Macro Policy And Micro Shifts In Behaviour

In short, our business volumes are now heading back to the levels that prevailed before demonetisation, not because more cash has come into the system, but because more people have taken up on cashless modes.

- Shri V.P.Nandakumar MD & CEO

As with all burning questions of the day, the demonetisation (more precisely, the recall) of notes of higher denominations of 500 and 1000 rupees announced by the Prime Minister on November 8 has sparked furious debate in the media and divided public opinion. Critics of the move have focussed on the dislocation in the economy that followed, the evident troubles faced by common people who, besides being forced to stand in queues for prolonged periods, may also have experienced falling incomes (hopefully temporary).

After all, with withdrawn notes accounting for 85 percent of the total currency in circulation, the impact was bound to be severe in an economy over-reliant on cash to grease its wheels. The after effects have been especially harsh on the unorganised sector which accounts for 90 percent of total employment in India. Anecdotal evidence suggests the unorganised sector has seen significant erosion of turnover and now faces questions about the long term viability of a business model based on tax arbitrage. Operating in the cash economy, they could remain competitive as long as they did not pay taxes. In future, this advantage is unlikely to persist.

However, amidst the barrage of negative stories in the media, one question that many are asking is, if things are really so bad, if desperation levels are so high, how is it we have not witnessed any law and order problems so far? On the one hand, it suggests that notwithstanding the hardships, tolerance levels have not been breached, and that people are seeing some light at the end of the tunnel. On the other hand is a factor which I believe the media has missed entirely. This has to do with the inherent ability in humans to adapt to circumstances by using workarounds and by changing ones behaviour according to circumstances.