effect of demonetization

While the government’s demonetisation drive will likely negatively impact the economy in the short term, it could help over the longer term propel economic growth into double-digit levels as more of the informal economy becomes formal and the Goods and Services Tax comes into effect, according to economists.

Another benefit from the drastic currency step could be a reduction of banks’ non-performing assets, a critical constraint that is holding up the flow of bank credit for private sector investment in the country.

“To the extent that there is shrinkage of money supply, conventional economics says that that should be deflationary,” said Ajit Ranade, Chief Economist of the Aditya Birla Group.

“It will lead to a contraction of output as well in the short run, so there will be an impact on GDP.”

“However, in the long run, say within two years, this move combined with the Goods & Services Tax legislation will help in a pick-up, and take the country's growth to double-digit levels,” said Girish Vanvari, Partner and Head, Tax, KPMG in India.

“The NPAs of banks will go down as the cash coming in will lead to higher CASA (current account, savings account), in turn declogging the system. Foreign investors have welcomed this as a bold move, and in the right direction.”

“More savings will enter the formal financial economy,” Mr. Ranade added. “India has a fairly high savings rate, but the financial part of that is low, so that is likely to go up. Then the exponential increase in all the cashless mechanisms like cashless wallets and online banking may also help in the formal part of the economy.”

Looking a little deeper at the sectoral impact, the view is that the demonetisation move will hurt growth in cash-heavy sectors like real estate, gold and jewellery.

“Interest rates will come down because the money will go to the banks and to some extent some of it will go to the government as taxes,” Indranil Sengupta, India Chief Economist at Bank of America Merrill Lynch, said. “Also, there is going to be a short-run demand shock. But a lower interest rate will cushion this to some extent. Once the RBI’s currency liability shrinks, we think they will have lower open market operations.”

Kotak Institutional Equities was of the view that the consumption of high-value items like jewellery or real estate will get impacted as these have been popular with those having unaccounted income or wealth.

“We believe small businessmen and self-employed professionals would make attempts to become a part of the formal economy over time by reporting higher income and paying full income and indirect taxes,” Kotak Equities wrote in a report.

Rate cuts

“We believe that additional measures like monetary stimulus in the form of rate cuts and liquidity infusion in the formal system will aid the economy in handling this situation in an appropriate manner,” according to Nimesh Shah, MD and CEO, ICICI Prudential Mutual Fund.

“As consumption will be hurt, there will be pressure on the repaying capacity of producers/sellers,” Motilal Oswal Financial Services wrote in a note to clients.

According to Anand Rathi Securities, demonetisation will be a logistical nightmare in the short term leading to a slowdown in consumer spending and likely decline in GDP over the next two quarters. However, the subsequent two years would see the gross domestic product register a sharp “hockey stick” revival, the securities firm wrote in a note.

The overall economic impact would include a likely appreciation of the rupee, a sharp slowing in inflation, the banking system getting a boost and real estate prices falling about 20-25 per cent before stabilising, according to the domestic brokerage. Stocks would benefit the most due to the gradual shift from physical assets to financial assets, it added.

A boost to farmers income

A boost to farmers income

Cabinet approves enhanced MSP for Rabi Crops of 2016-17 season
Announces Bonus for Gram, Masur, Rapseed/Mustard and Safflower cultivation

The Cabinet Committee on Economic Affairs, chaired by the Prime Minister Shri Narendra Modi has given its approval for the increase in the Minimum Support Prices (MSPs) for all Rabi Crops of 2016-17 Season. Further, to incentivise cultivation of pulses and oilseeds, in the country Government has announced a bonus on these crops, payable over and above the following approved MSP.

Commodity	MSP for 2015-16 Season (Rs / Quintal)	MSP approved for 2016-17 (Rs / Quintal)	Increase
			Absolute (Rs / Quintal)	percentage
Wheat	1525	1625	100	6.6
Barley	1225	1325	100	8.2
Gram	3500 (includes bonus of Rs.75 per quintal)	4000 (includes bonus of Rs.200 per quintal)	500	14.3
Masur (Lentil)	3400 (includes bonus of Rs.75 per quintal)	3950 (includes bonus of Rs.150 per quintal)	550	16.2
Rapeseed / Mustard	3350	3700 (includes bonus of Rs.100 per quintal)	350	10.4
Safflower	3300	3700 (includes bonus of Rs.100 per quintal)	400	12.1

The approval to increase MSPs is based on the recommendations of Commission for Agricultural Costs and Prices (CACP) which while recommending MSPs takes into account the cost of production, overall demand-supply, domestic and international prices, inter-crop price parity, terms of trade between agricultural and non-agricultural sectors, the likely effect on the rest of the economy, besides ensuring rational utilization of production resources like land and water.

