Demonetisation not a solution to problem of black money, says Prabhat Patnaik

Hyderabad: “Is demonetisation a way of resolving the problem of black money? No. There is no such thing as a black money. It is a black economy that we are dealing with and it cannot be stamped out by demonetisation,” said former Jawaharlal Nehru University professor Prabhat Patnaik speaking at Hyderabad Collective’s meeting on Demonetisation at the Sundarayya Vignana Kendra on Thursday.

Using statistics and information about GDP, amount of cash in circulation, ratio of money in the regular economy and cash-only black economy, Mr. Patnaik said: “Black economy will go on. It will not be crippled. It is a fundamental error if we think it will be hurt due to demonetisation. The money used in the black economy is not stuffed in pillows and beds like what is shown in Hindi movies. Someone not paying taxes employs a peon, security guard and a driver and pays them in cash just like someone paying taxes.”

Mr Patnaik sounded a dire note with the words that the demonetisation will cause permanent impoverishment. “There is going to be a permanent damage to the economy as the informal sector, which contributes 47 per cent of the GDP, will be affected in the long run in a cashless economy,” said Mr. Patnaik.

R. Ramakumar of Tata Institute of Social Studies took aim at the argument about demonetisation weeding out counterfeit currency. “The fake currency by RBI’s own calculation was a miniscule Rs. 400 crore. Unfortunately, the banking system has been so overwhelmed due to demonetisation that there were no checks on the money coming back into the system. This has actually helped legalise fake currency,” observed Mr. Ramakumar.

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