Positives:
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Demonetisation has reduced cash with citizens.
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Bank deposits have increased by somewhere between Rs 2.8-4.3 lakh crore.
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Currently, banks are lending this liquidity to the RBI but when they start doing their jobs well, this liquidity will boost investment and formal job creation.
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Demonetisation exploded the number of digital payments on UPI/Bhim from 1 lakh in October 2016 to 7.7 crore in October 2017.
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Digitisation is important for formalisation because it makes regulatory arbitrage and tax evasion difficult.
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Demonetisation has catalysed a savings shift away from gold and real estate.
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The eight months after demonetisation saw mutual fund inflows of Rs 1.69 lakh crore and the three months after demonetisation saw Life Insurance Premiums rising by 46 per cent.
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Greater financialisation of savings creates a virtuous cycle for formal job creation because they deepen and broaden domestic capital markets.
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Expensive loans are better than no loans but the cost of money has been crippling for India’s entrepreneurs.
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Lowering interest rates is a policy priority and banks had been only passing on 50 per cent of lower policy rates to customers; in the year after demonetisation this has risen to 100 per cent.
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India’s economic trajectory suggests interest rates could reduce another 3 per cent over time.
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sustained formal job creation needs the lower interest rates that come from macroeconomic stability, fiscal discipline, muted inflation expectations and an Independent Monetary Policy Committee.
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Demonetisation targeted a less-cash society because cash is the primary tool of corruption
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Demonetisation did not end corruption but raised its costs
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And ending our sense of humour about the rule of law that bred a riskless view of cash is an important pre-condition for sustained, formal, high-wage job creation