THE MYS­TERY OF DE­MON­ETI­SA­TION

India Today - - UPFRONT - By Shougat Das­gupta

Three months on from the Prime Min­is­ter’s spec­tac­u­lar de­ci­sion to make 86 per cent of the money sup­ply il­le­gal ten­der, two books seek to shed some light on

the note ban. Arun Ku­mar’s Un­der­stand­ing the Black Econ­omy and Black Money in In­dia ar­gues that the heart of the dark­ness, as it were, is “the po­lit­i­cal class... gov­ern­ments are an in­te­gral part of the rea­sons the black econ­omy ex­ists.” De­mon­eti­sa­tion: The Econ­o­mists Speak, edited by the es­timable Uma Kapila, of­fers 20 es­says that serve as an ef­fec­tive primer on the pol­icy.

Naren­dra Modi, in his ad­dress on Novem­ber 8, cited cor­rup­tion, black money and ter­ror­ism as the press­ing rea­sons for de­mon­eti­sa­tion.

Man­mo­han Singh, Modi’s pre­de­ces­sor, ac­knowl­edges in his es­say that “coun­ter­feit cur­rency and black money are as grave a threat to the idea of In­dia as ter­ror­ism and so­cial di­vi­sion”, but pours scorn on the ex­e­cu­tion. “The road to hell”, he re­minds us, “is paved with good in­ten­tions.” Arun

Ku­mar agrees that “de­mon­eti­sa­tion should not have been im­posed on the coun­try”, that it “has had lit­tle ef­fect on the prob­lem of the black econ­omy.”

Kapila has re­cruited only Bibek De­broy, a mem­ber of Niti Aayog, to de­fend de­mon­eti­sa­tion. His is the first es­say in the vol­ume, but it is a turgid ef­fort, an ex­er­cise in ex­tended throat-clear­ing that doesn’t haz­ard a guess at the medium- and long-term ben­e­fits of such a dis­rup­tive move. He ar­gues that de­mon­eti­sa­tion “isn’t meant to ad­dress cre­ation of new ‘black’ in­come”. So what is de­mon­eti­sa­tion meant to most ef­fec­tively ad­dress? Al­ready fake Rs 2,000 notes have made their way into the coun­try, so it’s not coun­ter­feit cur­rency.

Parthasarathi Shome ob­serves that pol­i­cy­mak­ers should “re­alise that not just tax evaders, smug­glers or ter­ror­ists use cash but also the poor.” Ajay Shah, of the Na­tional In­sti­tute of Pub­lic Fi­nance and Pol­icy, ar­gues that “the key ques­tion is firm fail­ure... once it has hap­pened, it can­not be un­done. You can turn an aquar­ium into fish soup, but you can­not turn fish soup back into an aquar­ium .... If a sig­nif­i­cant scale of firm fail­ure were to come about, it would con­vert a tem­po­rary shock into a more long-term re­ces­sion.”

Maybe no one knows the an­swer to ‘why de­mon­eti­sa­tion?’ Mi­hir

Sharma scathingly writes that “only in long-suf­fer­ing In­dia... will al­ready trod­den-on peo­ple ac­cept ad­di­tional in­con­ve­nience if as­sured that every­one else is suf­fer­ing too.” Maybe the re­sults of state elec­tions on March 11 will prove other­wise.

VIKRAM SHARMA

De­mon­eti­sa­tion: The Ex­perts Speak; Edited by Uma Kapila; Aca­demic Foun­da­tion; pp 150; Rs 595

Un­der­stand­ing the Black Econ­omy and Black Money in In­dia; Arun Ku­mar; Aleph; pp 144; Rs 399

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