THE MYSTERY OF DEMONETISATION
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.
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