Demonetisation will not have a big bang impact: Experts

“It could have been done in a phase wise manner. It could have been done without so much shock and surprise”

pratap

Pratap Vikram Singh | November 9, 2016 | New Delhi


#Economy   #Corruption   #Bank Notes   #Black Money   #Cashless Economy   #Rs1000   #Rs500   #Demonetisation  


Prime minister Narendra Modi’s address to the nation on Tuesday evening caught everyone, not just black money hoarders, by surprise. Minutes after the announcement, the news about Rs 500 and Rs 1,000 currency notes loosing validity from November 9 went viral. It was being discussed everywhere, at the airport, roadside tea stalls, streets, market and ATMs. The move is being widely appreciated for it is being seen as a master stroke to curb black money, and hence black economy.

Critics including economists and opposition parties, however, have watered down government’s optimism about curbing black money. “It is not a bad thing. But it is not going to have a big bang impact,” said professor Jayati Ghosh, centre for economic studies and planning, Jawaharlal Nehru University.

“Most black money is not held in currency. The rich deal in financial assets, property, or they send money abroad. The cash is held by the smaller players: traders, other smaller businessmen.”

“Moreover there is high circulation of cash in the informal economy. How about those without a bank account or simply not having access to banking services? How will they exchange old currency notes?  It is a massive attack on the payment system,” said professor Ghosh.
“It could have been done in a phase wise manner. It could have been done without so much shock and surprise,” she added.

According to Rajat Kathuria, director and chief executive, Indian Council for Research on International Economic Relations (ICRIER), it is one of the initial steps which has been taken by the government and is expected to have a greater impact. Its impact, however, will eventually depend on institutionalised electronic transactions. The dependence on cash has to be reduced eventually.

With the Jan-Dhan Yojana and DBT, the government is creating the infrastructure required for electronic banking. “Still we are generations away from being a cashless society,” Kathuria said. Besides, the government has to rationalise taxes and duties to incentivise compliance, he said. 

In terms of its effectiveness, he said it will be difficult to monitor wealth held in the form of assets. But whenever it comes into the market it might become easier to track it.

Demonetising high currency notes is one of the ways to deal with black economy, as was done in 1978 by Moraji Desai government. The government had demonetised currency notes of Rs 1000, Rs 5,000 and Rs 10,000 denominations.

It didn’t have a significant impact on black money, former finance minister P Chidambaram said in a press conference on Wednesday.

According to a Quint report, IG Patel, the RBI governor in 1978, wrote in his book, ‘Glimpses of Indian Economic Policy: an Insider’s View’, that when the then finance minister HM Patel told him about the step, he asserted that steps like these rarely have striking results. “He added that most people in possession of black money rarely keep their ill-gotten earnings in the form of currency for long. Thinking that black money is stashed away under mattresses or suitcases is naive,” Quint reported. 

“[The demonetisation move is] poorly planned and not thought through, this move means harassment for millions not connected to the banking system,” tweeted Sitaram Yechury of Communist Party of India (Marxist). Today's announcement neither addresses the major sources of black money abroad nor those invested in property, gold and such instruments, he said in another tweet.

Congress vice president Rahul Gandhi tweeted, “Once again Mr Modi shows hw little he cares abt ordinary ppl of this country-farmers, small shopkeepers, housewives-all thrown into utter chaos.” “While the real culprits sit tight on their black money stashed away abroad or in bullion/ real estate. Well done Mr Modi.”
 

Comments

 

Other News

A trowelful of empowerment

When her husband died last year, 60-year-old Chakkamma was not sure whether she would be able to have some money of her own: she has a son who looks after her, but she wanted to maintain a degree of independence. Opportunity came knocking when the Tamil Nadu government, as part of its Pudhu Vaazhvu (or new

Should Shiv Sena MP Ravindra Gaikwad be arrested for assaulting an Air India employee?

Should Shiv Sena MP Ravindra Gaikwad be arrested for assaulting an Air India employee?

Railways suffered over Rs 33,000 crore loss on passenger service: CAG

  The Railways was unable to meet its operational cost of passenger and other coaching services. During 2014-15, there was a loss of Rs 33,821.70 crore on passenger and other coaching services. The freight services earned a profit of Rs 38,312.59 crore which indicated that 88.28 percent

“Return land to tribals after mining is over”

Seasoned BJP parliamentarian Nand Kumar Sai, who took charge as the chairperson of the National Commission for Scheduled Tribes (NCST) on February 28, has his work cut out for him. Archana Mishra caught up with Sai, 71, on his first day in office where he

Should there be automatic termination as member of parliament if that person takes oath as minister/chief minister in a state?

Should there be automatic termination as member of parliament if that person takes oath as minister/chief minister in a state?

Ganga, Modi and people’s unwavering faith

When the truth was a few steps away from Modi’s gaze In November 2014, prime minister Narendra Modi made his first visit to his constituency Varanasi and launched a massive cleanliness drive at Asi ghat, which was covered in mud and silt. When locals sa

Video

जानिए क्या है ओबीसी आयोग

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter