Modi de­fends de­mon­e­ti­za­tion

Kuwait Times - - INTERNATIONAL -

In­dian Prime Min­is­ter Naren­dra Modi yes­ter­day de­fended his crack­down on the cash econ­omy that has left busi­nesses, farm­ers and fam­i­lies suf­fer­ing, say­ing it was nec­es­sary to keep in­fla­tion in check and en­sure ba­sic ameni­ties for all. Modi’s de­ci­sion last month to scrap 500 ru­pee and 1,000 ru­pee ban­knotes as part of a crack­down on tax dodgers and coun­ter­feit­ers has caused a cur­rency crunch in a coun­try where most peo­ple are paid in cash and buy what they need with cash.

With a small stock of smaller notes avail­able and new bills of 500 and 2,000 ru­pee in short sup­ply, In­di­ans are be­ing forced to stand in queues out­side banks and cash ma­chines to change their old notes. Ad­dress­ing his party’s elec­tion cam­paign rally in the state of Ut­tar Pradesh, Modi said: “Please sup­port me in cur­ing the disease that has been af­flict­ing this coun­try for the last 70 years. “I have put you all in a queue. But this is the last queue to end all the queues.”

While Modi has been praised for his in­ten­tions, he is fac­ing flak from politi­cal op­po­nents as well as prom­i­nent econ­o­mists such as Amartya Sen and Paul Krug­man for suck­ing 86 per­cent of the cur­rency out of cir­cu­la­tion vir­tu­ally overnight. No­bel lau­re­ate Krug­man on Fri­day said Modi’s de­ci­sion was “highly dis­rup­tive” and would re­sult in “sig­nif­i­cant” tem­po­rary cost for the econ­omy with­out pro­duc­ing ma­jor gains in the long-run.

Of­fi­cials ex­pect some il­licit cash never to be re­turned and to ex­pire worth­less, while other money that is de­posited will re­main in the bank­ing sys­tem. The gov­ern­ment’s goal is to en­cour­age the use of cash­less forms of pay­ment, a chal­lenge for most In­di­ans who live and work in the in­for­mal econ­omy. The fall­out from the de­ci­sion is widely ex­pected to im­pact eco­nomic growth this quar­ter and for sev­eral quar­ters to fol­low. Opin­ions, how­ever, vary on the scale of the dam­age. Modi called for pa­tience un­til Dec 30, by when he has promised the cash sit­u­a­tion would sta­bi­lize, and urged peo­ple to shift to elec­tronic trans­ac­tions. “I will not let your sac­ri­fice and hard­ship go waste,” he said. — Reuters

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