“It is crazy, madness.”
My first reaction after the Prime Minister declared 1,000 and 500 rupee notes will be withdrawn as legal tender. Money is the life blood of any economy. If you have bad blood, then go for dialysis; you would not withdraw the stock of blood from the body, lest you die. The voodoo economics of Narendra Modi sucked out 86 per cent of the currency and took nearly a year to replenish the same. So much for the clinical precision with the ‘surgical strike’ on black money. For two to three months, serpentine queues in banks, empty ATMs and agony, pain and around 140 deaths stalked the citizens of India.
Given that the level of production in an economy depends on the aggregate demand, the note ban resulted in a collapse of demand affecting the unorganised sector severely. Consider the government’s GDP growth statistics: Q4 growth fell from 8.7 per cent in 2015-16 to 5.6 per cent in 2016-17; annual growth fell from 7.9 per cent to 6.6 per cent. Add RBI’s caution to this growth number, “absent the implementation of the 7th Central Pay Commission and one-rank-one-pension (OROP) for defence services embedded in government consumption, real GDP growth would have been lower by 2 percentage points” and 2016-17 growth would have been just 4.6 per cent. A loss of 3.3 percentage points in GDP meant loss of production of over 4.5 lakh crore.
Who is responsible for this national loss? What happened to the black money? I am reminded of the story of the fish and the crocodile, bitter enemies. When the pond owner decided to drain the pond to catch the crocodile, the fish came out in support. All the fish died and the amphibious crocodile escaped. Only six per cent of the total black money in India is kept in the form of currency notes. The rest are hoarded in gold or invested in land and other assets or even in legitimate business. Black money is not a stock but a process through which unaccounted wealth is constantly produced.
A figure of Rs 3-4 lakh crore, it was assumed, would not return to the banks and would consequently reduce the liabilities of RBI resulting in a windfall gain to RBI and to the Central Government.
On the anniversary of the greatest stupidity in the Indian economic history, 98.96 per cent of all SBNs has already come and RBI is still counting!
If it was to initiate a systematic inquiry into bank deposits to unearth black money, couldn’t the same objective be achieved even with the old notes circulating for two or three months and citizens being given enough time to replace the old notes?
As for black money, in the long run, it will be business as usual.
(The views expressed by the author are his own)