I think it is time to do a honest appraisal post the demonetization exercise.
My take is as follows
[*]No major windfall gain. Most currency was converted.
[*]Conversion costs were not too high. People who panicked and converted to gold in early days paid 30-50%. Conversion by bank staff was at 10% or lower rates (one of my uncles who was a CA was highly disappointed since he made no money even at a 20% cut). In fact, I have even heard unconfirmed reports of premium - by people who had shown cash in hand (based on withdrawal that was spent on personal expense).
[*]Activity of money mules was limited - it appears that only around 1L cr was exchanged. Most other money was deposited into bank accounts.
[*]There seems to have been no major removal of money post removal of all restrictions - figures are not available but it appears that overall currency in circulation has declined by 20-30%.
[*]There was a very real disruption of black economy atleast for 6+ months but overall impact on economy has been very limited - below 1%.
[*]There is a very real fear of God created in black money holders
Political Impact
[*]Overall impact - Marginal. UP elections show a 2% decline in voteshare of BJP which is similar to most other assembly elections.
[*]Impact in 2019 - None. Demonetization will just be one more bullet point in list of actions against black money.
In other words, the Indian penchant for jugaad has probably ensured that both the positive and the negative effects of demonetization were severely limited. However, in the process, the cost benefit ratio of demonetization has increased significantly.
The doomsday scenario has not come about. Rupee is appreciating, gold is stable, markets are reaching new highs, inflation is stable (and mildly decreasing), real estate is where it was for the last 3 years.
Thanks