The recommendation of CACP being the expert body, are generally accepted as such.  However, to incentivise cultivation of pulses and oilseeds, the Cabinet has decided to give a bonus of Rs.200/- per quintal for Gram, a bonus of Rs 150/- per quintal for Masur/Lentil and a bonus of Rs 100/- per quintal each for Rabi oilseeds viz. Rapeseeds/Mustards and Safflower, over and above the recommendations of the CACP. There is an increasing gap between the domestic demand and supply of pulses and oilseeds as a result of which reliance on import is increasing. Government has, therefore, announced this bonus on pulses and oilseeds to give a strong price signal to farmers to increase acreage and invest for increase in productivity of these crops. The increase in cultivation of leguminous pulses and oilseeds will also have additional environmental benefits as these crops are less water consuming and help in nitrogen fixation in the soil.

Food Corporation of India (FCI) will be the designated central nodal agency for price support operations for cereals, pulses and oilseeds. To supplement the efforts of FCI, the National Agricultural Cooperative Marketing Federation of India Limited (NAFED), National Cooperative Consumers' Federation (NCCF), Central Warehousing Corporation (CWC) and Small Farmers Agri - Business Consortium (SFAC) may also undertake procurement of oilseeds and pulses as per their capacity.

Background:

Besides increase in Minimum Support Prices (MSP) of Rabi crops, Government has taken several farmer friendly initiatives. These, inter-alia, include the following:

·         The Government had declared a bonus, over and above the MSP, of Rs 75 per quintal for Rabi pulses of 2016-17 marketing season, a bonus of Rs. 425 per quintal for Kharif pulses viz. Arhar, Moong and Urad, a bonus of  Rs 200 per quintal for Sesamum and a bonus of Rs. 100 per quintal for Groundnut, Sunflower, Soyabean and Nigerseed.

·         A new crop insurance scheme 'Pradhan Mantri Fasal Bima Yojana' has been launched by the Government. Under this scheme, the premium rates to be paid by farmers; are very low- 2% of sum insured for all Kharif crops, 1.5% for all Rabi crops' and 5% for commercial and horticulture crops. The new insurance scheme involves use of simple and smart technology through phones & remote sensing for quick estimation and early settlement of claims. The Government has also launched a Mobile App "Crop Insurance" which will help farmers to find out complete details about insurance cover available in their area and to calculate the insurance premium for notified crops.

·         The Government has also launched a scheme to develop a pan India electronic trading platform under 'National Agriculture Market' (NAM) aiming to integrate 585 regulated markets with the common e-market platform. Each State is being encouraged to undertake three major reforms - allow electronic trading, have a single license valid throughout the State and a single entry point market fee. It will also enable farmers to discover better prices for their produce. 221 markets in 11 States| have already been brought on the e-NAM platform.

·         Soil Health Cards are being issued to farmers across the country. These will be renewed every two years. The card provides information on fertility status of soil and a soil test based advisory on use of fertilizers. As on 30th September, 2016, 295.56 lakh Soil Health Cards have been distributed.

·         Under Pramparagat Krishi Vikas Yojna (PKVY), the Government is promoting organic farming and development of potential market for organic products.

·         The Pradhan Mantri Krishi Sinchai Yojana is being implemented with the vision of extending the coverage of irrigation 'Har Khet ko Pani' and improving water use efficiency 'Per Drop More Crop ' in a focused manner with end to end solution on source creation, distribution, management, field application and extension activities.

·         Government is focusing on improving production and productivity of crops such as rice, wheat, coarse grains and pulses under the National Food Security Mission.

·         A dedicated Kisan Channel has been started by the Doordarshan to provide 24 x 7 information in the hands of farmers regarding weather updates, agri-mandi data etc.

