Demonetisation in the context of the present state of Indian economy is an absurdity and it will lead to “the decimation of the informal sector” and therefore it has to be resisted and fought by all sections of the public, according to Prabhat Patnaik, economist of the Jawaharlal Nehru University.
Delivering a lecture on ‘Economic reforms, demonetisation and the insurance sector’, organised by the Visakhapatnam Insurance Institute, he said the government had put forward the argument initially that ‘it was intended to weed out the counterfeit notes, to put an end to terror financing and to fight black money’.
“But to fight counterfeit currency, demonetisation is not necessary and the old notes could have been withdrawn in a phased manner by introducing new notes.
“For a time, both old and new notes would have been legal tender. In fact, the UPA government did it with some notes.”
Absurd idea Patnaik also questioned the rationale of resorting to demonetisation as a tool to fight black money.
“The whole idea is absurd and all the economists are agreed on the issue. It is now clear that almost 90 per cent of the scrapped currency is coming back to banks and the impact on the black economy as a whole is minimal,” he said.
“The absurd idea of demonetisation is hitting the poorest sections of society the hardest and the informal sector, accounting for 47 per cent of the economy, is in a mess.
“The farm sector and the informal sector are the hardest hit. It is a frontal assault on the co-operatives and also the public sector.”
A red herring Referring to cashless transactions, he said: “Now the idea is being floated that this move is intended to convert India into a cashless economy. It is just a red herring.
“Moreover, a cashless transaction is costlier than a cash transaction and why should the public, especially the poorer sections, be forced to switch over to cashless transactions? It is despotic, undemocratic, and unconstitutional.”
He said the economy would move into a recession in the aftermath of demonetisation and “there would be considerable impact on the GDP. Manmohan Singh predicted that it would be 2 per cent. I cannot hazard a guess. However, it would be substantial.”