By | Dr Pavan Soni | IIM-B Innovation Evangelist
Change is never easy. Especially, if you are seeking one for the newly minted 2000 note! Jokes apart, the last one year has been a landslide one in several ways. Britain’s decision of moving on, the rise of Russia, the coming of Don, the passing away of a record number of celebrities, and lastly, demonetization. Fewer years would have witnessed so many Black Swans packed in and having impacted such a massive diaspora.
Back home, it’s demonetization more than anything else that’s been capturing the media and mood of the nation alike. While pundits have argued about how the act is an eyewash, and hasn’t impacted the seizure of black money as it desired to, the nation seems to have accepted the fate and is slowly moving on. While in the short to medium term any change, especially the one of this magnitude, bears its own impact, the long run seems to be sober. Here’s how.
Calling institutions as the ‘rules of the game’, Nobel Laureate Douglas North argued that while formal institutions can change overnight, the informal ones take a generation to change. Demonetization, which literally happened overnight, on the fateful night of November 8, 2016, was one such tectonic shift in the burgeoning Indian economy and society. If we listen to North, the commensurate transformation in the informal institutions, such as ‘social acceptance’ and ‘ways of doing business’ would indeed take a significant time. Rightly so, after all, we are the largest democracy and one of the two oldest civilizations, and have shown to be infinitely adaptable.
While growing up (the process is still one), I have been reminded of some of the most significant social, political and economic upheavals that have dotted Indian post-independence history. Notwithstanding the two wars with Pakistan and one with China that took place when I wasn’t even born, to the state of emergency that Indian governance unleashed on its citizens, and all the way to the Babri Masjid demolition when I was in school and that at Godhra when I was pursuing my engineering. These have been some of the tectonic events that have allegedly shaped our understanding of the history.
However, the singular event that stands out on the economic realm is- the 1991 liberalization. I was nine then, and comfortably oblivious of the happenings. Of course, the opening up of the Indian economy did not go well with several business houses who were cozy under the License Raj and enjoyed monopolies with mediocre products and inexistent services. The times, then, would have been very difficult for the protected, though not much has been documented about those in the transit. But today, the burgeoning business and economic environment in India and the lucid job market that my generation enjoys can squarely be attributed to the liberalization. My generation should thank the architects of liberalization, for it is almost impossible to deliberate on a counterfactual world under the heavy hand of the state that still typify Russia and China.
The same logic stands for the present instance of demonetization. It’s a bold move by the Prime Minister Modi, and an important one, for there are no second best alternatives to break away from the shackles of crony capitalism and corruption (across levels) that had gripped India for far too long. My generation would have to pay the price, much the way the Singaporeans and Koreans did in the decades of 70s and 80s, but the following generation would be thankful. My next generation would hopefully be getting a far more levelled playing field, thanks to the short terms pain that we are willing to endure.
We, frankly, have limited alternates available to liberate the economy and society from its historical mistakes. The biggest impact of the process would be in instilling discipline into several businesses and spending patterns, for far too long, our businesses have run amok and consumers have remained frivolous. That, hopefully would change.