Wednesday, May 24, 2017

Book on Demonetisation

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Demonetisation and Black Money by Dr.Rammanohar  Reddy ; Published by Orient Blackswan ; Pages 244; Price Rs.295/-

If America had its 9 / 11  India had its 8 /11.The  September 11attacks  were a series of four coordinated terrorist attacks by al-Qaeda which  killed 2,996 people. India’s 8 /11 witnessed  Narendra Modi shaking  up the economy by announcing that currency denominations of Rs 500 and Rs 1,000 would no longer be deemed valid since that night. The announcement invalidated Rs 14.18 lakh crore of currency at one stroke. As much as 86 per cent pf the Rs 16.41 lakh crore of currency in circulation was deprived of its status as legal tender. The aim was to attack black money and defeat counterfeiting of currency. According to  R B I  as of 19 December 2016 as much as Rs.12.44 lakh crore had already been deposited in the banking system.

The announcement sent the nation into a frenzy, with many queuing up outside banks and ATMs in a bid to get their hands on valid currency. There were reports of deaths of people waiting in the queue for withdrawals.

As pointed out by Dr.Y.V.Reddy, ex RBI Governor demonetisation was undoubtedly a historic and unprecedented event, There has perhaps been no other policy that has affected the lives of a billion people directly and all at once. It is difficult to find a parallel in terms of the range of economic activities that have been hit by an economic policy decision.

 The author Dr.C.Rammanohar Reddy is an economist who was Editor of the highly respected 'Economic and Political Weekly' for over a decade and presently of 'Scroll-n' . In a discussion when the book was released he declared that his aim in writing the book is to provide  a comprehensive understanding of  the reasons that led to demonetisation, its impact on economy and people and allowing the  readers to arrive at their own conclusions -- whether the measure is good or bad.He has written the book for the layman and not the economists  and specialists in banking. Reddy has enlightened us of its aspects as it related to people and left the  judgment to us as part of our  decision making .

The  volume focuses on aspects like, whether demonetisation was effective in curbing black money, whether Government could have adopted a less disruptive measure  to curb black money as also if the objectives of demonetisation have been fulfilled and an attempt to analyse what  the future portends.

Reddy believes that  to curb black money, a larger change is imperative in government policies, people’s habits and societal norms.

He holds the view that the  argument that demonetisation was implemented to promote digital transactions and make economy go cashless does not hold water for the simple reason that  the trend of digital transactions has increased over the past few years and in the last year digital payments were more than cheque payments.

All are aware 1991 is still considered the watershed moment in India’s economic policy regime. That time  the issue was much more pertinent. Views were polarized, and material and commentary was in abundance.

Prime Minister Narendra Modi’s demonetisation exercise of 8 November, which made 86% of the currency under circulation redundant in one shot, is certainly an economic event of as much significance as the 1991 reforms.

 Rammanohar Reddy has  written  ' Demonetisation And Black Money ' even before the Reserve Bank of India has finished counting the scrapped Rs 500 and Rs 1,000 notes that have been returned to banks. The book will clearly serve as an intelligent person’s guide to demonetisation. All connected issues related respect to demonetisation have been covered clearly and cogently. Reddy does raise pertinent questions, backed as he is by long standing  experience in journalism and academics.

He doubts whether  a shift from cash to digital payments would deal a body blow to corruption, as white-collar activities might be involved in tax evasion too. Likewise , he gives the common habit of women exchanging their inherited jewellery for new pieces (without proof of exchange) to illustrate how a hawkish tax collection policy post-demonetisation might lead to the harassment of innocent taxpayers.

The book is divided into four sections that deal with a general discussion on black money and demonetisation, the assessment of the design and implementation of demonetisation policy, its impact on the common people and polity, and its impact on India’s banking sector.

The economist strongly believes that demonetisation has inflicted significant costs on the economy, with the poor suffering the most. Its benefits could have been realised through  less hurtful policies.

The book implies that demonetisation decision would have been taken on  political calculations, not policy wisdom. The international experience of demonetisation, India’s own experiences of previous demonetisation exercises, and more recent documents on the issue of black money—which have been cited in the book—clearly suggest that it would have been extremely difficult, if not impossible, to make a policy case for demonetisation. The discussion on the banking sector also shows that problems in implementation were inevitable, given the scale of the exercise.

There is limited discussion on the politics around demonetisation, given the overwhelmingly peaceful and protest-less three months post-demonetisation—despite the immense hardship people were put to. It is pertinent to quote Dr.Y.V.Reddy, ex Governor on this. “Demonetisation led to a virtual denial of freedom of movement, drying up of sources of livelihood and deprivation for no fault of theirs. Yet, people at large did not revolt. They went through not just inconvenience, but pain. While the agony was palpable, the patience of the masses was beyond belief. There was silent but eloquent demonstrations of some deep, shared intense feeling.That feeling, I believe is one of disgust with the state of affairs in recent years, and a belief that this maybe the only way in which they could express it.”

  The discussion stresses  complicity of all political parties in trying to preserve opacity in political funding at the policy level, and the nexus of black money and politics at the grass-root level Modi was selling to people to justify his decision.

The author  concludes : “If in the end Demonetisation 2016 turns out to have been a failure and if there is no follow-up action on black money, there is likely to be long-term damage. The colossal distress that Demonetisation 2016 caused will make it impossible for any future government to embark on a more serious war on black money. The government will be wary if there is even a small risk of pain being inflicted once again on the entire population. No society will be able to go through this suffering once again. The black economy will then remain in place.”

A very valuable contribution to the debate on India’s 8/11.

21 / 05 / 2017

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