A report by the United Nations released this week has once again fueled the debate on demonetization, stating that the move will not curb the black money flow unless accompanied by more initiatives to unearth the undeclared cash.
The UN Economic and Social Survey of Asia and the Pacific 2017 report highlights the current trends and future predictions on the economies of many Asian countries. “The measure (demonetization) did not, by itself, impede future black money flows in new denominations. Complementary measures would be required to target all forms of undeclared wealth and assets,” the report stated.
The report is congenial with many economists’ apprehensions. “I understand the motivation, but it is a highly disruptive way to do it. I hardly see significant long-run gains, but there certainly are significant, although temporary, costs,” renowned economist Paul Krugman said at an event in January this year.
The report further said that a more permanent increase in digital-enabled and non-cash-based transactions is likely, “driven by awareness of cash-alternative solutions during the demonetization exercise and strong government advocacy and incentives”.
Digital transactions have surged in the country post-demonetization.
“Digital payments have increased in the range of 400 to 1,000 per cent since 8 November (demonetization). This figure does not include transactions done through Master and Visa cards,” Union minister for information technology, Ravi Shankar Prasad, said during the launch of the BHIM (Bharat Interface for Money) app late last year.
On 8 November 2016, Prime Minister Narendra Modi scrapped 86 per cent of India’s currency by demonetizing the denominations of 500 and 1,000. The PM assured the nation that the move will make India free from black money. The common man complied with all the hassles of the decision just to make the country get rid of black money but eventually, the result wasn’t abreast with the country’s expectation. Thus, citing the nonperformance of the move, the government changed the rhetoric from curbing black money to pushing cashless economy.
As per the UN report, the disruption caused by demonetization had “greater and longer-lasting” impacts for lower-income individuals, households and businesses that had difficulty insulating them against the shock.
The report also predicts India’s growth to clock at 7.1 per cent this year before edging up to 7.5 per cent in 2018. It says remonetization will restore consumption and also lead to an increase in infrastructure investment, thereby, increasing the growth of the nation.
It also warned India of ‘financial risks’ owing to increasing bad loans in public sector banks. The gross non-performing assets ratio in public sector banks reached almost 12 per cent in 2016, which points to the need for “bank recapitalization”, the report said.
