Former Prime Minister Manmohan Singh launched on Thursday a broadside against the government’s clampdown on the cash economy, calling it a “monumental mismanagement” that might shave at least two percentage points off India’s economic growth and hit the poor hard.
Singh, the architect of India’s reforms that led to years of rapid growth, shed his usual reticent image, and said dozens of deaths and people’s distress from the scrapping of high-value banknotes meant the plan had led to “organised loot and legalised plunder”.
“This move will weaken and erode the people’s confidence in our currency and banking system,” he said, adding that demonetisation will hurt agriculture, small industries and workers in the informal sector.
“Even those who say this measure… is in the interest of the country in the long run, I am reminded of (economist) John Keynes who once said, ‘In the long run, we are all dead’”.
Prime Minister Narendra Modi sat in the Rajya Sabha and heard out the criticism from his predecessor. He didn’t return to the House after lunch, angering the opposition which then stalled the debate demanding his presence. The government hit back, with finance minister Arun Jaitley said the prime minister can’t sit in the House the whole day but will speak in the debate at the right time.
Modi scrapped Rs 500-and Rs 1, 000-notes, which accounted for 86% of all cash in the economy, in a move to catch out Indians with black money, earned by corrupt means or evading taxes.
But a bumpy rollout of the new currency has seen millions of people line up outside banks and ATMs, with small traders and farmers the worst hit.
Singh, whose own tenure as prime minister was blighted by several high-profile corruption cases, said he appreciated the idea behind demonetisation but urged Modi to find pragmatic ways to ease people’s hardship.
“It is no good that every day, the banking system modifies rules and conditions. This reflects poorly on the office of the PM, finance ministry and the Reserve Bank of India,” he said.
“I want to know from the prime minister the name of any country where people have deposited their money in the bank but they are not allowed to withdraw their money. This alone, I think, is enough to condemn what has been done in the name of greater good of the people.”
On Thursday, the government stopped the exchange of old notes at banks and said people can use only old 500-rupee notes to pay government utility bills till December 15. People can deposit defunct notes in their bank accounts till December 30.
Later, Jaitley rejected Singh’s argument that economic growth will suffer and accused the opposition of “inventing reasons to run away” from a debate.
He took a dig at Singh, saying “those who did not consider the generation of so much black money and scams during their regime as blunder are now finding the crusade against black money as blunder”.
Some experts say the demonetisation move has deeply damaged India’s mostly cash economy where online transactions are uncommon and hobbled by a lack of connectivity and poor network across the vast countryside.
The estimated cost of the demonetisation move may top Rs 1 lakh crore, analysts have warned, with tens of thousands of workers in informal sectors already bearing the brunt of the cash crunch.