India Today - - DEMONETISA­TION -

JEAN DRÈZE Devel­op­ment econ­o­mist

My as­sess­ment is the same as be­fore—de­mon­eti­sa­tion was a blun­der and did grave in­jus­tice to the poor.

PRONAB SEN Econ­o­mist

What­ever its po­lit­i­cal mer­its, as an eco­nomic measure, de­mon­eti­sa­tion was a bad idea. The re­turn of prac­ti­cally all the cash into the bank­ing sys­tem was ex­pected since the ba­sic premise of de­mon­eti­sa­tion that black money is held as idle cash was wrong ab ini­tio. Hope­fully, pol­i­cy­mak­ers will now have a bet­ter idea of how the black econ­omy func­tions.

SUR­JIT BHALLA Mem­ber, PM’s Ad­vi­sory Coun­cil

It is a wrong met­ric to eval­u­ate de­mon­eti­sa­tion by only the cri­te­rion of money re­turned. In fact, it is the weak­est cri­te­rion. Nev­er­the­less, the gov­ern­ment and cer­tain in­di­vid­u­als had said Rs 2-3 lakh crore will not re­turn to the sys­tem as peo­ple will not want to ex­pose them­selves. We were very naïve and not ap­pre­ci­at­ing the in­ge­nu­ity of the cor­rupt in In­dia, who found all means to re­turn the money. Yes, this was a very lim­ited ob­jec­tive, and on this, de­mon­eti­sa­tion was a clear fail­ure. Over the next few years, we will know if the cor­rupt were able to get away, or were found out and penal­ties were im­posed.

N.R. BHANUMURTH­Y Pro­fes­sor, Na­tional In­sti­tute of Pub­lic Fi­nance and Pol­icy

It’s no sur­prise that most of the money is back in the bank­ing sys­tem. And this by it­self is not such a bad out­come in the short run. While there were many short-term costs—and these are well doc­u­mented— the long-term ben­e­fits of de­mon­eti­sa­tion are still not clear. This would be a ma­jor em­pir­i­cal ques­tion for more re­search in the com­ing years. There are in­di­ca­tions about a mod­er­ate in­crease in fil­ing of in­come tax re­turns, which used to be quite low and could not au­gur well for a large, fastest-grow­ing econ­omy. Be­fore de­mon­eti­sa­tion, there were ef­forts by sev­eral govern­ments to in­crease the tax base and re­duce black money. But none suc­ceeded. There are still hopes that de­mon­eti­sa­tion, along with GST, will ex­pand both the di­rect and in­di­rect tax base and re­duce the size of the black econ­omy, whose es­ti­mates range from 25 per cent to 70 per cent!

MAITREESH GHATAK Pro­fes­sor of eco­nom­ics, Lon­don School of Eco­nom­ics

It has been a com­plete fail­ure. The tragedy is that this was en­tirely fore­see­able. At best, de­mon­eti­sa­tion would have had as much a last­ing ef­fect on curb­ing black money as a one-time ef­fort to re­move garbage would have on the qual­ity of san­i­ta­tion and hy­giene. Black money gen­er­a­tion is con­tin­u­ous and in­volves evad­ing taxes and reg­u­la­tions as well as en­gag­ing in cor­rupt and crim­i­nal ac­tiv­i­ties, which will con­tinue un­abated with the new cur­rency.

Given that the af­fected cur­rency notes con­sti­tuted 86 per cent of the to­tal vol­ume of cash in the coun­try, this pol­icy ef­fec­tively led to a much higher drop in liq­uid­ity than even the drop in the money sup­ply (about 30 per cent) that the US Fed is crit­i­cised for dur­ing the Great De­pres­sion. What­ever be the ill­ness, you don’t take 86 per cent of the blood sup­ply out of a pa­tient’s body. You would be ex­pos­ing the pa­tient to a se­ri­ous health shock.

It is com­monly agreed that de­mon­eti­sa­tion has knocked off at least a per­cent­age point from the trend growth rate (even the Eco­nomic Sur­vey says that be­tween 0.25 and 0.5 per­cent­age point of growth was lost rel­a­tive to the base­line of about 7 per cent). In any case, these growth fig­ures un­der­es­ti­mate the im­pact of de­mon­eti­sa­tion on the in­for­mal sec­tor.

Add to it the phys­i­cal hard­ship im­posed on cit­i­zens, such as the long queues at banks, and the strain on the bank­ing sec­tor, which re­sulted in some deaths.

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