Gain must overtake pain

It takes time for impact of acute shortage of liquidity for small and medium trade to get captured

The editorial, “A hard fall” (June 1), objectively reflected the concern with the steep decline in gross domestic product (GDP) in Q4 of FY17. A granular look at the reasons for the fall in GDP shows that the data captured is right. 

A large cash-intensive Indian economy mostly went without cash for 60 to 90 days. During this period people were forced to carry out only basic and urgent transactions, accounting for 25 to 30 per cent of daily trade. Those with cash did not use it for circulation and abstained from avoidable transactions. Hoarding lower denomination currency was the norm at the time. 

It takes time for the impact of acute shortage of liquidity for small and medium trade to get captured in the system. Even the use of electronic modes of payment was largely confined to urban centres. The pass-through impact of the rural economy is longer and may extend much beyond a quarter or two. Near normalcy was possible only after February when some of the ATMs could dispense enough Rs 500 notes. Thus, the cut in volume of trade transactions in the hinterland continued for a longer stretch. 

While GDP for Q3 of FY17 reflected the upper crest of the economy, Q4 shows the plight of the integrated economy. One has to ponder over the Q3 numbers as conclusive evidence to undermine the impact of demonetisation. When a seminal economic policy is tested, it is essential to wait for its impact to speak in terms of numbers, not in two quarters but beyond that. The task is to consolidate the gains in a widened formal economy, increased tax collections and lower use of cash. Mandarins of policy will have to ensure that gains from demonetisation far exceed its pains as soon as possible. A long-term vision is necessary.

K Srinivasa Rao   Noida

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