The most acute period of pain is behind us and the formalisation of the economy has been accelerated. The country is now on a growth trajectory, Confederation of Indian Industry president Shobana Kamineni tells Rajat Arora on the eve of the first anniversary of demonetisation. Edited excerpts:
How do you assess demonetisation?
I don’t remember any government move that has been as bold. One year later, you can clearly see the benefits. The amount of cash that’s being circulated in the economy is lower than it was pre-demonetisation. The PM fought the elections with corruption and black money as the main issue. So, it was important for him to take such a decision. From the country’s perspective, it was a major move in the fight against black money. It was the strategic intent that has been followed up with equally decisive steps. The move would have been pointless had there been no follow-up. Although there were some problems in the initial months with the way demonetisation was implemented, these were short-lived. The execution could have been much sharper. However, the economy is much more streamlined now.
What are the tangible benefits of demonetisation, given that almost all cash came back to banks?
Just think of the scenario when the country’s tax base is widened. We as an industry keep shouting about the need for lowering of taxes. The most tangible benefit of demonetisation has been that it is widening the tax base of the country. It will lead to a situation where the tax kitty would swell, leading to the moderation of taxes. The financial saving rates of households have gone up, along with domestic inflows in the markets.
The way India has taken to digital transactions is unprecedented. Any cash-based economy has a high cost. Through leveraging technology, the transaction cost in the economy has been brought down. These are all economic benefits.
Also, the government’s fight against black money is sending this message across the world that India is now becoming a corruption-free country. Along with simpler systems and processes, India is becoming an attractive destination for foreign investment. Foreign companies now know that there’s no company in India that will be getting undue advantages.
Hasn’t there been a huge economic cost to it, with the growth rate slowing and reports of job losses?
Would you do such a thing in the best of times, or the worst of times? You’ll do it only when you think the impact can be absorbed. There have been job losses, especially in sectors such as construction.
But that’s because the sector was highly unorganised and cash intensive. If you see the recent data, sectors such as auto, FMCG and several others are back on track. The last quarter has normalised a lot of things. You may criticise the government move, but the truth is that demonetisation accelerated the formalisation of economy. The number of industries and the workforce that it has brought under the organised sector is unprecedented, and it happened in such a short span of time.