Economic commentator and Editor of Thuglak magazine S. Gurumurthy said on Friday that the economy needed urgent governmental intervention.
“I have a feeling we are hitting the bottom now. There is no way this situation can continue. Because the government has to take a decision whether to have this whole lot of NPA regulations, the Mudra decision; if these 2-3 decisions are taken in the coming six months, the economy is poised to take off. I have faith that given the right policy input, the economy will pick up immediately,” he said.
Mr. Gurumurthy’s analysis comes less than a week after BJP leader Subramanian Swamy told the CNN-News18 channel in an interview that the economy was in a “tailspin,” warning that it could be moving towards a depression.
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Mr. Gurumurthy was speaking on ‘Demonetisation – Its role, Impact and Follow-up,’ at an event organised by the Chennai International Centre at the Madras School of Economics.
“Too many disruptions, too soon. This is one of the things which a government in urgency is doing. Demonetisation, NPA rules, bankruptcy law, GST, thrust against black money — everything at one stretch; commerce cannot absorb all this,” he said.
Mr. Gurumurthy, who said, “I have not come here to defend the government,” opined that despite its many benefits, demonetisation was implemented badly. He claimed that due to a communication error between the Finance Ministry and a confidential cell, black money holders escaped the demonetisation dragnet.
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Mr. Gurumurthy said the withdrawal of cash crippled the informal sector, which generated 90% of jobs and satisfied 95% of its capital requirements from outside the banking system. As a result, he said, “Aggregate consumption and generation of jobs have stagnated. The informal sector now borrows at 360-480% interest. It is already dealing a big blow to our growth and will continue to do so.”
RBI blamed
Mr. Gurumurthy, though, declined to directly criticise the political leadership and blamed the RBI for the subsequent failure. “The government grievously failed to implement the Mudra first. Then only they should have come for demonetisation. That was the original strategy. The Mudra Bank was stopped by the Reserve Bank, which did not want to give up monetary control,” he said.
Mr. Gurumurthy said political pressures on the government had reduced the many objectives of demonetisation to one: of ending the circulation of black money. “The demonetisation scheme had a big hole. It was because there was no coordination within the government. The advice the government of India received was that demonetisation and the income disclosure scheme should be announced simultaneously. Because of the communication gap within the system, income disclosure was announced first and demonetisation, later.
“Demonetisation became a gas chamber. That was the first major strategic fault,” he said. This has meant that, “Instead of collecting the tax in advance, the government is now chasing the black money to collect taxes.”
“GST is a welcome measure, but it is too ambitious. It wants to formalise the Indian economy in one go. It’s not possible. It has to be a calibrated formalisation of the Indian economy. The media is failing, economic thinktanks are not doing original work for India because they are still on a one-size-fit-all model,” he said.
While he did not blame the Prime Minister, Mr. Gurumurthy blamed the Supreme Court for its interventions during demonetisation. “The media wanted riots, the Supreme Court wanted riots. The people did not riot. It goes to prove the psychology of India as a peaceful nation,” he said.