·         Government is encouraging formation of Farmer Producer Organisations.

·         To stabilize prices of pulses and onions, Government has decided to create buffer stocks of pulses and has imported pulses and onions under the Price Stabilization Fund.

·         A handbook for women farmers 'Farm Women Friendly Hand Book' containing special provisions and package of assistance which women farmers can claim under various on-going Missions/ Submissions/ Schemes of Department of Agriculture] Cooperation & Farmers Welfare has been brought out. Women farmers/beneficiaries could approach the nearest Project Director (ATMA) / Deputy Director (Agriculture) office at District or Block Technology Manager/Assistant Technology Managers at Block level for instant help and facilitation for availing the benefits.

·         With the above measures taken, the Government has set a target to double the farmers' income by 2022.

Improving India’s job creation ranking

Improving India’s job creation ranking
Structural reforms in factor markets are key for this labour-surplus economy to offer productive employment
This is the season of rankings. In the past few months, several reputed international organizations have assessed, compared and ranked the performance of countries on different indicators on issues like competitiveness, ease of doing business, hunger, youth development, gender gap, press freedom and consumer confidence. Alas, there is none specifically on job creation.

India has exceeded expectations on some, and has performed not so well on others. For instance, the World Economic Forum (WEF) ranked India at the 39th position on the Global Competitiveness Index, an impressive jump of 16 places in a year. Despite such a jump, WEF cautions that India’s performance is low by global standards, and huge challenges lie ahead on the path to prosperity. This is reflected in the high average tariff that India is maintaining on its imports, low level of factor accumulation, and relatively high incremental capital-output ratio.

Among other factors, this is also due to a less than optimal domestic regulatory environment and near absence of regulatory harmonization. This is one of the reasons why India moved up by only one notch on the World Bank’s recent ease of doing business ranking. However, the bank has recognized the government’s efforts towards a better business growth environment.

Also, India’s performance on social, education and health-related indices has been abysmal. The WEF report on global gender gap reveals that on the indicator of women’s health, India is third last. Similarly, on the global hunger index, India lies among the bottom group of countries, even below neighbours like Nepal, Myanmar and Bangladesh.

Let us now view India’s performance on different indicators in the context of one of the most critical challenges it is facing: job creation. The number of jobs created in 2015 is much less than what it was a few years ago. As mechanization of agriculture and manufacturing is moving at a faster pace and the services sector is becoming more skill-oriented, fewer jobs are being created which can match the existing skill level of the vast majority.

Consequently, it is not difficult to surmise that while India’s gross domestic product (GDP) is growing, such growth is increasingly becoming exclusionary. Enough jobs are not being created for the poor, for whom affording one square meal a day is becoming challenging. Much of India’s growth is emanating from services, and taking place in sectors which require middle- to high-level skills.

India’s poor have traditionally been dependent on agriculture and manufacturing, which have ceased to offer large-scale employment opportunities. Lack of quality and affordable healthcare and education robs the poor of opportunity to compete with their well-off counterparts in the job market. As a result, the poor get stuck in unproductive agricultural activities and are under-employed in the informal sector.

All these challenges have resulted in India remaining a low middle-income country over the last couple of decades. In order to improve its status to first become a high middle-income and then a high-income country, it has to overcome the challenges of the middle-income trap.

The two most important components on which the Indian economy should focus to create jobs over the next few years are productive agriculture and mass manufacturing. The latter will help India get embedded into global production networks and the former will provide a continuous push towards the growth of domestic aggregate demand accompanied by socio-political stability.

This can be done through an emphasis on micro, small and medium enterprises, by reforming factor markets such as land, labour, capital, and attracting investment in those labour-intensive sectors which are expected to be vacated by East and South-East Asian countries as they move up the production value chain.

For a labour-surplus economy like India to become more competitive and offer productive employment to its population, the key is structural reforms in its factor markets, rather than short-term cyclical reforms. As a flanking measure, we need continuous regulatory harmonization.

Moreover, given the sluggishness in international trade negotiations, time is on India’s side for undertaking such reforms. This will not only make the Indian economy more competitive and create productive employment opportunities, but there will also be opportunities for India to become a major actor on the global economic proscenium.

