New Delhi: Speaking at the launch of Professor Arun Kumar’s book Demonetisation and the Black Economy, former Union minister Yashwant Sinha criticised the lack of consultation in the Modi government’s November 2016 decision to demonetise Rs 500 and 1000 notes.
In a reference to the centralisation of decision-making within the Prime Minister’s Office (PMO), Sinha said, “There is only one policy maker in this government. He decided (to demonetise currency notes). Nobody was consulted.”
Referring to himself as “a voice of opposition within the ruling party”, Sinha argued that demonetisation did not achieve any of its stated objectives. “It was said that the objective (of demonetisation) was to curb corruption, fight black money, and terrorism. Demonetisation has failed to achieve even a single objective mentioned on November 8 2016,” Sinha said.
The discussion at the launch revolved around Kumar’s book, which the speakers described as a well-researched critique of demonetisation through the lens of an experienced economist who has worked extensively on the black economy for many years. Kumar contends that the negative impacts of demonetisation on the unorganised sector and the rural economy in particular, are so severe that even future generations will suffer.
Demonetisation and the Black Economy
Arun Kumar
India Portfolio, 2017
“As of now, we do not know the entire extent of damage done to the unorganised sector and the rural economy as the data is still to be compiled. And the impact has been severe in those sectors, which would in turn impact the economy hugely for years to come,” Kumar said at the book-launch.
Also present at the launch was Member of Parliament Jay Panda, currently suspended from the Biju Janata Dal (BJD) and rumoured to be close to the BJP, who said that he had mixed views on demonetisation. “Yes, it did disrupt the economy. It was bound to as 86% of cash was taken out of circulation. But, it also had a positive impact in terms of stifling the black economy. Colleges which were dealing in cash were impacted. Gems and jewellery traders were impacted due to demonetisation. Real estate prices fell drastically due to demonetisation,” Panda said. He cited the example of a resident of his constituency who was finally able to buy a “tiny plot of land” outside Kendrapara because prices had slumped.
Deepak Nayyar, professor of economics at the Jawaharlal Nehru University argued that the economic reasoning behind the decision was flawed. “Whenever demonetisation has happened in the world, it has been in times of crisis, and it has failed even then. India survived demonetisation because we were a stable economy. But, it damaged us badly. It did nothing to curb corruption as the stock of money, in the form of currency, came back to the Reserve Bank of India (RBI). The flow of black money, how it is generated, was untouched,” he said. Nayyar argued that the main objective behind demonetisation was political.
Picking up on Nayyar’s point, Sinha argued that the political purpose was achieved as the perception of demonetisation being a pro-poor move was created, with the help of sections of the media. “The perception around demonetisation was managed and sections of the media helped in doing that. That is why political success was achieved after the decision,” Sinha said.