Demonetisation: An act of great vandalism

PTI
Wednesday, 8 November 2017

By demonetisation the government sucked out almost 87 per cent of the money in the market. When the prime minister announced demonetisation to rid the nation of ‘black money’, which really means income and financial transactions that didn’t realise for the state its rightful share of taxes, the entire nation welcomed it. The other reasons the government gave for this is that it wanted to purge the system of counterfeit notes and break up the terror finance network.

By demonetisation the government sucked out almost 87 per cent of the money in the market. When the prime minister announced demonetisation to rid the nation of ‘black money’, which really means income and financial transactions that didn’t realise for the state its rightful share of taxes, the entire nation welcomed it. The other reasons the government gave for this is that it wanted to purge the system of counterfeit notes and break up the terror finance network.

It’s very evident that the government was clearly unprepared to embark upon such a major ‘reform’. When the crunch was inflicted, the RBI and the banks did not have enough notes in other denominations to pick up the slack, even somewhat. Instead, the nation experienced the breakdown of the financial system and the severe pain it has inflicted on the hundreds of millions who sustain themselves as daily wage earners, small retailers of perishable goods and farmers who have to invest now to sow and reap harvests of food grains and fruits and vegetables.

It took the RBI many months just to replace the high-value notes. Till then the anemia persisted. There was bound to be economic costs for this prolonged anemia. Former prime minister Dr Manmohan Singh, less of a politician and more of a top-notch economist, estimated the consequential contraction of GDP to be about 2 per cent. He has now been proven almost on target. The official GDP figures are confirming this. Apart from the Rs36,000 crore, which is the estimated cost of the new Rs500 and Rs 2,000 notes, the loss of GDP will amount to about Rs3 lakh crore. This is money that cannot be recovered ever. All the RBI got by way of counterfeits amounted to just Rs 42 crore.

Now look at the scale of damage caused. India has a work force of close to 450 million. Of these only 7 per cent are in the organised sector. Out of these 31 million, about 24 million are employed by the state or state-owned enterprises, the rest being in private sector employment. Of this vast reservoir of over 415 million employed in the unorganised sector about half are engaged in the farm sector, another 10 per cent each in construction, small-scale manufacture and retail. These are mostly daily wage workers and mostly earning less than the officially decreed minimum wages.

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