How two Economists destroyed Manmohan Singh’s arguments against demonetisation

Manmohan Singh has been in the news recently after shocking everyone by speaking in the Rajya Sabha. He then went a step ahead and on December 9th published an op-ed in The Hindu titled, ‘Making of a mammoth tragedy‘ while referring to the mammoth exercise of demonetisation undertaken by the Modi government.

While his credentials as a politician have never been flaunted by either him or his party, his qualifications as an economist, be it his degrees from foreign universities, stint as an RBI governor, or most importantly, his role in opening up the economy have long been heavily sold by the Congress party and its ecosystem. So when he wrote the op-ed on demonetisation, his views were presented as gospel truth coming from an economist of high repute and knowledge.

However, not everyone was impressed. Two economists – S Gurumurthy and Bibek Debroy – have now stepped in and demonstrated why Manmohan Singh’s op-ed was mostly high on rhetoric and low on content.

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Bibek Debroy is a member of the Niti Aayog, and has also studied at the Trinity College in Cambridge which might come as a relief to Mr Singh’s supporters obsessed with foreign degrees. In the article titled, Asking the right questions, he was sarcastically critical of Dr. Singh, who failed to set things right, or even make an attempt towards that, when he had the opportunity.

S Gurumurthy is an economic analyst and a Chartered Accountant. He is also the co-convener of the Swadeshi Jagran Manch. His opinion titledNot a tragedy, but the remedy‘, he exposed the disease that was inflicted upon the Indian economy by the UPA, due to which the remedy was needed badly.

Below are some highlights of Mr Singh’s arguments and S Gurumurthy and Bibek Debroy’s counter-arguments.

Low banking penetration:

Manmohan Singh had written that: 90% of the workforce in India still gets paid in cash. These people comprise of hundreds of millions of agriculture workers, construction workers whose life has now been thrown into a disarray as there are still more than 600 million Indians who live in a town or village with no bank.

To this, Mr. Debroy quoted Manmohan Singh’s Independence Day speech of 2012, where he had stated, “Just 10 years back only three out of every 10 households in our villages were benefiting from banking services. Today more than half of the rural households get the benefit of bank accounts. It will be our endeavor to ensure that all households benefit from bank accounts in the next two years.”

So what data was Manmohan Singh quoting? Did he make false claims in his speech four years back that most Indians will be brought into the banking network? And that was four years back. Even if one assumes Manmohan Singh did nothing after 2012, there has been PM Modi’s Jan-Dhan Yojna, through which 258.2 million additional bank accounts have been opened till 2016.

Citing more data and some survey findings, Mr. Debroy demonstrated that Manmohan Singh was painting an alarmist picture just to back his mammoth claim.

Black money is not all cash:

Manmohan Singh, while acknowledging that black money is a serious problem, had argued that only a tiny fraction of the black money was stored in form of cash and the major storage areas being, gold, land and foreign reserves among others.

Mr. Debroy wondered when did anyone from the current government claim that black money was all cash. Even Prime Minister Modi has been hinting that he will now target benaami property and other forms of black money.

Mr. Debroy further pointed out the Benami Transactions (Prohibition) Amendment Act of 2016, which covered both moveable and immoveable property, was notified by the current government. He reminded the former Prime Minister that the act was passed in 1988, but rules were not framed by successive governments.

Demonetisation will derail GDP growth and job creation:

In his op-ed, Dr. Singh had predicted that demonetisation could have ripple effects on GDP growth and job creation and could spell doom for both of these. Many from the Congress ecosystem had flashed how the tenure of Manmohan Singh had seen decent growth and development.

But this entire cheerleading of Manmohan Singh’s tenure was taken to the cleaners by Mr. Gurumurthy, who put the numbers in perspective in his article.

Mr. Gurumurthy compared Dr. Singh’s tenure (2004-14) to the NDA’s rule (1999-04). The GDP during the NDA regime grew a total of 27.8% and a whopping 600 lakh jobs were created. While during the UPA regime, GDP grew a total of 50.8% but only a paltry 27 lakh jobs were created. This, he claimed as due to the UPA government benefitting from the huge asset price inflation, which is treated as wealth by modern economists and gets added to the GDP.

Stocks and gold prices jumped annually by 60 per cent and property prices doubled every two-three years under Manmohan Singh. This was enabled by a huge percentage of cash transactions, with most cash being held in high denomination notes (HDNs). Gurumurthy demonstrated how both the trends – cash with public as well as proportion of HDNs rose sharply under UPA. All helping with asset price inflation and giving an illusion of growth.

Mr. Gurumurthy argued that the option before Prime Minister Modi was to continue with this where GDP growth appears high but real economic growth is elusive, or to take a strict corrective step that may appear like derailing growth. PM Modi went for corrective step – the remedy.


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