Haven’t Studied Demonetisation’s Impact On Indian Economy: Govt

In a response to a question in Lok Sabha, govt has said has not studied demonetisation’s impact on economy

Ban on Rs 500 & 1,000 notes won’t be enough to catch the big fish involved in money laundering.

(Photo: Rhythum Seth/The Quint)

The government has said that it has not assessed the impact and after effect of demonetisation on economy, in a response to a query in the Lok Sabha on Friday, 14 December.

On Friday, 14 December, while replying in Lok Sabha to a question, “whether the Government has assessed/studied the impact and after effects of demonetisation on the economy”, Minister of State for Finance Pon Radhakrishnan said a “No, Madam” (Referring to Speaker Sumitra Mahajan)

The question was put forward by P Karunakaran, CPI MP from Kasargod in Kerala and Tejpratap Singh Yadav, Samajwadi Party MP from Mainpuri.

The response from the government comes a little more than a month after the second anniversary of the note ban announced by Prime Minister Narendra Modi on 8 November 2016.

A number of economists and reports since then have noted that the decision had an adverse impact on the country’s economy

In his recently released book, Of Counsel, former Chief Economic Advisor Arvind Subramanian termed the decision as a “massive, draconian, monetary shock”.

Earlier this year, former Reserve Bank of India (RBI) Governor Raghuran Rajan said that demonetisation was “not well planned” and that the RBI had conveyed to the government that it was “not a good idea”, when the government consulted the central bank.

In November this year, the Agriculture Ministry, in a report noted the adverse effects of demonetisation, only to issue a fresh report later, saying that the previous report had a “compilation error”.

The report issued earlier stated, “Millions of farmers were unable to get enough cash to buy seeds and fertilisers for their winter crops. Even bigger landlords faced a problem, such as paying daily wages to the farmers and purchasing agriculture needs for growing crops”.

It also claimed that the effects of demonetisation was borne by National Seeds Corporation (NSC) – a government organisation which failed to sell nearly 1.38 lakh quintals of wheat seeds as a result of it.

The report that was issued subsequently, however said that there was no 'adverse impact' on the agriculture sector due to demonetisation.

As far as facts are concerned, the GDP growth rate nosedived in the days that followed demonetisation. The growth rate hit a three-year low of 5.7 percent in the first quarter (April-June) of the 2017-18 fiscal year.

In the period December-March of 2016-17, manufacturing growth was the lowest compared with the same period in the past five years, according to a Mint report.

Moreover, in a report published in August this year, RBI noted that 99.3 percent of the demonetised notes came back in circulation, attracting criticism from the Opposition parties who highlighted on the futility of the decision.

Reacting to the report former Finance Minister P Chidambaram had said, “Every rupee of the Rs 15.42 lakh crore has come back to the RBI. Remember who had said that Rs 3 lakh crore will not come back and that will be a gain for the government? "

The government, however, maintained that demonetisation has met his objectives. Finance Minister Arun Jaitley on a number of occasions has reiterated that confiscation of currency was not the objective of demonetisation and that it was aimed at formalising the economy and widening the tax base.