Demonetization - Mindless Economic Intervention of the Govt

In a 90% cash reliant country 86% cash in circulation became trash overnight after declaration of demonetization by the govt. Almost nine months have gone by after demonetization. Mr Modi is still not ready to accept that it was a mindless economic intervention of the govt's objective to strike on corruption.
Today the prevalence of corruption is still as it is as it was in relation to cash, hawala transfers and fundings especially when the govt intends to take us towards digital economy. Banks were estimated to have received 14.97 trillion rupees (around $220 billion) by the December 30 deadline, or 97% of the 15.4 trillion rupees’ worth of currency demonetized. There is little doubt that most of the invalidated currency was returned. The way the currency has come back to the banks has proved wrong that a huge quantity of unaccounted wealth may not make their way back into the banks. This way black marketers would lose their money as they would not be able to exchange their unaccounted /undeclared money undetected has proved wrong. The huge collection of cash coming back to banks shows that even people who had illegitimate money could devise its way into the banks.
Normally the ill-gotten gains is not parked in cash. An analysis of income tax was made to probe the nature of tax evasion in 2015-16. The undeclared cash component was only 6%. The remaining was invested in business, stocks, real estate, jewelry, or benami assets, which are bought in someone else’s name.
Now the question is how to root out corruption? Demonetization obviously is not the measure for economic correction. There should be a public policy not to hurt such a huge multitude of people from all parts of the socio-economic spectrum, including the poor. True there is very tiny miniscule of taxpayer. In 2013 only 1% Indians paid tax. The situation has not yet improved since. To root out corruption a well thought out public policy is required within a systemic approach to motivate cultural, institutional, and behavioural change in the long term.
Now see how the innovative and creative digital payments like Paytm gained momentum in business by offering mobile purse to almost 170 million users (i.e for 17% Smart phone user's) with a traffic increase of 435%, and an increase of 250% in overall transactions and transaction value after demonetization. Even govt took the clue and launched BHIM App linking with 12 digit Aadhaar user's ID number to facilitate all - even those who do not have Android or smart phones.
Banks are now revalidating the KYCs of their customer with mandatory Aadhaar information. The cap on cash transaction has been reduced to Rs 2 lac from Rs 3 lac. Hence the govt must realize that consumer friendly technology will work slowly and systematically bring all in the tax system than demonetization. Even the implementation of GST is a move towards discouraging corruption and ease of doing business. The success story of digital transaction is the shot in the arm for demonetization.
Even the GDP growth recorded a decline during the period needs to be analysed. GDP growth have shown that the economy grew at 7℅ in the quarter ending December 2016 and   mirroring impact of demonetisation on key sectors - Agriculture, International.Trade, Energy Infrastructure and Communication, Services Sector and, Human Resource Development. This was exactly what was predicted in India’s Central Statistics Office (CSO) on GDP growth. That means demonetization had rather adverse impact on Indian economy given the fact that many small factory owners pulled down their shutters and the factory workers losing their wages were asked to leave due to non payment of salary. Then where was the problem if the GDP growth was recorded at 7℅ in end December, 2016 as the govt opined that it is still a healthy indication of our GDP growth rate remaining at around 7%? Later CSO predicted that the GDP growth rate may further decline to less than 6.5 which actually slowed down to 6.1% in the fourth quarter of 2016-17. The data collection of CSO is not without flaw. There is a huge gap between the data collected and data and time when estimates are made. Moreover past models were used for most of the estimation which is all the more less  reliable in the event of demonetization.
Informal sector plays a very big role in the Indian economy by producing 45℅ of the output and employing around 94℅ of the workforce. This sector plays a very disproportionate role in Indian GDP as this cash reliant sector do not give us the direct reliable data for correct assessment of GDP. This sector which also suffered due to demonetization did not feature well with accurate data in the GDP. Needless to say the GDP growth rate plummeted even lower than the official data we have in hand.
India also do not have reliable sales data. The statisticians have to use production figures to estimate consumer spending. The production figures are of listed companies wherein unregistered companies into informal production and manufacturing were directly affected by the cash ban.
Fast moving consumer goods registered 1℅ -2℅ decline in sales volume. Hindustan Unilever Ltd (HUL) and Nestle - two giants in the industry reported drastic declines in profit and revenue. HUL alone reported 4℅ decline in sales volume.
Tractor sales growth declined to 18℅ in December 2016 from 28℅ in the previous quarter inspite of farmers having good inflow of cash due to good monsoon and good yield.
Passenger car sales grew 1% on the year for October–December, down from 18% growth a quarter earlier. Maruti, India’s largest car manufacturer, had a 3.5% increase in car sales volumes, down from 18.4% growth in the previous quarter.
Two-wheelers sales volume declined by 20% in November-December, 2016.
But now you'll ask as to why people did not question Modi and his wisdom of policy that they gave their thumping mandate to BJP in the state elections and the BJP registered a resounding victory in UP. People showed no concern for the percentage of money deposited in banks, what percent of illegal assets are held in cash, or the intricacies of how GDP growth is calculated. Every person living in India had to experience some form of dislocation or inconvenience. Despite that, the message that carried the greatest weight was that the government was acting, and acting decisively, on behalf of ordinary people to fight corruption. Both - the poor and the middle class were and still are in deep illusion. In situation of weak and irresponsible opposition in democracy for the vast multitude of people such issues are arcane issues. Knowable only to a few people, broadly mysterious, obscure and arcane - full of technical details which the people are blindly following as dished out to them by a party and its leadership.Neither the   baised economists nor the opposition leaders will ever bring down inherent policy flaws to the level of common man to make them understand the critical nuances of policy failure of the government due to poor policy and even poorer execution.