“Demonetization economically unnecessary,” says Manmohan Singh

Manmoham Singh calls demonetization unnecessary

In November, 2016, Prime Minister Narendra Modi announced that the ₹500 and ₹1000 notes will have no value after midnight that day, and would essentially become useless pieces of paper. This move was met by a massive amount of flak and discontent from the public. Modi’s government gave the following reasons for the sudden move:

  1. It’ll eliminate the flow of black money in or out of the Indian economy.
  2. It’ll stop the transactions that allegedly fund terror groups.

On the face of it, the move did its job. A huge amount of black money was seized and culprits were found. Also, the honest tax payers had no issues because they could account for all their transactions. However, at the root, it posed a problem to the lower middle class and lower economic classes. They had to stand in very long queues to get to the ATMs and, yet, sometimes returned empty-handed.

Chanda Kochhar, CEO, ICICI, called it a move that would bring about a change in no cash and low cash transactions. The debate about demonetization slowly ebbed down when people started getting used to it, until recently. [1]

In Manmohan Singh’s point of view, demonetization was economically unnecessary. Times of India reports that Manmohan Singh was quoted as saying, “The economy has slowed down as I had projected a few months ago as a result of demonetisation and also the fact that demonetisation has been accompanied by the GST, which is a good thing that we have done in the long-term. But in the short-term, there are glitches that need to be resolved. Therefore, the economy has experienced a downhill path.” [2]

Source. Manmohan Singh’s recent views on demonetization look bad for the RBI

Demonetization had many positive effects. It almost wiped out the black money and fake currency markets in India, which grossly affected the myriad of corrupt politicians and bureaucrats in the country. In the long run, middle class people who couldn’t afford flats will eventually be able to do so because the price of real estate will go down substantially. On the other hand, the daily wage labourer faced the cash crunch the most. The demonetization combined with GST did cause unrest but might have positive consequences in the long run.

 

[1] http://economictimes.indiatimes.com/news/economy/policy/what-is-demonetisation-and-why-was-it-done/articleshow/55326862.cms

[2] http://timesofindia.indiatimes.com/business/india-business/demonetisation-was-not-required-at-all-manmohan-singh/articleshow/60799708.cms

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