For this, a dynamic factor- and sector-specific reform agenda illustrating the kind of reforms needed to reduce the cost of factors of production (land, labour, capital, logistics, etc.) and harmonize regulations to make India more competitive in specific sectors for creation of large-scale manufacturing jobs is needed. Clear demarcation between the agenda items which are to be pursued by the Centre and states, through executive orders and those which will require legislative changes, is crucial.

The agenda must include a phased implementation strategy setting out short-, medium- and long-term targets. Continuous stakeholder engagement and awareness generation on benefits will enable seamless implementation. This will go a long way in improving India’s rank on job creation.

measures to curb air pollution in Delhi must necessarily tackle the city’s solid-waste crisis as well

A large accumulation of small defeats
The measures to curb air pollution in Delhi must necessarily tackle the city’s solid-waste crisis as well
The toxic haze that enveloped Delhi for two weeks after Diwali has diminished. But it would be foolhardy to think the moment has passed. How do we go on from here, knowing that next year, too, farmers will burn crop stubble, people will burn garbage and burst Diwali firecrackers, diesel generators will remain in use, environmentally harmful industry practices will prevail and private vehicles will still be the preferred means of transport?

The causes of October’s smog highlight the intersectional nature of pollution in cities—how one mode of pollution interacts with and worsens another, which is why it is difficult to come up with a quick fix to bad air. The measures to curb air pollution in Delhi must necessarily tackle the city’s solid-waste crisis as well.

India produces about 62 million tonnes of solid waste annually, of which 75-80% is collected, and only 22-28% is treated. The rest lands up in open dumpyards and landfills or is burnt. According to a 2016 study by the Indian Institute of Technology, Kanpur, on Delhi’s air quality, the burning of municipal solid waste accounts for 7-8% of particulate matter pollution. Landfills, on the other hand, release noxious methane fumes into the air and leachates into the groundwater, presenting a permanent challenge to tackling pollution in cities. Yet landfills continue to be overlooked by flagship policies. The Swachh Bharat (Urban) scheme focuses on water, sanitation and hygiene, with scant attention being paid to the solid waste coagulating unchecked in landfills. The National Urban Sanitation Policy 2008 was concerned with access to sanitation facilities for the urban poor, but landfills remained outside that conversation. Landfills were limited to the ambit of the erstwhile Municipal Solid Wastes (Management and Handling Rules), 2000.

Every big city usually has at least one landfill. Delhi has four. Mumbai has three. Chennai and Kolkata have two each. Bengaluru had two before they were shut down after community protests. There is something very sobering about the vastness of a landfill, the spectre of city after city struggling with the problem. But the bigger issue is that landfills continue to be the solution, both for untreated municipal solid waste and for the scores of workers in the informal economy seeking to make a living in cities.

It is easier to not see both solid waste and the informal worker, because we still haven’t arrived at a development narrative that will accommodate both. Solid waste is the by-product of a consumption economy. The informal worker exists outside the regulated, legal, organized economy. Both exist on the outer fringes of a city’s growth story. Both converge on the landfill.

The economic potential of municipal waste in Indian cities is fettered by inadequate segregation of waste, thereby rendering it unfit for conversion into refuse-derived fuel. Waste-to-energy incinerator plants are still an inefficient response to solid-waste management because municipal waste is marked by high moisture content (up to 65%) and low calorific value (520-3,766kcal/kg), which means that things don’t burn well enough to generate the energy that would justify the plant.

A worker in the informal economy poses a tougher challenge. Urban areas account for 28% of employment and 55% of the output, according to a 2014 study by the Indian Institute for Human Settlements, Bengaluru. It found that employment generation in cities has taken place largely in the informal sector, where the quality of work is poor, with low wages and little social protection. The National Commission for Enterprises in the Unorganized Sector, 2009, describes a class of “socially discriminated, educationally deprived, and economic destitutes”, for whom the growth process has yielded “very little expansion of their employment and enhancement in their earning capacity”. Since waste workers tend to hail from the most marginalized castes in India, caste, gender and age intersect in such a way that the burden of making a living from landfills falls disproportionately on women and children.

