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

“World headed towards stagflation; India must take care of the poor”

As the post-pandemic fallout and geopolitical uncertainty slows down global economies and sanctions against some nations, energy crisis and inflation are adding to the troubles, India is projected to be decoupled from world economy and fare better. To check if this belief really holds water, in the latest

The changing nature of CSR in India

With the advent of globalization came a new set of challenges for corporations, notably the duty of ensuring the well-being of all stakeholders while also protecting the planet`s natural environment. Although we are dedicated to a faster and more inclusive rate of growth, it is equally imperative that we f

BMC commissioner Chahal conferred with hon. doctorate

BMC commissioner and administrator Iqbal Singh Chahal has been conferred with a Honorary Doctor of Science Degree (honoris causa) by Guru Nanak Dev University in Amritsar, Punjab. Chahal was conferred the degree during the 48th convocation of the University in Amritsar at the hands of Punjab

Sebi to have two-track approach on ESG

Securities and Exchange Board of India (Sebi) aims to use a two-track approach on environmental social and corporate governance (ESG). Addressing a conference on ‘ESG for Atmanirbhar Bharat` in Mumbai, Sebi chairperson Madhabi Puri Buch said that that there should not be a single carbo

Accuracy more important than speed in news: Anurag Thakur

Presenting authentic information is the prime responsibility of media and that facts should be properly checked before they are put in the public domain, union minister of information and broadcasting Anurag Thakur has said. “While speed with which the information is transmitted is imp

FM concludes pre-budget consultations

Union minister for finance and corporate affairs Nirmala Sitharaman has concluded the pre-budget consultation meetings for Budget 2023-24 that were held from November 21 to 28 in the virtual mode. More than 110 invitees representing seven stakeholder groups participated in eight meetings sch

Visionary Talk: Amitabh Gupta, Pune Police Commissioner with Kailashnath Adhikari, MD, Governance Now


Archives

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter