Since demitting office as finance minister in May 2014, P Chidambaram has kept a close watch on the NDA government and has been unsparing in his critical appraisal of its official policies. In an interview with DK Singh, he questions the rationale of the government’s decision to recall high-value notes and says that it will take at least 18 months for the economy to recover from the “devastation” of demonetisation. Excerpts:
In a column on December 4 2016, you posed a question if all the demonetised money were to come back into the banking system, what’s the rationale for demonetisation? What would you say now?
Practically all the money has already come back. If you take into account money in Nepal and Bhutan, money with NRIs and money with moneychangers in Singapore, Kuala Lumpur, or Dubai…Practically every rupee has come back. So, why did you do this? You first demonetise the currency and then say I am going to re-monetise the economy. What for? It’s a completely wasteful exercise. Therefore, I said khoda pahar, nikli chuhiya. You move a mountain and get a rat.
The NDA government went for Ctrl+Alt+Del option and is now in the process of rebooting the economy. How long do you think it will take to bring the economy back on track?
I am absolutely certain that the shadow of demonetisation will fall entirely through 2017-18 and may spill over to 2018-19. To recover from the devastation of demonetisation, it will take at least 18 months. SMEs (small and medium enterprises) have to reopen and revive; people who have migrated back to their homes have to go back to their work places; people whose accounts were performing and which have now become NPAs have to recover from that and go back to performing accounts. Above all, people must have confidence in the system to spend their money. Today, they have no confidence. They are hoarding whatever cash they have.
I understand you have information about a note sent by Reserve Bank of India to PMO, opposing the demonetisation move…
That’s what I hear— fairly reliable. About the time Dr Raghuram Rajan (former RBI governor) demitted office (September 4), on behalf of the RBI, a five-page note was sent to the PMO on demonetisation. Now whether it’s correct or not, it’s for the government to confirm or deny. If such a paper exists, the government must make it public so that we could have an informed debate on it…I don’t know what the note contains but the conclusion I believe is that demonetisation is not a wise step.
Could that be one of the reasons for Rajan’s exit?
In retrospect, that could be one of the reasons but I think there were other reasons also. Dr Rajan is a man of international stature. He is not going to do the bidding of this government. He will take independent positions. He will speak freely. He will comment on what’s happening. I think this government was more afraid of his ability to speak on many issues and therefore, decided to create a situation where he couldn’t continue. I think the RBI’s stature is diminished considerably after November 8. It was among the most respected central banks of the world. Now I think its stature has been severely compromised.