Prof Hemant Kumar Shah, an eminent economist in Ahmedabad criticised #Demonetisation when it was announced 2 years ago. It’s in Gujarati so translated here.
Prof Shah said Morarji Desai demonetised currency in 1978 for the first time when economists estimated Rs 8000 crores black money were in circulation which increased to 50 lakh crores in 2016 according to Modi Govt. So Prof Shah raises a pertinent point that we reached 50 lakh crores from 8000 crores in 40 years even after demonetisation of high value currency notes of Rs 1000. That means demonetisation doesn’t curtail black money generation if that’s the intention of Govt.
Second point as an economist he makes is of consequences of demonetisation as it will affect consumption obviously as people’s buying power will severely be affected. Reduced purchasing power will affect production straight away. If production is affected then it will reduce GDP growth rate propelling the country towards recession. The country is already struggling with economic downturn.
Another point is no country in the world would demonetise currency to tackle black money. Argentina, Philippines and Zimbabwe were the three countries which demonetised their currencies but not to control black money. They did it to control rising inflation.
We’re being told if corruption comes down, inflation comes down and that will result in RBI repo rate reduction. But if RBI repo rate reduction is beyond a full 1 point then only it will start showing impact and increase consumption, not by a quarter or a half percent. A person won’t be driven to purchase a bike if EMI is reduced to Rs 4900 from Rs 5000.
Another more important point is that the Govt claims Pakistan is spreading fake currency notes in our economy which will be curtailed. If you calculate this, the currency of Rs 500/1000 in circulation should be considered. Total income of the exchequer is Rs 100 lakh crores and the value of currency notes may be worth 10 lakh crores. Govt’s own figures say fake currency is worth Rs 400 crores. India’s defence budget is Rs 250,000 crores. Is the Govt admitting that Rs 250,000 crores defence spend is unable to stop Rs 400 crores fake currency infiltration crossing our borders? Every taxpayer citizen has a right to question Govt about this.