Not a tragedy, but a remedy: S Gurumurty
Not a tragedy, but a remedy
In his own terse language, S Gurumurty analyses the Economics and Politics contained in Former PM Manmohan Singh's article "The making of a mammoth tragedy" (The Hindu, December 9, 2016)
Excerpts:
Unmonitored Rs.500/1,000 notes
Economics says money, growth, prices and
jobs are inter-related. Apply this rule to the NDA and UPA periods. During
2004-10, average money supply grew annually 18 per cent (15.3 per cent under
the NDA). But asset prices rose by several multiples of it. The moderate rise
in money supply over the NDA’s number does not explain the huge asset
inflation. The clue hides in the rising unmonitored HDN cash stock with the
public which made black money deals easy. In 1999, the cash with the public was
9.4 per cent of nominal GDP. By 2007-08, instead of falling due to rising bank
and digital payments, it jumped to 13 per cent of nominal GDP. Later it began
hovering around 12 per cent. More critically, the HDNs with the public more
than doubled from 34 per cent in 2004 to 79 per cent in 2010. On November 8,
2016, it was 87 per cent. The average annual rise in HDNs was 51 per cent
between 2004 and 2010 and the annual rise was 63 per cent by 2013-14. The
Reserve Bank of India noted that two-thirds of the Rs.1,000 notes and one-third
of the Rs.500 notes — that is over Rs. 6 lakh crore now — never returned to
banks after they were issued. The unmonitored HDNs roaming outside banks began
driving up the gold and land prices by black cash and the stock prices through
Participatory Notes (PNs) — which are largely hawala transfers out of India —
that came back pretending as foreign investment in stocks. The PNs rose from
Rs.68,000 crore in 2004 to Rs.3.81 lakh crore in 2007.
Economics
and politics of demonetization
S Gurumurthy’s article “Not a
tragedy, but the remedy” (The Hindu, December 13) which follows former Prime
Minister Manmohan Singh’s piece “Making of a mammoth tragedy” (December 9) and
NIT Aayog member Bibek Debroy’s “Asking the right questions”(December 11) is a
challenging analysis of the background in which GOI would have come to the
painful option to handle high value currency the way in which it did through a
surprise announcement withdrawing ‘legal tender status of Rs500 and Rs1000’ on
November 8.
Opportunity to govern, like life,
comes sans rewind and fast-forward buttons and Prime Minister Modi knows it better
than anyone else. MMS opted to keep the ‘pause’ button pressed for long 10
years is a matter for research by future scholars. Manmohan Singh’s indictment
of the system in his 6 minutes RS speech was more forthright than the lament
about ‘mammoth tragedy’, which he concluded with a terse observation that “It is important to deftly balance
these risks with the potential benefits of such decisions. Waging a war on
black money may sound enticing. But it cannot entail even a single loss of life
of an honest Indian.” does not throw any light on the way forward.
Conceding Dr Singh’s right to be concerned, let us also
remember, all martyrs were honest citizens. The arguments put forth only
explains the rationale behind his reluctance to take decisions during the ten
year period when Manmohan Singh was Prime Minister. One wishes, the former PM
gets one more opportunity to rationalize his thoughts and come back with his
views on what is best for the nation in the context of feedback to his RS
speech and the article under reference. Maybe at some stage, his past
experience as RBI Governor, FM and PM may help him in giving a balanced view,
once winter sets in.
M G Warrier,
Mumbai
Comments
The aim of domonitisation was to put an end to black money.The stock of black money in currency is just the tip of iceburg. The hoarders of black money as currency has proved that their IQ level is far above those who masterminded the demonetisation drive it seems. The lionshare of the 2000 notes are with them. Let us wait for the numbers as on March end after encashing the currency (supposed to be) held by the NRs. If the difference is less than 3 LC, we can say that the aim of demonetisation was to ensure a cashless India. Campaign has started. Let us however wait for a biright future.