Beyong the Horizon
By Pradeep Kumar
The actions of the BJP members on the committee have saved the government the trouble of facing the report’s criticism of the demonetisation exercise.
There will be no parliamentary critique of the shock decision to demonetise the old Rs 500 and Rs 1,000 notes that was announced by Prime Minister Narendra Modi on 08.11.16. The Bharatiya Janata Party, using its majority in the parliamentary standing committee on finance, has derailed a discussion on or adoption of a report that criticised demonetisation as an “ill-conceived” exercise that “led to the lowering of the Gross Domestic Product by at least 1 percentage point”.
- Parliamentary Committee had drafted its report on demonetisation in March
- Report called demonetisation “ill-conceived”
- BJP outvoted the report in the committee
The actions of the BJP members on the committee have saved the Govt the trouble of facing the report’s criticism of the demonetisation exercise.
The standing committee on finance is headed by Congress leader and former union minister M Veerappa Moily. The committee, which includes eminent economists such as former Prime Minister Manmohan Singh, completed drafting its report on the demonetisation way back in March last.
The scathing report ran into opposition from the committee’s BJP members from day 1. On March 19, the BJP members rose in unison to reject the report. BJP’s Nishikant Dubey, who is known for his expertise on financial and business matters, submitted a dissent note against the report.
The note disagreed strongly the report’s conclusion that the demonetisation decision was “ill-conceived”. The BJP members argued that demonetisation was a huge success in eradicating black money and promoting digital payments.
Moily, known for his penchant for ensuring parliamentary panels headed by him adopt reports unanimously, tried several to convince the BJP members to come around to the panel’s report.
However, the Congress and other opposition parties were outnumbered on the panel with the BJP having 17 MPs in the 31-member committee. If Moily had pushed for a vote, there would virtually have been two reports on demonetisation with diametrically opposite conclusions.
And so, week after week, a discussion or voting on the report kept getting postponed. And finally even this week, at the committee’s last meeting before the end of its term, Moily chose not to take up the report, which is now as good as worthless. The committee’s term ended on August 31.
By using its dominant numbers in the committee, the BJP has done to the opposition what it had to face during the UPA II years. Then, the public accounts committee led by BJP’s Murli Manohar Joshi was considering a report on CAG’s analysis of the allocation of 2G licences under then telecom minister D Raja.
The then-in-power Congress and its allies, however, vehemently opposed the report and filed dissent notes to stall its adoption. If it had been adopted, the report would have become a serious indictment of the UPA government.
Interestingly, demonitisation was a prominent reason for BJP defeat in Rajasthan, Chattishgarh and MP as claimed by victorious Congree through the BJP in those states maintained that the implications of demonetisation, as goods. But who can deny calculable cost of demonetisation is at least Rs 2.25 lakh crore?
There has been a lot written on demonetisation, but detailed Western arguments have rarely been consulted. Kenneth Rogoff, a well known American economist provides a clear and critical Western perspective. Like other foreign economists Professor Rogoff points out that even at this stage the Government of India hasn’t “finished printing all the currency, and its scarcity is being felt.”
This sentence is euphemistic. With 86% of currency demonetised, there is a lot of currency to be printed. The loss of cash is still impacting on the Indian economy, especially on the lower and middle strata. Despite earlier promises of a return to normalcy after 50 days, PM Modi hadasked for more, unspecified time.
Prof. Rogoff writes “demonetisation recommends five to seven years to phase a particular currency. It also says demonetisation is not such a good idea for developing economies.” He later reiterates “if you are a developing economy. This (demonetisation) really not something for you.” So what does the government need to do to remonetise India?
Prof. Rogoff answers: “Very simply, you have to finish printing the cash so that people can pay workers and suppliers. In the long run, other goals of the demonetisation, such as fighting corruption, black money, and terror funding can be worked on in other days.”
About the autonomy of the RBI, Prof. Rogoff stresses that “the central bank’s independence is something you have to fight for every day.” This is an important lesson for India. Prof. Rogoff also unpacked demonetisation, removing corruption, black money and terrorist funding from the onerous job of rapidly printing cash to increase liquidity in the economy. He also pointed out that “countries should get rid of only large denomination notes. But you didn’t have anything large; your largest was $15.”
Why is demonetisation bad for a developing economy? As numerous economists from the West like Larry Summers, former President of Harvard University; Kaushik Basu, Chief Economist of the World Bank; and Prof. Amartya Sen, Nobel Laureate in Economics, have pointed out, in a largely cash based economy like India, demonetisation especially a severe one of 86% is a recipe for an economic disaster.
Further, the planning was very poor and haphazard. The Rs 2000 note was being printed only two months before November 8, 2016. The Rs 500 currency note which was more than 45% of the total currency was printed a couple of weeks before the note ban. This highly belated printing of currency notes led to the massive cash crunch, which hit the economy very hard. Before demonetisation India was growing at 7.6% of GDP. By January 2017, the IMF estimated that GDP growth had dropped to 6.6%, within a period of just two months.
The GoI was very slow in remonetisation of the economy. It imported only 8000 metric tonnes of currency paper for the printing of currency notes in 2016. In 2017 it imported 27,500 metric tonnes for currency paper from eight foreign companies. Without adequate currency paper there could be no printing of notes. So further delay in remonetisation, greater loss of potential cash flows, hit the economy hard. It continues to be facing a severe cash crunch, which will further dampen possibilities of economic growth. (with agency inputs)