On the bright side, the recently notified Solid Waste Management Rules, 2016, emphasize segregation of waste at source and greater decentralized processing of biodegradable waste. They also mandate the integration of kabadiwallahs and ragpickers into the formal economy. This is vitally important since most of the waste-sorting and recycling is done by informal workers before the unrecyclable waste is transported to a landfill. They bear the brunt of our failure to segregate our household waste; they do so under hazardous conditions and for negligible pay.

A landfill is a fracture in the stories we tell about our cities. The home page of the urban development ministry website carries a permanent declaration—“The growth story of India shall be written on the canvas of planned urban development.” Almost as an afterthought, there is a second declaration, “And shall be scripted through the instrument of planned mobility.”

What stories come out of landfills? They are reports of the landfill fires that continually smoulder, the deaths of ragpickers, the tonnage of waste being dumped, the dreary profiles of municipal waste. They remain narrative versions of things that you don’t look at directly or for too long. The presence and persistence of landfills ought not to be taken lightly when contending with air pollution.

We need to move towards environmentally sound policymaking, and away from the formulaic inter-governmental squabble that seems to pass for crisis management. Without this, a city, as Jeet Thayil describes in Narcopolis, isn’t much more than “a large accumulation of small defeats”.

Text of PM's statement to media in the joint media briefing with President of Israel (November 15, 2016)

Text of PM's statement to media in the joint media briefing with President of Israel (November 15, 2016)

Your Excellency President Reuven Rivlin
And Friends from the Media,

I am honoured to welcome President Reuven Rivlin, and distinguished members of his delegation to India. President Rivlin is on his first ever visit to India. We are delighted to receive him on this special occasion. Excellency, your visit will provide crucial push to our efforts to build new pillars in our partnership. It will also carry forward the momentum generated by the first ever visit of President of India to Israel last year. Next year, both countries will be celebrating 25 years of the establishment of full diplomatic relations. As we approach this big milestone, we are both committed to advance our engagement on several fronts. And, build on convergences and commonalities in our interests and concerns on regional and global issues.

Friends,

Our engagement is multi-dimensional and wide-ranging.We are partnering in:

• enhancing agricultural productivity and efficiency;
• boosting research and innovation linkages;
• employing applications of science and technology for the benefit of our societies;
• Forging strong trade links and investment ties;
• Building defence ties to secure our people; and
• Enhancing people to people ties through greater cultural and tourism linkages.
• Promoting educational exchanges. The growing number of Indian students, going to study in Israel and vice versa can be an important bridge in our bilateral partnership.

Friends,

Earlier today, in our discussions. President Rivlin and I agreed that there are several strong areas of ongoing cooperation between our countries. We are familiar with Israel’s advances in agriculture, and its expertise in micro-irrigation in drought-prone areas and water management. We have identified water management and conservation, and collaboration in scientific research and development as two areas of priority engagement. We both agreed that the current trajectory of the Indian economy opens up many promising opportunities for Israeli companies. Our economic initiatives and programmes, and emphasis on innovation, research and technological development match well with Israel’s strengths and capacities. Israeli companies can scale up their tie-ups with our flagship schemes of Make in India, Digital India, Skill India, and Smart Cities. I would encourage the private sector stakeholders on both sides to take lead in utilizing this perfect opportunity to build business ties of commerce and investment between our two countries in these areas. Indian and Israeli companies can also work together in high-technology manufacturing, and services sectors. Make in India and as President Rivlin told me in our discussion, Make with India can generate jobs and benefit both geographies. Our partnership can generate jobs and benefit both geographies. IT services is an area where our partnership can make a difference for both our economies.

Friends,

President Rivlin and I deeply value our strong and growing partnership to secure our societies. Our people are constantly threatened by forces of terrorism and extremism. We recognize that terrorism is a global challenge, knows no boundaries and has extensive links with other forms of organized crime. Regrettably, one of the countries of its origin and spread is in India’s neighbourhood. We agreed that the international community must act with resolve and determination against terror networks and States that harbour them. Failure to act and silence of speech only encourages the terrorists. We,agreed to intensify our cooperation to combat the forces of extremism and radicalization that threaten all peace-loving nations. We also prioritized practical and specific engagement such as in the cyber domain. We noted the strength of our growing defence partnership. And, agreed on the need to make it more broad-based through production and manufacturing partnerships. India is also grateful to Israel for its clear support to India’s permanent candidature in a reformed UN Security Council.

