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Demonetization in long term scenario

The critics of demonetization are right in vocalizing the adverse short-term effects of the drive. The demonetization exercise has caused a major inconvenience to the majority of population of the country especially the section which has least financial resources. The resultant cash crunch and economic disruption in different sectors of the economy will definitely shave off some amount of GDP growth between a quarter and 3 quarters. According to some critics, including former Prime Minister Dr. Manmohan Singh, this reason is sufficient to condemn demonetization.

But a country s vision for its growth and development is always long-term. So this demonetization drive needs to be analyzed and measured in its medium and long term scenario.

The United Progressive Alliance government that had won a second consecutive full term in office encountered a spectacular downfall in 2014 general elections which was a backlash against corruption, loot and cronyism. It is indeed to incumbent Prime Minister Narendra Modi s credit who was able to separate the virtues of capitalism from the chaffs of crony capitalism. His management strategy of minimum governance and simultaneous work towards eradicating black money and illegal wealth accumulation has a balanced approach between pro-market policy vs  pro-crony. The demonetization is a step to rebuild the faith of a disenchanted citizen in the functioning of the government to make them stay invested in the system.

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