Normally a disclaimer comes at the end of an article. Here, I will do so right at the beginning, in order that the reader gives my article a thought without any political biases.
Disclaimer: I am politically agnostic. I will not quote anyone, because I believe most people twist the interpretation of macro-economic data to suit their political inclinations.
I will keep this as objective as possible and leave it for the reader to come to a conclusion
First the sad story emerging from facts:
The reality check
This was expected due to liquidity being withdrawn from the economy post-demonetization. Everybody had said so, back in December ’16. So what’s the surprise?
On the surface, this sounds true. The black money amounting to three to four lac crores of rupees that was not supposed to come back into the banks came back. This money has however, left a digital trail in the banking system.
The concerned have already begun to get notices asking for explanations. Though sophisticated data mining technology is being used to nail the culprits, these investigations will take time and there is a possibility of corruption by investigating tax officials. How does the government plan to take care of this? That’s a question that experts need to discuss rather than shout those jingoistic rants on social media and television. I have read reports mentioning that the PM has asked the IT department to work out methods of encryption that will withhold the identity of the tax assesse from the tax inspector. If this becomes a reality, then this corruption will reduce substantially.
Another point I would like to raise here is
When will some of our CA and lawyer friends stop shielding tainted money by finding loopholes in the regulations and helping their shady clients hide behind the veil of justice?
On a positive note,
This means the tax base has widened. People probably prefer to pay taxes and make their money legal than being under the constant fear of being found out.
I think demonetization has its fair share of positives, the benefits of which will play out in the long run
This once again is true, but it also convinces me that most of the businesses in our country baulk at the thought of transparency and governance. No doubt there are operational issues in the implementation of the GSTN (GST Network). However, in a country as complex as ours, nothing can be expected to be rolled out smoothly the first time. All countries that have rolled out a uniform tax rate have suffered compromised GDP growth for a couple of years. Should the fear of disruption stop us from adopting GST?
All experts (across political inclinations) say GST is the right thing, but keep on ranting about the implementation without suggesting any options. Why don’t experts (cutting across their political affiliations) come together and iron out the glitches in a ground-breaking structural reform?
The economy was growing at a good clip, agreed. However, my limited understanding of management tells me that a company which experiments and spends on R&D when the going is good is the one that stands out in the long run, as compared to others that wait for bad times to come. Invariably in bad times, there are no resources left for trying anything new and the status quo continues. Innovation happens when companies cannibalize their own successful creations, whereas, companies that keep gloating over their past successes are the ones that fade into oblivion. The same logic applies in macro-economics too. Should a government wait for the economy to be comatose, in order to infuse structural reforms or should it do so when the going is good?
In my view, structural reforms should be introduced when the economy has the buffer to absorb the shocks. The following statistics clearly demonstrate why:
(Source: All the above statistics from India Today, September 18, 2017, “The Big Slide”
You decide whether demonetization and GST should have been launched when they were, or we should have waited for the economy to be in a downward spiral.
Some Sidelights to ponder upon:
Once again, I urge you to decide.