Prime Minister Narendra Modi should not hesitate to acknowledge that demonetisation had failed to curb black money and ensure adequate circulation of currency at the earliest to mitigate the recessionary conditions, said Arun Kumar, former Professor of Economics at Jawaharlal Nehru University and author of the book, ‘Black Economy in India.’
Speaking to The Hindu on the sidelines of the 23rd general conference of Madurai Kamaraj, Manonmaniam Sundaranar, Mother Teresa and Alagappa University Teachers’ Association (MUTA) here on Saturday, he said demonetisation was a ‘political’ decision taken without prudence.
“It has resulted in negative growth in investment and employment and likely to affect profitability of banks, all indicating the onset of recession in the economy,” he said, adding that the government did not even have adequate mechanisms to quantitatively assess the impact of demonetisation on the economy.
Criticising Finance Minister Arun Jaitley’s statement that the entire value of scrapped currencies would not be remonetised, Mr. Kumar said that it was not a decision a government could take in advance. “Reserve Bank of India should decide that periodically, based on demand,” he said.
“In fact, remonetising the entire value of scrapped currencies should ideally be the main focus now since the availability of currency can help mitigate the recessionary conditions,” he added.
On the government’s assertion that cutting of interest rates by banks will help in boosting demand, he said, “When the US, UK and Japan faced recession, the interest rates of their banks were almost zero per cent but it did not help in addressing recession. When capacity utilisation is low, lowering of interest rate is not likely to help.”
Blaming the government for shifting the goalposts from ‘curbing black money’ to ‘cashless transactions,’ he said that even the push towards ‘cashless’ or ‘less cash’ economy was being done without adequate regulatory and safety framework.
He said that the push towards cashless transactions would not help in increasing tax revenues in the short term since the overall economy had taken a hit. “In fact the deficit is going to be high in the upcoming budget, which will, in turn, affect the spending next year,” he said.
