curtailed. It helps that now a complete card payment infra for debit cards is ready even if not for the credit cards presently.
While the government may have shown some perceived resolve to drive against Black money, however barring some initial hic-ups what such a drive might achieve in terms of tangible gains for the Aam Admi may still require to be underlined. There is noise about raids, but not about the black money being unearthed as of yet. This is even as people with unscrupulous money are being perceived as being made handicapped by such a policy, but in need to validate such a perception by bringing forth people moving towards compliance or being caught in panic. While the government may show gains in coffers as this revenues for some of the corporates may swell, but that may happen quite far away and the benefits to people might again be a talk show, if at all.
By: Amit Bhushan Date: 12th Nov. 2016
The Demonetization was hailed as a masterstroke on day by most studio Journos with a few exceptions. Now with the chaos in major cities regards non-working or malfunctioning ATMs (due to note fitment issue) and Branches unable to handle crowds, the rhetoric seem to be changing. Basically, the tenet of not getting into the skin of Aam Admi by politicians and journos remain intact and the reason of increased chaos is being blamed on lack of planning mostly about the size/scale of change alone. We may still not be having the view of the villages and what is Kisaan household who is habitual of selling produce for Cash making of such a move. While lack of planning it indeed is, however it is more about a lack of full appreciation about ‘game’ and how different people segment are likely to react tackling the situation while just looking at the black and white economy segments in segregated manner.
What has happened is many people such as small shop keepers and many households are now planning to pay their staff by cheque even if for a temporary period. This implies an additional score of people who would otherwise not visit banks, will now try to get withdrawals as well as get some of their cash exchanged. Now this might be a good thing for the economy per se although people may still not be clear about the legal implications of such a move over the long or even the short term. Similarly, a number of small services businesses such as Home Décor, small food joints/Dhabas etc. may also be constrained to explore such options but their voice/queries remain unanswered as the journos would want to focus on what may be broadly visible and of political interest alone. Such a move may not be bad for the economy, but is not being explored or encouraged.
What may be bad is people with life events like marriages, death, health issues or similar familial problems which need immediate support may have been left in rather tight situation where even their loved ones may not be able to help as they might be battling their own issues related to currency exchange. While some of it is being attempted to be mitigated through scaling up of Cards and wallet transactions, however people may still not have access to such instruments and providers within easy reach due to numerous issues. What the confusion in media depicts is a lack of understanding of the drivers of various events. To the extent that such events remain unsolved, it is a cause of frustration and disenchantment which is sought to be highlighted. And then of course we have a huge lot of people being burdened with the task of rather unproductive or more precisely remunerative work of seeking the exchange of notes which otherwise would not have been required. Now this may be the rather challenging part of the drive.
As long as the government can unearth a significant amount of black money or the economy can rid itself off this significant amount even if not unearthed in the traditional sense, it is likely to improve the overall opportunity spectrum for the tax compliant guys and would be better for the economy even if there are no political dividends as being sought by some leaders while the punishment being sought by others. However this may require the government and media as well as service providers to concentrate on the guys who have not supported banking transactions because of perceived inconvenience to the lower classes not comfortable with large bureaucracies like the banks, where they do not resonate in languages they may be comfortable with. Some incentivization as well as required clarifications may be the need of the hour as some education and information flow may already be happening. Banks also seem to be seized with current chaos to concentrate expansion of bank and anyways have nearly always perceived such customers as burden rather profit segments probably for reason that the more cash rich customer have same interest rates as ones with low deposits and the richer customers do not easily switch to banks offering higher interest rates on account of brand perception issues.
So some further changes in banking may help in greater push besides banks becoming more aware of different social segments and right marketing of right product. This is just to push the white economic segment to deepen its roots and reducing the opportunities for the black segment to easily canvass business from such segments and accumulate money in the process by camouflaging transaction (either there overall number or size or both). Some incentives like government negotiating a bulk rate with banks for free installation of Point-of-Sales machines for 3 years at retail outlets, so that creation of black money can be curtailed. It helps that now a complete card payment infra for debit cards is ready even if not for the credit cards presently.
While the government may have shown some perceived resolve to drive against Black money, however barring some initial hic-ups what such a drive might achieve in terms of tangible gains for the Aam Admi may still require to be underlined. There is noise about raids, but not about the black money being unearthed as of yet. This is even as people with unscrupulous money are being perceived as being made handicapped by such a policy, but in need to validate such a perception by bringing forth people moving towards compliance or being caught in panic. While the government may show gains in coffers as this revenues for some of the corporates may swell, but that may happen quite far away and the benefits to people might again be a talk show, if at all.