Friends,

As fellow democracies, our people are our biggest strength and the biggest beneficiaries of a strong India-Israel partnership. The 2000-year old Jewish community in India represents a thriving link to this past. Today, it is a vital part of our composite cultural mosaic that continues to thrive in their traditions. We are proud of the Jewish community in India. President and I agreed that promoting people-to-people contacts, which has a long shared history, is our shared priority.

Excellency,

Two and a half decades of our friendship has brought rich dividends for both our nations. It has also strengthened voices of peace, stability and democracy globally. Your visit provides an opportunity to break new ground and shape new contours of our partnership. With these words, I once again welcome President Rivlin on his first State visit to India, and wish him a productive and enjoyable stay in India.

India, Japan sign landmark civilian nuclear deal

The nuclear deal, signed during Prime Minister Narendra Modi’s visit to Japan, paves the way for India to buy nuclear technology from Japan

Capping years of negotiations, India and Japan on Friday signed a bilateral civilian nuclear cooperation agreement seen as crucial for energy-starved India to access sensitive technologies to generate clean electricity.

The pact is a major achievement for India as it is Japan’s first civilian nuclear cooperation pact with a country that has not signed the nuclear Non-Proliferation Treaty.
It was inked in Tokyo in the presence of Prime Minister Narendra Modi and his Japanese host Shinzo Abe. Modi is on a three-day visit to Japan for the annual summit between the two prime ministers.
That it was signed with Abe at the helm of affairs in Japan is also key, given that he has been keen to forge close links with India to counter the rise of China. Ties between India and Japan have warmed considerably since Abe returned to office in 2012.
The deal has been many years in the making because India was reluctant to limit its option to carry out more atomic weapons’ tests—in addition to the ones carried out in 1998—in case the need arose. And Japan—being the only country in the world to have suffered the impact of nuclear weapons being dropped on it—was uncomfortable with India having a nuclear weapons programme outside the nuclear non-proliferation regime.
Also read: Why India is courting Japan
“A landmark deal for a cleaner, greener world! PM @narendramodi and PM @AbeShinzo witness exchange of the landmark Civil Nuclear Agreement,” said Indian foreign ministry spokesman Vikas Swarup in a Twitter post.
Modi later described the signing of the pact as “a historic step”.
The ‘Cooperation in the Peaceful Uses of Nuclear Energy’ pact provides for “the development of nuclear power projects in India and thus strengthening of energy security of the country,” an Indian foreign ministry statement said. “The present agreement would open up the door for collaboration between Indian and Japanese industries in our Civil Nuclear programme,” it said.
Former joint secretary (disarmament) and ex-Indian ambassador to France Rakesh Sood said the pact “enables us to obtain high-quality components for nuclear reactors, especially ones that we are negotiating for with Westinghouse (Electric Co.) and (French) Areva SA.”
Westinghouse Electric Company is a subsidiary of Japan’s Toshiba Corp. Areva, too, accesses key reactor components from Japanese firms.
India signed a landmark nuclear deal with the US in 2008, clearing the path for the country to source nuclear power plants and technology from international markets. But with Japanese companies in possession of critical technologies, such as steel shields covering a nuclear reactor core, an accord with Japan was pivotal for India.
During the last prime ministerial summit in New Delhi in December, India and Japan announced that they had reached a basic agreement on the pact.
India currently has 5.7 gigawatts (GW) of nuclear power generation capacity. This accounts for 2% of the total power capacity, but this is expected to change with a sharp increase in power generation from atomic plants over the next 16 years as Asia’s third largest economy moves away from fossil fuels for its energy needs.
India’s Department of Atomic Energy’s target is to have 63GW of nuclear power capacity by 2032.
Among the other agreements signed was one to skill “30,000 Indian youth in the Japanese styled manufacturing in the next 10 years”, a government statement said.
“This would be achieved through the programmes of Japan-India Institute for Manufacturing (JIM) and the Japanese Endowed Courses (JEC) in select Engineering colleges,” it said.
Pacts on cooperation in space, earth sciences, agriculture, forestry and fisheries, transport and urban development and sports were the others signed.
Earlier in the day, in a meeting with Japanese business leaders, Modi said his government was pursuing a new direction of economic reforms. He said his government was resolved to make India the most open economy in the world.

