Demonetisation : One Year Report Card

  • Demonetisation has reduced cash with citizens.
  • Bank deposits have increased by somewhere between Rs 2.8-4.3 lakh crore.
  • 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.
  • Demonetisation exploded the number of digital payments on UPI/Bhim from 1 lakh in October 2016 to 7.7 crore in October 2017.
  • Digitisation is important for formalisation because it makes regulatory arbitrage and tax evasion difficult.
  • Demonetisation has catalysed a savings shift away from gold and real estate.
  • 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.
  • Greater financialisation of savings creates a virtuous cycle for formal job creation because they deepen and broaden domestic capital markets.
  • Expensive loans are better than no loans but the cost of money has been crippling for India’s entrepreneurs.
  • 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.
  • India’s economic trajectory suggests interest rates could reduce another 3 per cent over time.
  • 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.
  • Demonetisation targeted a less-cash society because cash is the primary tool of corruption
  • Demonetisation did not end corruption but raised its costs
  • 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

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