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Demonetisation Has Failed Because The Leader Wanted To Portray Himself As ROBIN HOOD : Prof. Arun Kumar

There is a long-term solution required in the form of consciousness among all. Because in a democracy mistakes are admitted while never in an autocracy.

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“Black cash should not be mistaken by the black economy,” said Prof. Arun Kumar, author of the book “The black economy in India” and the former Head of Centre for Economic Studies and Planning (CESP), Jawaharlal Nehru University (JNU), at a lecture which was organised by the Economics Society of Aligarh Muslim University (AMU) and run by the Economics department of AMU. The lecture was delivered on the topic ‘India after one year of demonetisation’.

Citing an example from his book, The Black Economy, Prof. Arun Kumar argued that “without grasping black money, one cannot master white money”.  His book is thus an integration of the black and white economy. He further added that the fall in GDP in the last six quarters consistently which dropped down to 5.7% in the present quarter doesn’t include the unorganised sector. The data being put forward by the govt about a healthy growth rate is but a misnomer and a result of cooked up statistics, the real growth situation is accounted to be in negative terms or almost zero. He also added various questions of great relevance, like the effectiveness of demonetisation, society wellbeing on the cost of demonetisation, short term and long term costs etc.

Prof. Kumar put forward an interesting analogy to explain the concept and what demonetisation was doing to the nation. He draws an analogy between the human body and blood circulation and that of the cash and the economy. Just as the blood constitutes an important component in circulating nutrients into the body to help it function properly, similarly the cash in the economy circulates income and furthers economic activity. For explaining this analogy he said that if 86% blood is put out of circulation from the human body, the human body tends to decay. Similarly the economy experienced a leakage of 86% which pulled down the economy dramatically affecting all sections of economic activities. Juxtaposing this situation with that of Europe he said that the process of demonetisation was a fully fledged move and it took a period of about three years to implement so as to prevent severe disequilibrium in the economy whereas that was not the case with India.

Before hitting upon the target, objectives and achievements of the Govt with regards to this sudden move, he implored to distinguish between black income and black wealth. He stated that to eradicate black money or income there is a need for a long-term process and it’s not an instant activity. Furthering with the objectives of demonetisation of removing counterfeit currency from the circulation as well as to prevent funding of terrorist activity Prof. Kumar  said  that the counterfeit currency constitutes a very small part of the money supply and that terrorism is not just funded by counterfeit currency but also by gold etc, thereupon nullifying both the objectives of the draconian move taken by the government.

Talking about an important aspect of cost to the economy Prof. Kumar threw light on how badly the demand got hit because of this unprecedented move. He said that the large section of the economy doesn’t use plastic money with special reference to the unorganised sector which deals in cash money for all transactions, this sector was hit hard and registered a slump in its growth rates. Also, the demand for discretionary goods dropped which further deteriorated the economic activities of the organised sector. As a result, the process of investment saw a rapid decline and profits had hit at massive low levels, all this accumulated and resulted to decline in capacity utilisation. (In December 2016 Investment declined to a low of nine quarters).

Taking into the account the agricultural and banking sector he elucidated that the time when this move took place was a time of transition from Kharif to Rabi crops and the black move resulted in agricultural sector being hit hard at an all-time low where pictures of “empty Mandis” came into the scenario and the agriculturists resorted to protests. The banking sector got paralysed miserably leaving them as transacting houses and not the creators of credit. The RBI also increased the Cash Reserve Ratio (CRR’s) wiping out all the cash out of the hands of the bank. This resulted in the decline in demand for funds which then caused a decline in Investment.

The move of demonetisation developed a recessionary condition which took hold for the very long time and this has come to be a net result. In light of the move, he stated that it takes time to print currency and requires paper and ink as well. The aim of the cashless economy was only a diversion of the goal of having a cashless economy and not the original purpose. He also took a jibe on the facts of the archives that the size of the black economy has been rising since 1955 resulting in policy failures. And within the period of 70 years, 40 committees and commissions have been analysing the problem, he also talks about the ineffectiveness in the education sector and cited the report of ASER( Annual Survey of Education Report) where standard 8th students couldn’t solve basic problems of standard 3rd. He considers black money as a massive factor contributing to inefficiency by taking the example of “seven blind man touching one elephant”.

Concluding the lecture prof. kumar targeted politics which needs to be corrected. There should be balance between the good economics and good politics. On a lighter note prof. kumar said that the demonetisation came to be a failure because the leader wanted to portray himself as “ROBIN HOOD”. “It was totally a political decision rather than economic decision” added by prof. Kumar. Talking about the solutions to tackling this problem he said that there can be “no one shot solution” to this problem. There is a long-term solution required in the form of consciousness among all. Because in a democracy mistakes are admitted while never in an autocracy. There should be an awareness regarding the black economy and the action should be taken to root out this problem. He further added by stating the example of Bali Ramayana where not a one-shot victory was achieved but it was a result of the constant efforts which resulted in the triumph of good over evil.

The lecture ended with a question-answer session. Prof Syed Noman Ahmad, Chairperson of the Department of Economics (AMU) welcomed guests and presented a plant to Professor Arun Kumar. In his address Prof. Syed Noman Ahmad  pointed out that Dr Kumar  has authored ‘The Black Economy in India’ and his another book on “The effects of demonetization” would be released soon this year.’ He further said that Prof. Kumar is researching the topic for last three decades and is an expert on the black economy in India.

Professor Ashok Mittal proposed the vote of thanks, while Mr Zulfiqar Seth, PhD Research Scholar conducted the programme. During the programme, Mohd Umair Khan, the student of MA  Economics also presented the activities done by the Department’s Economics Society. Dr Mohammad Asif, Incharge of Economics Society (AMU) also presided the lecture.

(This is prepared by Economics Society, AMU)

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