The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past, the ocean is flat again. This is what the eminent economist John Maynard Keynes had said which provides a context to the famous, oft-quoted and mostly misunderstood phrase, ´In the long run, we are all dead´. According to Prof Simon Taylor of the Cambridge University, and I quote him, Keynes is not arguing that we should recklessly enjoy the present and let the future go hang. Keynes was exasperated with the view of mainstream economists that the economy is an equilibrium system which will eventually return to a point of balance...
To me, this famous phrase stands for the classic aversion of people in power from articulating quantified goals for the medium term or even foreseeable long term, and the propensity of promising delivery of vague motherhood stuff in very very long term, which is meaningless, because by then, symbolically, we are all dead ´ well, at least dead from waiting interminably. This tendency enables the leaders with authority, to conveniently avoid accountability to the unquestioning masses down the line. It is my belief that Keynes attacks this culture of abstract deliverables in the undefined long term; he abhors this absolute lack of accountability.
Yes, our context is demonetization. Cement industry, like most other sectors, is already affected by this huge government intervention. Dispatches have dwindled all over the country, and analysts are predicting a drop of 20 to 30 per cent in volumes in the current quarter. The big question is, what is going to happen after that. Housing and Real Estate are sectors where cash transactions have been traditionally predominant, and these are major drivers of cement demand. We also happen to know that two thirds of cement consumption is into individual house builder segment which likes to pay for its cement bags mostly in cash. All this knowledge makes us suspicious about the health of cement demand going forward, and needless to say, the stock market is equally skeptical as we see the cement stocks have been hammered down by 15 to 20 per cent So, obviously there is considerable short and medium term pain to be endured by the cement sector.
Back to Keynes now. We agree to endure short term pain, provided we are convinced about the long term gains in the foreseeable future, and if the long term gains are well-articulated and quantified, and someone is held accountable for delivering those gains. Otherwise, in the long run, we are all dead (meaning all this becomes irrelevant today). Have you noticed that no one has said anything so far about quantified long term gains of demonetization, barring mouthing generalities, while the short term pains are already a reality.
Let us look at some numbers now. A paltry 6 to 8 per cent of the black wealth is held as cash, the rest being held in the form of gold, forex, property and other offshore assets, according to statistics released from IT data. An even more paltry 0.023 per cent of cash in circulation is suspected to be counterfeit, according to government- commissioned studies. How much of this 6 per cent of black economy can we trap through this demonetization? I suspect a very insignificant fraction. Even if, optimistically speaking, we can isolate 20 per cent of this black cash, it will mean a negligible 1 per cent of our black wealth! According to the social media, there are at least 14 different well-publicized methods of converting black money into white and depositing the same into bonafide bank accounts through loopholes left wide open by the government. Out of 14 lakh crore of demonetized currency notes, 11 lakh crore would be in circulation, the rest being in the banking system at any given point of time. Of this, as we go to press, upwards of 7-8 lakh crores have been already safely deposited into banks, and it is likely that bulk of the remaining notes will come into the banks, all as white money, by the 30th December deadline. If that were to happen, one can well judge the efficacy of this drive, at least on the count of removing black money, which happens to be the´“raison d’être”of this exercise. So much for the much-touted long term gains.
Be that as it may, let us wish that the cement industry bounces back soonest.