A usually reticent voice is leading the crusade against Narendra Modi’s decision to demonetise Rs500 and Rs1,000 notes.
Two weeks after criticising the move in the upper house of India’s parliament, former prime minister Manmohan Singh has once again hit out against demonetisation, calling it a hasty move with hazardous results.
Writing in The Hindu newspaper on Dec. 09, Singh argued that the decision to suddenly demonetise 86% of India’s currency by value had resulted in a “mammoth tragedy” for millions of India’s poor and cash-dependent citizens. He noted that as a measure to combat unaccounted wealth, the move was unlikely to deliver positive results.
All black money is not in cash, only a tiny fraction is. Against this backdrop, the decision by the Prime Minister is bound to have obverse implications by causing grievous injury to the honest Indian who earns his/her wages in cash and a mere rap on the knuckles to the dishonest black money hoarder. To make it worse, the government has actually made it easier to generate such unaccounted wealth in the future by the introduction of a Rs2,000 note. This brazen policy measure has neither tackled the stock of black money holistically nor has it stemmed the flow of it.
According to Singh, a globally respected economist, the macroeconomic impact of the policy is bad news for India at a time when trade, industrial production, and job creation aren’t doing so well. He added that the suddenness of the decision had adversely affected consumer confidence in the country, posing a serious risk to the economy’s growth prospects.
“The scars of an overnight depletion of the honest wealth of a vast majority of Indians combined with their ordeal of rationed access to new currency will be too deep to heal quickly,” he wrote. “This can have ripple effects on GDP growth and job creation.”
While acknowledging that fighting the menace of black money is an important goal in India, Singh maintained that the problem required careful policy-making that is mindful of the potential impact on innocent citizens. And that’s something Modi’s demonetisation failed to take into account.
“In one impetuous decision,” Singh wrote, “the prime minister has shattered the faith and confidence that hundreds of millions of Indians had reposed in the government of India to protect them and their money.”