Most economists are against demonetisation !! Whom did the centre consult ??

modiJ. Vishnu Shankar:

14 days after the PM’s dramatic announcement on demonetisation of high denomination currency, the nation is still in the grip of a heated debate on the assumed benefits out of the move. While the centre and its admirers have come out in full force on how big a bold step it has been, the common man continues to struggle on the street in front of bank branches and non-functional ATMs. 

Through all this high pitched media coverage carpet bombed by politicians of all hues, I have been patiently scanning newspapers and journals for those sane voices which invariably get obscured in all this din and bustle. The idea is to find out from people who really know their basics, the economists of repute, as to what this really means for the country not just in the short term but over the next 2-3 years.

Here is what a few of the respected economists whom I have been reading for some decades have written about. I have added the links to their articles for serious readers to dig a little deeper.

Ruchir Sharma: In an article titled ”  Populist nationalism cannot paper over economic chaos unleashed by demonetisation drive” Ruchir minces no words. In a scathing review of the scheme itself and not on its shady implementation, Ruchir writes “Drastic action might have still been appropriate if Indian institutions were especially dysfunctional, but as heretical as this may sound they are not for a country with such a low per capita income “. Read his article HERE

 
Swaminathan Aiyar: Swami in his trade mark free expression style does not believe for a moment that demonetisation will do anything to either cut corruption or for that matter even dent cross-border terror. He feels gold will start playing the role which currency has played till date. Link is HERE

Arthakranti: The Pune based economic think tank Arthakranti Prathishthan, credited with giving the Prime Minister the idea of demonetisation, says banning Rs 500 and Rs 1000 notes will do little to curb black money and the implementation should have been better. Arthakranthi too seems surprised that the government has only taken a small point from their comprehensive plan and ignored the big picture. Link is HERE 

Jean Dreze:  India’s most respected economic planner and the architect of MNREGA, Jen Dreze feels that demonetisation is like shooting the tyres of a fast moving car. Link HERE.

Jayati Ghosh: This development economist is known for her leftist views. But that does not make her an anti-developmental person as anyone who has been following her articles in The Hindu and Businessline will vouch for. She goes to the extent of saying that only poor will suffer the ill-effects of demonetisation but the corrupt rich can only get richer. Read her views in this link.

I have only quoted five economists of repute here but there are many others. The short point is, whom did the cenre consult before taking such a big economic decision.  Granted, that the announcement deserved some secrecy. But going by the developments, nobody, even among those that needed to have a share in the decision making, seem to be in the loop. Consider this.

  1. The Chief Economic Advisor, Arvind Subramaniam, has not spoken a word in the last 10 days and is completely missing from the discourse.
  2. The same with RBI governor, Urjit Patel. Ideally the announcement should have come from RBI and not the PM. But 14 days after the announcement, there no briefing from RBI except for notifications on day to day action plans to tide over the cash crunch.
  3. Niti Aayog Vice Chairman, Arvind Panagariya has only made some feeble sounding statements. He should have been in the forefront of the debate on behalf of the centre and not Sakthikanta Das

On summary, it is easy to conclude that the demonetisation decision was a closed door one taken by a handful of people without any wide ranging consultations or preparations for the after effects. Time will tell if this small group led by the Prime Minister have done India any good !!

 

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