Guest Lecture at SIMSR :: Implementation Of Demonetization Policy

Summary Of The Talk On “Implementation Of Demonetization Policy”

A Guest Lecture by Professor VINEET SWARUP

In the informative session with Prof. Vineet Swaroop, he analysed the Demonetization move by the govt. in a hawk-eyed way. He said, although the move has been appreciated by many, there is a different angle to it that might not sound promising. Even though, it is said to prevent the terror financing, the prevention is just for a short period till new notes aren’t available. The main objective of this move is to hit the black money, but currently there are only 5% of people in India having wealth more than 7 lacs and only 2% that might have black money. Troubling the remaining 98%, screams lack of shrewdness, he added. He explained the situation with a proverb, “You don’t burn the forest if you want to burn two trees.” Govt. wants people to go cashless that just means bank accounts for all and which is near to impossible because people from bottom of the pyramid don’t even have income that calls for tax cuts (which would also mean extra burden for banks).

Govt. cites the main consequence of the move as formalization of the economy. But, in India, only 40% of the economy is formalized and accounted for & rest 60% is unaccounted (i.e. informal economy). This includes small businessmen and low profile enterprises who, now, will find it extremely difficult to exist. Since informal economy is responsible for producing cheaper goods (as they don’t pay taxes), people belonging to bottom of the pyramid depend on it, which is almost 70% of the total Indian population.

Mr. Swaroop explains that the move should have been gradual and not instant as it would produce the same result and millions of people, who live on daily wages, wouldn’t be troubled by endless queues in ATMs and banks. There is a humongous cost (1.28 lac crore) involved in implementation of this move where banks, businesses, RBI and foregone wages will suffer together.

He opines that, Govt. is so ruthlessly dedicated to curb the black money when in fact the real culprit is the govt. itself. The way the govt. operates is questioned by its opaqueness, bias and accountability.

He said that many people are supporting this decision currently, but they don’t see the clear picture, the long-term effect. Change is temporary. Everything is going to take a U-turn. Corruption will rise again and with a bigger face. People will find many more ways of storing unaccounted stashes of money. Bank employees are already getting bribed to exchange the old unaccounted money for new currency. He told that Demonetization had already happened twice and failed, so there is no guarantee that this one will hit the mark.

He ended the session by telling that, Govt. could have targeted only the black money holders (which is not so difficult and can be done just by entering any Govt. office) without taking this overrated “bold” move.

The forum was open for students to ask questions. He answered the questions in his interrogative and diplomatic way. Students were delighted and surprised to hear the detailed analysis of the demonetization policy and its effects.