Demonetisation completes 1 year today, and even as the Narendra Modi government and Opposition trade barbs over the effects of the demonetisation move, common man is left wondering whether the step was worth all the pain that had to be endured. Financial Express Online decided to poll 15 leading economists, researchers and analysts to better gauge the impact demonetisation – and majority of them have given a thumbs up to Modi government’s bold economic move. Few of us can forget the night of November 8, 2016 when Prime Minister Narendra Modi in a surprise address to the nation announced that old Rs 500 and Rs 1000 notes would cease to be legal tender money. The government over the next few days said the demonetisation was aimed at eliminating black money, remove counterfeit currencies and also promote digital transactions.
According to Finance Minister Arun Jaitley, demonetisation was a “watershed moment” that will make India a clean economy. However, even as the Modi government marks November 8 as the ‘Anti-Black’ money day, Oppositions has come out all guns blazing – calling demonetisation a blunder – and terming the anniversary a ‘Black Money’ day. So, what were the benefits of demonetisation? Did demonetisation help detect black money in the economy? Did demonetisation aid in curbing the generation of black money in the economy?
Demonetisation was “effective”, and combined with GST and Aadhaar linking would be the right step to move India to a more transparent system, say analysts polled by Financial Express Online. In a survey of 15 analysts, the verdict is clear that demonetisation proved to be helpful in tracing black money in the economy. While as many as eight analysts found demonetisation “somewhat effective”, three analysts even felt that the step was “effective to a great extent”. Only one economist disagreed with Modi government’s move, stating that it was “not at all effective” in detecting black money. Three economists “couldn’t say” to what extent the move was useful.
No consensus emerges on the question of whether demonetisation helped in slowing pace of black money generation. While four are of the view that it was “effective”, the same number feels it was “somewhat effective”. Four analysts believe that the impact was temporary only, while three “couldn’t say” about the extent of the impact.
But more importantly, analysts are of the view that demonetisation followed by GST rollout and Aadhaar linking to PAN and bank accounts are all steps that will work as effective deterrents to generation of black money. As many as 9 analysts feel that the three combined together work better than demonetisation alone. “All of them (demonetisation + GST + Aadhaar linking) are absolutely effective,” says Dhirendra Kumar, CEO of Value Research. Sahil Kapoor of Edelweiss is of the view that the “net effect of factors like GST, Aadhaar, Jan Dhan, Demo which has helped in reducing the generation of black money.”
Agrees Vikas Vasal, National Leader – tax at Grant Thornton India. “Demonetisation along with other measures has helped bring in more transparency in the system. India is largely a tax non-compliant society. Any behavioral change in the society, as large and as diverse like ours, takes time. Therefore, one should not expect overnight results. Demonetisation was indeed a bold step, which sent a strong message to the masses,” says Vasal. “Demonetisation along with a combination of other measures like GST, linking of Aadhaar with PAN, mobiles, bank accounts, and use of data analytics to detect tax evasion is likely to yield results over time,” he adds.
An economist from a leading global bank, who did not wished to be named, stresses on the need for other follow-on measures as well. “Demonetisation if combined by other measures to curb black money flow between asset classes, increasing regulatory checks, legal controls, clamping down on offshore accounts, and GST/Aadhaar linkage are necessary to materially slow black money growth,” the economist says.