10 reasons that faux-economists give to derail the demonetisation programme

The recent move to demonetise high-value notes by the Government of India has met with a fair amount of scepticism, criticism and opposition. The move has given a tremendous rise into armchair economists overnight, many of whom are opposing the entire move for reasons which we’re sure even they don’t understand.

Here are ten reasons that they give to call the programme a failure, with point by point explanation of why the reason is stupid.

1. Cash forms an insignificant amount in black money

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Argument: data from tax raids conducted in 2012-13 shows that around 6% of money recovered was undisclosed. What this means is that only 6% of the money that was recovered was black money. So only 6% black money in the economy.

However, these fake economists forget one thing: Black money is undisclosed income. Undisclosed income is income off the records. There is no data on how much undisclosed income is actually there. If the IT sleuths have not found more than 6%, it does not there is no more than 6% black money, it simply means those who have it, have hidden it in some other ways. Now they can’t keep that money hidden as they are no longer legal and valid.

While it is true that not all black money remains as cash, it is also true not everyone who has it has access to a Swiss Bank account, not everyone has bought Gold or Property with it. Remember AAP MLA Kartar Singh who was caught with 130 crore rupees in his house? There are some people who claim that storing cash is difficult due to storage issues and hazards. Do you speak with experience?

2. Counterfeit currency is NOT that big a problem

A study by the Indian Statistical Institute in 2015 said that around 400 crore rupees in fake notes was in circulation at any given point in time. This is used by many to claim that only it is only 0.025% of our budget. The issue here is that, like in the previous case, there is AT LEAST 400 crore. It could be higher. There are printing presses in Peshawar and Karachi in Pakistan, both of which are exclusively used to print Indian currency.

Haven’t we already seen how this is troubling Malda, called India’s fake currency capital? And problem is not just magnitude of fake currency, but the actions it enables – terrorism, naxalism, and other criminal activities.

3. There was rise in Bank Deposits in the months prior to the announcement

Possibly the most uneducated statement, the rise in bank deposits was confirmed by the government as deposits made due to settlement of arrears from the 7th Pay Commission.

4. This drive is to whitewash black money

Converting black money to white isn’t that easy. Anyone returning bank notes will be under scrutiny and the IT sleuths WILL find out whether the cash was black or white.

5. The cause of black money is not being solved

Agreed, but taking out black money from circulation is where it starts. Next, using the data from those who have come forward to hand over extra cash and comparing with their Tax Records. Rooting out black money and those in possession isn’t an overnight task and this is just the first step.

6. Done to derive political mileage

The government is being accused of using this for political mileage and creating drama. So they agree that this move is something being appreciated by people and thus can result in political mileage? Then are those reports about massive inconvenience to people leading to popular resentments are untrue? Maybe. As we have seen how reports about deaths due to demonetisation were largely exaggerated and manipulated.

Furthermore, the drive could actually hit the BJP politically, because a bulk of the BJP’s support and votebank comes from middle class traders and businessmen dealing in cash. So what’s exactly is the argument?

7. This government was unprepared

Hindsight is always 20/20. And yes, the execution could have been better, and the government is changing a few rules to make things less troublesome to people. For example, families with weddings planned soon are now being allowed to withdraw up to 2.5 lakhs.

However, it doesn’t mean nothing was done to prepare for it. The government had started the process of getting people to open Jan Dhan accounts as well getting UPI into action to try and keep disruption as minimal as possible.

8. The 2000 note will bring in more hoarding and black money

Weren’t you saying a while ago that there is hardly any black money?

9. Not prepared for a cashless economy

As stated earlier, Jan Dhan, UPI, all were set up specifically so that we could slowly gravitate to a cashless economy. Demonetisation was the catalyst required to facilitate the move.

10. Economic activity is tanking

Economic activity will suffer in the short run due to consumption being suppressed, but not in the long run. Ask any economist. This move would not have been possible without the RBI, whose Governor Urijit Patel is a a Harvard and Yale graduate.

Urban Affairs and FinTech at Swarajya, blogs at http://bestpedia.in

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