Most Indians may not be familiar with this memorable maxim of ‘Where you stand depends of where you sit’, now commonly known as Miles’ law. This aphorism could just be apt in any assessment of the demonetisation exercise of November 8 last year, which paralysed 86 per cent of the value of all currency in the country.

So where one stands on the demonetisation impact depends largely on who is taking the judgment call — or, to put it differently, whose eyes are looking into it.

Ask any lower-middle class member or a poor man in the informal sector, the response would be that it was an exercise that came as a bolt from the blue and clearly dented their livelihood opportunities.

Interestingly, the Indian poor went through the pain without creating much political fuss about it, given the vicarious satisfaction they gained from the government's efforts to clamp down on black money hoarders. It’s a different matter that not much has so far been achieved on the black money recovery front.

Small and medium enterprises also suffered due to the cash crunch in November-December.

However, this abrupt move came as a godsend for banks, which faced a post-demonitisation deposits gush, boosting their liquidity and reducing their average cost of funds, prompting them to reduce their lending rates. Regular banking activities, however, came to virtual standstill in public sector banks during the two demonetisation months of November and December last year.

At the half-anniversary stage (six months have passed), the best overall assessment one can draw is that the demonetisation impact has been muddled. Till the Reserve Bank of India (RBI) manages to complete its counting exercise of all the notes that returned to the banking system, it is difficult to come to any definite conclusion on the impact. Critics are quick to point that RBI was taking a wee bit longer to complete the exercise.

However, going by the data available till date, it will be safe to conclude that the demonetisation exercise may not have entirely achieved the objectives for which it was introduced. There is nothing tangible to show on the key objectives of eliminating fake currency, curb black money or make India a cashless society through ‘digitalisation’.

Simply put, the historic decision of demonetisation has just ended up inflicting a large cost on the poor and informal sector, which accounts for 90 per cent of the economy. The short-term pains will hopefully translate into long-term gains for the economy.

Of course, the demonetisation exercise has given a push to India’s journey towards digitalised economy, although this is going to be a long-term outcome.

Digital boost

The clear winners of the digitalisation drive are the players in the digital ecosystem including smart card manufacturers, payment gateway providers, electronic wallet companies, e-commerce platforms and the telcos.

Naveen Surya, Managing Director, Itz Cash and Chairman - Payment Council of India, said that the Modi-led Government has in the past three years done “incredible work” with reference to building a new framework for digital economy. Prime Minister Narendra Modi’s actions to make India digital has brought a momentum in the entire payment ecosystem, he said.

Deven Mehta, Chairman & Managing Director, Smart Card IT Solutions, said the biggest impetus to the Smart Card industry came from the demonetisation drive, which has led to manifold increase in the usage of debit and credit cards. “Our company had to enhance its capacity seven-fold to cope with the demand post demonetisation,” he said.

Also, the Prime Minister’s December 31 announcement to issue 30 million Kisan credit cards is expected to benefit farmers greatly and would augment the use of credit cards for multiple purposes in rural India.

Another example of the government’s “visionary” outlook, according to Mehta, is the move to issue Smart Aadhaar cards with chips. “This will tremendously benefit the 18 crore senior citizens in the country,” he said.