Master stroke on black money to make India Swachch Bharat

Master stroke on black money to make India Swachch Bharat

The mid night scrapping of Rs 500 and Rs 1000 currency notes , as announced by Prime Minister Shri Narendra Modi in his address to the nation on November 8,  is being seen as a master stroke against black money and  corruption that has been eating into the Indian economy like a termite for several decades.  The sudden announcement of a decision which may be well thought over several months with only a handful of the top  echelons in the government having a whiff of it, would cause some disruptions in the interim, but then as the Prime Minister called upon the people , it is the price each citizen is called upon to  pay for defeating the monster of corruption and black money which, combined with counterfeit currency and terror funding, can strike at the root of a nation. 

 “There comes a time in the history of a country’s development when a need is felt for a strong and decisive step,”   Shri Modi said. But for the Donald Trump victory, India’s war on black money would have created instant ripples the world over. In any case, the ripples of the Modi move to hit at the hoarders of ill-gotten money where it would hurt them the most, would be felt for the Indian economy far too long. 

While Swachch Bharat is being implemented for cleaning up streets ,roads  and building toilets ,  PM’s  sweep  shot on corruption is the biggest ever exercise launched anywhere in the world to broom and clean up the economy which was growing at the fastest clip among the global peers , yet yielding low results for the common people.  Imagine the scale at which the brooming exercise can clean up the system. By some estimates as much as Rs 14 lakh crore currency notes of Rs 500 and Rs 1000 denomination are in circulation and would be withdrawn by December 31, 2016 or at the most  March 31, 2017. 

Some bankers feel that there could be as much as one-third of this amount which may not be deposited with the banks, since taking the ownership of the loads of money stashed in gunny bags may land some people in trouble . Now that would mean the country gets a windfall of Rs 4.33 lakh crore which would accrue to the nation in terms of reduced liability of the Reserve Bank of India which will replace the surrendered currency that much less. 

Going forward, this huge cleaning up would lead to a much better fiscal position of the Central Government with several positives for the macro picture , the biggest being on the inflation front. As is common knowledge that inflation is fuelled by a large margins by the black money which finds its way into conspicuous spending on theme parties and building of assets like real estate.  In fact, the real estate market has been thriving only on the cash part of the deals which of course would stop, giving a jerk to the sector in the transit till it readjusts itself to the new reality. So, it is being rightly interpreted by the analysts that the crack down on black money would be a big deflationary move, ultimately helping the common people, who may have to go through some temporary pains . 

Besides, the decision to scrap high value notes would drastically reduce premium on corruption in the public services since the risk –reward would be highly tilted towards the peril of being caught off-guard. As enumerated in the PM’s address to the nation, the NDA Government has taken several other measures to check the black money in the last two years.  These include:  a law for disclosure of foreign black money; agreements with many countries to add provisions for sharing banking information;  strict law to curb benami transactions; and a  scheme for declaration of  black money after paying a stiff penalty.  As much as Rs 1.25 lakh crore has already been brought out through these efforts and if  we add another Rs 4.33 lakh crore which may not return to the banking system and become junk, over Rs 5.50 lakh crore , a humungous figure, would have been neutralized.  The benefits would certainly accrue in the medium to long term.

The only challenge for the government in the interim is to ensure that a minimum inconvenience  is caused to the common people and the banking system is geared up to instill a sense of confidence among the people that the common households’ money is very much safe.  

“Honest citizens want this fight against corruption, black money, benami property, terrorism and counterfeiting to continue. Which honest citizen would not be pained by reports of crores worth of currency notes stashed under the beds of government officers? Or by reports of cash found in gunny bags? “, a decisive Prime Minister said.  

He is so right when he says that in spite of  being ranked as the fastest growing economy in the world, India figures so high on the global corruption index. With so many steps having been already initiated, India still ranks 76 on this dubious distinction.

Even though initial reactions in the stock markets were adverse, as was expected, the sentiment was also related to the Trump victory which had spooked the global markets which would slowly digest the new global paradigm of challenging the status quo.