Several opposition parties have been going all out against the demonetisation policy announced by the Narendra Modi government. While Congress has not spoken against the policy, it has raised questions over the implementation. Former prime minister Manmohan Singh has given out a detailed account of how the ban on the old Rs 500 and Rs 1000 notes has been detrimental to the Indian economy.
Training guns at the present government and defending his own tenure, Singh said that “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.”
While criticising the government’s move, Singh in his editorial piece has raised several important questions. Not as an opposition member but as a learned economist, the points that he has stated should be taken into consideration. Here are five reasons that show that Manmohan Singh has a better understanding of India’s ground reality than Narendra Modi.
Cash transactions are legitimate: “Indians earn in cash, transact in cash and save in cash, all legitimately.” Singh has rightly stated that millions of Indians are still dependent on cash, especially the ‘honest’ Indians who earns wages in hard money. The former PM emphasised that the decision to ban the old currency notes seems to be based on the idea that ‘all cash is black money and all black money is in cash’. This is far from reality. Let us understand why.
Unaccounted wealth not just stored in cash: Truly stated, black money has been accumulated over the years. But holders of black money do not just use cash as a way to preserve this unaccounted money. Investing in land, gold, foreign exchange, etc are also some of the other ways in which black money is hoarded. Just cracking the whip on cash is hardly going to impact the actual culprits. But is sure to impact the millions of honest Indians. Steps need to be taken which would corner those who have unaccounted money instead of targetting the innocent.
Currency swap operations a major challenge: Operations such as these are not conducted overnight. Singh says that “logistical challenge of replacing billions of old currency notes with new ones is a monumental one.” He also states how most nations took this step over a period of time and not overnight as taken by the Indian government. The country is in a state of chaos, people are dying in the endless lines. And all this is “due to one hasty decision,” he says.
Hazardous macroeconomic impact: “India’s trade numbers are at multi-year lows, industrial production is shrinking and job creation is anaemic,” the economist says. At such a time, the cash crunch is likely to have a negative impact. The Indian economy is dependent on cash. The old currency is now an old tale and the new currency that is being rationed is still unavailable to many. The ordeal is likely to have severe economic ramifications.
No consideration for the weak: The decision, Dr Singh states, has ‘shattered the faith and confidence that Indians had reposed in the Government of India to protect them and their money.’ He points out that black money is indeed a menace to the society and should be eliminated. But in the process of doing so, the interest of the honest Indians cannot be ignored.