VISAKHAPATNAM: “The present state of Indian economy does not permit demonetisation. In the present context, it is an absurdity. It will lead to decimation of the informal sector,” says Prabhat Patnaik, economist and former professor of Jawaharlal Nehru University.
Delivering a lecture on ‘Economic reforms, demonetisation and the insurance sector’, organised here on Wednesday by the Visakhapatnam Insurance Institute, Prof. Patnaik pointed out that demonetisation would not only give short-term pain to the people but also affect the economy in the long run. It, therefore, should be resisted by all sections of society, he said.
Highly critical of the government’s argument that it was intended to check black money and weed out counterfeit notes from the market, he said it was like administering a very powerful antibiotic for treating a small ailment.
Demonetisation was used as a tool in many countries such as Venezuela, where the inflation rate was over 500 per cent.
“In India, the inflation rate is hardly 5 per cent. So, don’t you think that it is a wasteful exercise?” he questioned.
“Moreover, demonetisation is not necessary to check circulation of counterfeit currency notes. The old high-value notes could have been withdrawn in a phased manner. For a while, both the old and new notes could have been legal tender. In fact, the UPA Government did it with some notes,” he pointed out.
Prof. Patnaik further said that the rationale behind the fight against black money did not hold water.
“The whole idea is absurd, and all the economists are in disagreement with the move. It is now clear that almost 90 per cent of the scrapped currency is coming back to the banks and the impact on black economy as a whole is minimal,” he said.
Prof. Patnaik said that demonetisation was hitting the poor and the informal sector hard. The farm sector and the informal sector, which comprise 47 per cent, were the worst-affected, he said.
He pointed out that the economy would move into a recession in the aftermath of demonetisation and “there would be considerable impact on the GDP.”
On cashless transactions, Prof. Patnaik said: “It is just a red herring. Moreover, cashless transaction is costlier. Why should people, especially the poorer sections, be forced to switch to cashless transactions? It is despotic, undemocratic, and unconstitutional to force the people to adopt the system.”