With demonetisation, prime minister Narendra Modi has taken the boldest economic and political decision of his term so far. He has pressed the button to reboot India and come up with a version 2.0 which, hopefully, will weed out corruption to a great extent and sow the seeds of hope for a ‘clean’ India. In this endeavour, the ministry of finance and key personnel of RBI also deserve compliments for maintaining secrecy.
While there is no doubt that it has disrupted the smooth functioning of the economy in the immediate run, especially the informal one, there seems a majority view emerging that it is good for the country in the medium- to long-term. Perhaps for the first time, an honest person feels happy that the government has given him/her some dignity, a sort of premium to honesty, by targeting those who have hordes of cash stashed from their unaccounted transactions.
It is well-known that much of black income is generated through cash deals in the real estate sector, and an honest person wanting to buy a house or plot with full cheque payment was often ridiculed. Almost half the payments are accepted in cash, and it was almost impossible to buy a house in pure white money! This was sickening and cancerous. So, no wonder that honest people are very happy with this move of the prime minister.
But, if the inconvenience to the common man, standing in the long queues at ATMs and banks, lingers for long, it can turn the mood sour. Some opposition parties will surely take full advantage of that situation to ensure that this drastic step of the government fails and demonetisation is rolled back. If the Modi government buckles under their pressure, it will be political suicide. Thus, it must act on war footing to minimise the inconvenience to common man in remonetising the economy with new notes and promoting electronic transfers aggressively on a large scale. How can it be done?
Let us consider first the news that volumes of fresh produce in agri-mandis have dropped significantly, truckers have stopped plying, and farmers are in deep distress. No doubt that this has some truth, but the magnitude of it is being blown out of proportion. If supply-lines are so badly disrupted, how come consumers in urban areas are still getting their daily essentials at regular prices. Why have the prices of daily essentials not erupted? That is the litmus test. Have people stopped consuming fruits and vegetables or milk and bread? There are no long queues for daily needs. People are getting their food at regular prices, and they are adjusting. Behavioural change is in the air, with greater use of plastic cards in transactions that were being done earlier carried out almost entirely in cash. It needs to be expedited. How can this be done?
It is time that BJP-ruled states take the lead in announcing that commission agents in all agri-mandis must have EDC machines (Electronic Data Capture machines, used to swipe credit/debit cards) compulsorily and transactions should be only through these machines, else their licences will be cancelled. These machines are very cheap and convenient, and will immediately convert the massive cash transactions into electronic ones, signalling the rise of digital India. A massive campaign and demonstration of digi-wallet systems, e.g. Paytm, will give it a further boost. Small vendors, even paanwalas in street-corners, adopting this will transform the manner India transacts small business, running into millions of transactions every day. That would be an innovation to transform India, and it can be quickly ramped up, giving a major relief to the common man.
The Union and states’ ministries of agriculture and farmers welfare need to lead this transformation exercise. Nabard, with offices all over the country, and agro-companies like Amul, Hatsun Agro, Nestle, Iffco, etc, too need to demonstrate and promote e-payments to the millions of farmers. This is the first attack on black money, and honest people and companies with a stake in agriculture andthe farming community cannot keep sitting in their comfy offices. They must be out in the field, helping their stakeholders.
Further, at least BJP-ruled states should announce quickly reduction in stamp duty in real estate transactions, from the current levels of 6-7% in most states to, say, 3% or lesser still. That will not hit their revenue adversely as business will expand with honesty. But, it will surely boost the morale of honest people to brave the inconvenience that they are undergoing, as they can see quickly the potential gains from such a move.
Next, the banks and the Enforcement Directorate need to be on alert as many with unaccounted cash are using Jan-Dhan account-holders and even farmers to deposit cash in their accounts. The ongoing ‘reward’ is a commission of around 25%, and many in the queues at the banks are these potential ‘awardees’! It is easy to identify a few such cases and catch the big fish behind them and mete out exemplary punishment quickly. Else, the impact of this mission will get diluted.
Also, high-priority needs to be accorded to recalibration of ATMs for new notes, extending working hours of banks, even asking them to work in shifts 24×7, especially for withdrawal of money by people from their accounts. If need be, even opening special extension counters through mobile vans, in schools, colleges and other offices—with due police protection—especially on holidays, as is done while conducting elections, may provide some quick relief.
Prime minster Modi cannot afford to lose this ‘surgical strike’ on black money and all honest people who want to see India emerge as a clean nation need to support him at the moment. The challenge is gigantic, but it can be met!
The author is Infosys chair professor for agriculture, ICRIER.
Views are personal