Talking Point: It’s not just the corruption that stinks!

The stated goals of this move were to eliminate or curb the spread of black money, wipe out the use of counterfeit currency that was used to fund terror across the country and create an eco-system to mitigate corruption. 

Let’s analyse the impact of the government’s move on demand and consumption to know the short, medium and long term economic consequences. Pundits estimate that 85 pc of the money value in circulation was accounted for by the higher denomination notes of Rs 500 and Rs 1,000. In a single stroke, this volume of cash in circulation became irrelevant for any kind of transaction. 

Consumption across almost all verticals will dip significantly even as demand remains unfulfilled, as people will be inclined to hoard currency expecting a longer period of shortage, a case of self-fulfilling prophecy. The longer the Government takes to print and replace the (85 pc value) notes, the greater the possibility of hoarding. No assurance will help when it comes to influencing the collective behaviour of a large uninformed and anxious population. 

Even my local vegetable vendor who does brisk sales right from 6 am complained that he has suffered a 25 – 30 pc drop in sales from the day of announcement. I expect that no sector will be immune to this contraction in the next 6 - 12 months, barring perhaps education and healthcare! 

Real estate, construction could witness a further downturn both in the short and medium-term as this sector was always compelled to generate black money claiming as it does to be a victim of corruption rather than a perpetrator. For the piracy-hit entertainment industry and facing exorbitant production costs, finance could be a huge challenge. Tourism has been hit. However, looking at the cup as half-full, I believe this is a great opportunity for these sectors to put their house in order and prepare for the next stage of growth. 

Well, no pain, no gain says the government. The people of India have experienced all kinds of pain for centuries to emerge stronger and more resilient. The pain or inconvenience is nothing when you dream of a corruption-free India.  Can the government and our PM deliver on this promise? In the interest of the future of 1.2 billion Indians, let us trust that it will.