A day after demonetisation of large currency notes completes a month and a few days after he first called it “organised loot, legalised plunder,” in the Rajya Sabha, former Prime Minister Manmohan Singh has again torn into the government’s exercise.
In a signed piece in The Hindu, the globally respected economist who was finance minister when the Indian economy was first liberalised in 1991 and was named finance minister of the year by Euromoney magazine, writes that demonetisation will cause grievous injury to the honest Indian who earns wages in cash. Here are the other takeaways from the article in the national daily on Friday.
• Wrong premise: The underlying premise behind the decision of the Prime Minister to render Rs 500 and Rs 1,000 currencies as illegal overnight seems to be this false notion that ‘all cash is black money and all black money is in cash’. This is far from reality. The vast majority of Indians earn in cash, transact in cash and save in cash, all legitimately. It is the fundamental duty of a democratically elected government in any sovereign nation to protect the rights and livelihood of its citizens. The recent decision by the Prime Minister is a travesty of this fundamental duty.
• A mammoth tragedy: More than 90% of India’s workforce still earns its wages in cash. These consist of hundreds of millions of agriculture workers and construction workers. Despite the number of bank branches in rural areas having doubled since 2001, more than 600 million Indians still live in a town or village with no bank. Their subsistence depends on their cash being accepted as a medium of valid currency on an everyday basis. They save their money in cash which, as it grows, is stored in denominations of Rs 500 and Rs 1,000 notes. To tarnish these as ‘black money’ and throw the lives of hundreds of millions of poor people in disarray is a mammoth tragedy.
• Don’t let the real culprits get away lightly: Black money in India is a genuine concern. There have been various attempts by many governments in the past decades to recover this illicit wealth through actions by the Income Tax department, the Enforcement Directorate and schemes such as Voluntary Disclosure. These measures were targeted strikes at only those suspected to be holders of such unaccounted wealth, not on all citizens. All black money is not in cash, only a tiny fraction is. Against this backdrop, the decision by the Prime Minister is bound to have obverse implications by causing grievous injury to the honest Indian who earns his/her wages in cash and a mere rap on the knuckles to the dishonest black money hoarder.
• The ration rationale is disconcerting: The logistical challenge of replacing billions of old currency notes with new ones is a monumental one in most nations, and in a country as vast and diverse as India it was bound to be doubly so. It is heartbreaking to see and hear of millions of poor Indians standing in long lines to withdraw some money for basic sustenance. As someone who has experienced long lines for rationed food during war time, I never imagined that one day I would find my own countrymen and women waiting endlessly for rationed money. That all of this suffering is due to one hasty decision makes it even more disconcerting.
• The macro-economic picture is ominous: At a time when India’s trade numbers are at multi-year lows, industrial production is shrinking and job creation is anaemic, this policy can act as a negative shock to the economy. Consumer confidence is an important economic variable in a nation’s growth prospects. It is now evident that this sudden overnight ban on currency has dented the confidence of hundreds of millions of Indian consumers, which can have severe economic ramifications. This can have ripple effects on GDP growth and job creation. We as a nation should brace ourselves for a tough period over the coming months, needlessly so.
• You have to balance the risks with the benefits: While eliminating black money, we have to be mindful of the potential impact on hundreds of millions of other honest citizens. It may be tempting and self-fulfilling to believe that one has all the solutions and previous governments were merely lackadaisical in their attempts to curb black money. It is not so. Leaders and governments have to care for their weak and at no point can they abdicate this responsibility. Most policy decisions carry risks of unintended consequences. It is important to deftly balance these risks with the potential benefits of such decisions. Waging a war on black money may sound enticing. But it cannot entail even a single loss of life of an honest Indian.