Demonetisation pushed the system towards formal economy including informal sectors: Uday Kotak – The Economic Times–08.11.2017

By Uday Kotak

Very often when you take a policy decision in a direction you also have consequences which may not have been envisaged to the same fullest extent when you originally started. Some of the consequences actually turn out to be significantly impactful in the course of the journey of a nation and in that context the major consequence of demonetisation is the significant formalisation of the economy. It pushed the system towards the formal economy including the informal sectors.

If you put GDP into two buckets, the formal economy and the informal economy, I have a pretty clear view that the formal economy GDP did go up. But the impact of the informal economy and the net equation is something we need to calculate and frankly there is no clear data which says A minus B is how much. For example Titan is a huge example of how formalisation of the economy is helping the formal sector.

Jewellery sector has a significant informal part but a company like Titan has gained. Micro benefits for the formal players are disproportionate but whether that makes up for the loss of the informal players and that equation is something we need more research and data on.

The way we at the bank look at it is formalisation of finance is happening in a significant way. Last year, I had said one of the biggest beneficiaries is going to be the financial services industry. In addition to banks, asset management, equities, mutual funds and insurance. It has played out in the last one year. Finance is a classic symbol of the formal versus the informal.

You can see that there is a significant long-term trend. As you get more formal there will be two aspects, the formal economy will be more productive and by logic it will be more transparent. You also getting much better on the global indices like the World Bank Index…as transparency improves and the productivity levels improve the Indian economy’s positioning from a global basis improves.

Black money is culture that has bred over a long period of time. This formalisation is inevitable. Privacy is now history. We now have face recognition. You have cameras all over the streets. You have nowhere to hide. It is scary but there are two debates, do we trust governments? Do we trust private sector? We are in the middle of historic change. I don’t think we see it enough. Significant expansion into the personal space and a world which is moving significantly from B2B to B2 C. I think this is a megatrend which will envelop us in the next 3 to 5 years.

(The writer is the MD of Kotak Mahindra Bank)

(As told to Joel Rebello)

via demonetisation: Demonetisation pushed the system towards formal economy including informal sectors: Uday Kotak – The Economic Times

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