Former Indian prime minister Dr Manmohan Singh has once against attacked the Narendra Modi government’s controversial move of demonetizing high-value currency notes in 2016.
Singh, who is also a well-known economist and alumnus of Oxford and Cambridge universities, blamed demonetization for high employment rate and the destruction of the informal sector. “Unemployment is high and the informal sector is in shambles, a crisis precipitated by the ill-considered demonetization decision taken in 2016,” he said at a meet organized by the opposition Congress party on Tuesday.
The former prime minister also expressed concern about the country’s credit situation. He said temporary measures by the federal government and the central bank to paper over the credit problem cannot blind us to the looming credit crisis ahead that could affect the small and medium sector.
Singh said the finances of many states are in disarray and they have to resort to excessive borrowing, which creates an intolerable burden on future budgets. “Federalism and regular consultation with states, which was the cornerstone of India’s economic and political philosophy as enshrined in the Constitution, no longer finds favor with the present Central government,” he added.
The former prime minister has been a critic of the Bharatiya Janata Party-led government’s move to outlaw 500- and 1,000-rupee currency notes on November 8, 2016. The government had argued that this will help fight black money, as those having unaccounted wealth will not approach the banks to exchange old currency notes for new, weed out fake currency and encourage cashless transactions. Interestingly, a 2018 report by the central bank said that 99.3% of the outlawed currency returned to the banking system.
The government’s controversial move took away nearly 86% cash from the economy and there was a lag in the printing and distribution of new currency notes. This led to a severe cash crunch and banks and automated teller machine kiosks witnessed long queues of customers seeking new currency notes.
The demonetization had resulted in a major loss of jobs and many small- and medium-scale enterprises had to shut down. A few weeks after it was announced, Singh said on the floor of Parliament House that it was an “organized loot and legalized plunder” and would result in the fall of country’s growth rate. Economists across the world including Nobel laureates like Joseph Stiglitz and Amartya Sen had also criticized the Indian government for demonetization.
The country’s gross domestic product growth has been declining sequentially from January 2018 onward and after the Covid-19 struck last year it faced two consecutive quarters of contraction. In the recent quarter, it posted a marginal growth of 0.4% from last year. The country’s National Statistics Office has projected that for the current fiscal year, India’s gross domestic product will contract around 8%. The annual growth last fiscal year was 4.2% and in the preceding year, it was 6.1%.