Making sense of economy post demonetization

Demonetization happened on November 8, 2016, the book, Demonitization and the Black Economy was published in 2017 and review is happening in 2018. This time gap is very important, because of the subject of the book. Effects of demonetization were both short and longterm in nature. A book written instantly could have not covered the impact properly and an immediate review of the book would not have allowed one to judge the conclusions drawn in the book.

Demonetization in India was a landmark event not only in Indian, but world history; any analysis needs to keep this fact in mind. This was a step which was appreciated across the world and common man in India. The most upset and vocal class was of Indian politician in opposition and a section of Indian media. They tried their best to create a social revolt by inciting people against the government, but failed miserably. Undoubtedly the people did suffer a lot, but stood by the Prime Minister, Narendra Modi.

India is a huge country with a corrupt political and bureaucratic system along with deficient banking infrastructure. It was a bold step, which no one had envisioned. Removal of black money from the system was part of the BJP manifesto. In hindsight, from the time BJP government came to power, in a way it had started preparing for demonetization, that is, from the time it started Pradhan Mantri Jan-Dhan Yojana (PMJDY) under National Mission for Financial Inclusion.

It is natural, that any book on demonetization will be read with a lot of interest. The book by Professor Arun Kumar, who has done a lot of work on black economy and has taught economics at JNU for three decades and retired in 2015, is no exception.

Apart from introduction and conclusion, book has seven chapters. From the preface of the book it becomes clear that the author is not happy with the demonetization.

The book is not a neutral analysis of demonetization. The author has covered the history of demonetization in India, but none of earlier demonetization where of the magnitude of what happened in 2016. Prime Minster took the risk of alienating its core vote bank as well as the citizens in general. This fact is unfortunately not at all appreciated by the critics of demonetization. The massive victory of BJP in UP just after the demonetization deprived the opponents of demonetization from calling it a ‘decision which was not supported by common man’. There is a whole chapter dedicated to the role of money followed by chapters criticising every assumption and arguments of the government in power. All of this would have been welcomed only if the book had suggested some concrete measures to solve the issue of black money, but alas that is missing.

The book says there was no effect on terrorism, but as per the record, number of stone pelting incidents, terror and naxal activity were close to nil till few months after demonetization. Author talks about long term negative impact on economy, but on the contrary data shows that sales of automobiles have increased, industrial production has increased, etc. The issue of NPA has been raised, but one has to remember that it was a legacy inherited by the government of the day. Some of the arguments are funny like “people in jail who could not return their currency”, leaving one wondering if he was worried about politician in jail. Arguments have also been made that farmers could not cultivate the field due to shortage of cash, while the data shows that food production has increased in the country during that period. This contradiction makes one think, if the book was written in haste.

The author argues that the government kept making new announcements regarding demonetization throughout the period, given for exchange of currency and sights it as a pointer for lack of planning by government. The same thing can be seen as an act of responsive government, which had ears on the ground and it kept taking steps which could make the effort of its citizens comfortable to cope with the situation. The way government has won election gives credence to the fact that people trusted the steps of government. There is excessive reputation in the book. There is no dearth of reference, bibliography and data. The language is simple and fluid. Book has recorded all the notification/press release for the period of demonetization meticulously.

It is an exhaustive biased critique of demonetization, and not an objective assessment of demonetization. The arguments are of a politician, and not of an economist. It gives very strong counter views, though most of them lack merit. It could have been a landmark work if written without the bias, but still it should be a good read for any student of economics to understand the counter view. Demonetization and the Black Economy Author: Arun Kumar

Publisher: Penguin Pages: 300; Price: Rs 499