GDP Post Demonetization

The impact of demonetization in day to day life are well discussed and evident. Select state elections will reflect people’s verdict as well.

GDP is the barometer and an objective evaluation of the impact. Recent reports on the fourth quarter economic parameters point towards economic compression directly related with demonetization. Despite demonetization being a fundamentally appropriate policy towards containing the unaccounted money within the system, it floundered. It is not a political question – it was a national initiative and a unique opportunity. What went wrong? This is a prelude to an upcoming blog on how change could have been managed properly.

Sometimes, those seating at far off can see things better than those who are seating at the epicenter. This is the case with GDP. I had already prognosticated, that the GDP would suffer setback from 0.5 to 1.25. I also opined that demonetization is good in the long term, GDP effect is a short term disability. Of course, the way demonetization was carried and the way the system defaulted to earlier state, it proved no value overall. In the absence of mid – long term value, we can only focus on the short term impact.

Though arguable, it impacted the GDP. True, it removed all soiled Rs.500 currency from the market, possibly from some black marketers and terrorists. That’s the sum total of Demonetization. Here is my question – Did Modi lacked resources in envisioning, (impact and scenario) analysis, planning and executing or did he not trust folks around him or did he do this in haste? I trust, it was a combination of the first and the last reason.

India is too heterogenous country. A system wide change needs a vision, deep rooted trust in people, a sound understanding of the ground level constraints and a thorough evaluation and impact analysis capturing those into the execution plan. In hindsight – Can we think of how this could have been done better, more surgical? Less traumatic? Possibly, therein lies the solution for Second Generation Demonetization.

‘I have not failed, I have just found 10,000 ways that won’t work’ – Thomas Edison.

That which does not kill us makes us more stronger.


Citations:

Despite demonetisation, India’s GDP growth stays 7 per cent: Govt data

https://www.forbes.com/sites/timworstall/2017/03/07/as-fitch-says-that-7-gdp-growth-for-india-looks-odd-given-demonetisation/#3ac3c61c48ed

http://economictimes.indiatimes.com/news/economy/policy/modis-victory-has-made-a-mockery-of-the-criticism-that-demonetisation-got-christopher-wood/articleshow/57627263.cms

 

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