Note ban impact to last longer than expected: Dreze

Crisis will take an awful toll on the underprivileged, especially wage labourers: Noted development economist Jean Dreze

NEW DELHI: Demonetisation will take an “awful toll” on the underprivileged, especially wage labourers, and its impact might be worse and last longer than expected, noted development economist Jean Dreze has said.

Dismissing the claim that the demonetisation was a “surgical strike” on black money, he said if the government is really interested in dealing with the problem of ill-gotten wealth, it would be useful to start the process by introducing transparency in political funding.

“The BJP, being in power and a proud enemy of corruption, would do well to set an example by disclosing its own accounts,” Dreze, a former member of UPA'S National Advisory Council (NAC) and now a visiting professor at the department of economics at Ranchi University, said in an interview. As far as the impact of demonetisation of higher value currency notes is concerned, he said, “The crisis will take an awful toll on the underprivileged, especially wage labourers.”

“The effects of demonetisation might be worse and last longer than the government seems to expect. Short-term changes in the informal sector are largely below the radar of official statistics,” Dreze added.

Noting that the economic growth in the private sector has more or less ground to a halt for now, the Belgian-born Indian economist said, “recovering from this broad-based slump is likely to take time.”

Observing that the cashless payments may have some merits, but forcing them on the population at the risk of crashing the economy is not a fair way to promote them, Dreze hinted the real purpose of demonetisation is different perhaps something to do with corporate interests or electoral politics. “In terms of the hidden purpose, demonetisation may be a success, but at the expense of the general public,” he noted.

Stressing that the government has enough legislative powers to go after the big fish, including the top corporate loan defaulters, the noted economist said he is sure that would be more effective than to harass millions of Jan Dhan account holders in an elusive search for black money.

Dreze, who has done extensive work in India –on issues like hunger, famine and the NREGA –said the government should revive a series of legislative initiatives that have come to a standstill in the last three years, including the Lokpal Act, the Whistleblowers Protection Act and the Grievance Redressal Bill.

A chamber report said that the Centre's demonetisation drive would have a “significant impact” on the country's economy in the near term, but once the transition phase was over, the growth momentum would pick up.

Around 81 per cent of the economists covered in the survey by PHD Chamber of Commerce & Industry see a “significant impact” on India's economic growth in the shorter term. However, the benefits accruing from demonetisation will help in sustaining the country's economic growth in the longer term, they said.

“Though the contraction in GDP cannot be ruled out due to fall in economic activity, growth in demand will start gaining momentum once the economy moves out of the transition stage of demonetisation to remonetisation,” PHD Chamber of Commerce & Industry President Gopal Jiwarajka said. The survey covered responses from over 50 economists and analysts, 700 business firms and 2,000 people during December.

In the business segment, 73 per cent respondents are facing huge cash crunch due to demonetisation as they are unable to fulfill their daily cash requirements to pay wages to daily wagers and contractual workforce, it pointed out.

Production process not only in the informal sector but also in the formal sector has been impacted directly or indirectly, said the survey.

Cash driven segments such as fruits and vegetable markets, horticulture and floriculture, agricultural and food processing, construction activities, among others have been impacted, it observed in the findings. However, it said the immediate effect would probably be short-lived and the long-term benefits of demonetisation will drive the Indian economy to new areas of growth in the future.

“It is expected that removal of black money from the system would create a good scope for reduction in interest rates via-a-vis lower inflationary expectations and reduce the incidence of direct taxation,” Jiwarajka said.

“There is a need for low interest rates to propel a boom in housing and real estate. This will substantially increase employment as well as contribute towards GDP growth”.

Around 92 per cent of the respondents said that the major impact of currency crunch is seen on daily needs of the people such as purchase of eatables, dairy products and other necessities, whereas 58 per cent are facing high level of difficulty in fulfilling their day to day activities.