Demonetisation was NOT a Demon
A few weeks ago, I read a very interesting Twitter thread posted by my dear friend, Shruti Vyas on Demonetisation and its after-effects. Now, let me introduce you to Shruti – she is an MSME entrepreneur who is into textiles, is extremely sharp, and, most importantly, is my Twitter buddy. :)
She says she isn’t an economist, but I feel otherwise; that’s because, being an entrepreneur and watching this stuff unfold from close quarters, nobody understands MSMEs better than her. You don’t need to have a degree to be an economist. If you know what’s happening on the ground and understand its intricacies, you ARE an economist.
Well, Shruti had ‘given me the rights’ to convert her thread into a blog post. And, I had promised her that I would be doing that soon. So, as promised, here it is –
“8 November – It has been two years since Demonetisation. It was a brave decision that aimed primarily at providing a boost to non-cash payments, which would lead to a cashless economy. The other objective was to impact black money.
As an MSME (Micro, Small and Medium Enterprise) entrepreneur, I have seen a huge change on ground. Most of my staff, aged 50 and above, used to prefer receiving salary in cash. In the months following Demonetisation, we were able to convince them that their salaries would be credited in their bank accounts via NEFT (National Electronic Funds Transfer).
Also, most of them already had bank accounts. Those who didn’t, too opened accounts and got ATM cards issued, which they hadn’t used before. Many of them have since applied for small housing loans due to the ease of maintenance of bank accounts.
Before Demonetisation happened and GST (Goods and Services Tax) hadn’t come into force, many people bought goods and did not ask for the receipt. But after Demonetisation, people started asking me to adjust their cash payments in my account books.
People were scared indeed, and wanted to be 100% sure, which is why the demand for a receipt/bill has only increased manifold. GST made it simpler for people to claim the credit input.
Recently, we had some repairs going on in my office, and we asked for bills for smaller goods too, like plywood and fevicol among others. Now, earlier, most of these traders would never give bills. But today, I get credit, so I ensure that I get the bills. And I’m not alone; this is happening with many people I know.
The number of individuals who prefer digital transactions has increased. Though NEFT was always an option earlier, we have started using it more, and now it’s a habit. With the coming of GST, follow-up mistakes in invoices and GSTR were provided by our buyers, as the mistakes were now clearly visible.
E-Wallet companies like PayTM benefitted from Demonetisation the most. People are now using payment applications, e-wallets and UPI (Unified Payments Interface) more than ever. It is evident because most of the shops that I see accept payment via PayTM. And the best thing? Those shops that never wanted to accept cards for payment have applied for card machines.
As a result of digital payments, it was now impossible for employers to hide payments, and people had to be added to PF payrolls, which expanded the formalised work force. The fear of huge cash withdrawals and in-hand cash in balance sheets was visible in the business.
More people filed their Income Tax Returns (ITR), fearing any action that could possibly be taken against them for the amount of cash deposits made during Demonetisation. Many people I know increased the amount of profit that was shown in their balance sheets to justify their huge cash deposits. This can be cross-checked with the Income Tax Returns data.
Many people closed down the multiple firms that they owned, since, with GST, it was difficult to file multiple tax returns. This meant that there was a consolidated turnover. The old, defunct firms which did not apply for GST were informed by the respective departments that their TIN (Taxpayer Identification Number) had been suspended. This helped clean up businesses.
The people who had to switch to GST were forced to clear earlier notices/demands etc. The whole C forms collection and deposit drama has now, thankfully, come to a closure. It was a nightmare. It’s simpler to bill and take credits.
You may argue that Demonetisation was not handled well and that its implementation was a bit haywire, but saying it had NO impact on Indian business and its practices would be downright silly. It changed the way we Indians looked at business, and cleaned up the system on a psychological level.
I am not an economist, but as a Fine Arts person, who runs her own business, I have learnt enough to tell that Demonetisation has worked. One can understand from my numbers and balance sheets that it shook people more than we care to admit, especially the ones with millions in cash.”
Phew, now that was amazing, right? Shruti has rightly pointed out that Demonetisation was a brave step towards cleansing our economy. It was NOT a ‘DEMON’, but a part of the word might suggest otherwise (just kidding).
There is an important takeaway from the write-up – ‘Demonetisation cleaned up the system on a psychological level’. That is exactly what most governments failed to achieve; there has to be a psychological impact of a policy as brave as Demonetisation on people.
People adapted to a new system, welcomed these decisions, and cooperated with the government and other agencies like good citizens. We must salute the spirit of Indians who believe in being the ‘change’.
PS – Thank you, dear Shruti for the wonderful thread on Twitter, which, I feel, should be compulsory reading for all of us
PPS – Here’s the link to Shruti’s thread: https://twitter.com/vyasshruti/status/1060474459570749442