Arun Kumar - Two Years after Demonetisation, the Nightmare Continues for India's Informal Economy // With due respect, Finance Minister
Demonetisation is like
a bad dream etched in our memories. Weddings were postponed and medical treatment was curtailed for lack of money.
Long queues formed outside banks. Small businesses
closed due to lack of working capital and their
workers returned to their villages. Indians who never generated black
money were the worst affected. Yet, the narrative that
demonetisation would destroy the wealth of the corrupt was widely accepted.
This was because of
the misperception that ‘black means cash’. If cash was squeezed out, the black
economy would disappear at one stroke – justice being meted out to the corrupt.
The Prime Minister said that for long-term gain one had to bear short-term
pain. He likened it to ‘ahuti’ in a ‘yagya’. If the pain does not
end in 50 days, Modi said, the public could give him any punishment and he
would accept it. Two years later, the
pain persists but the government only continues to justify its error. It has
refused to admit to the long-term damage to the economy, especially to
marginalised Indians in the unorganised sectors. Instead, data from the
organised sector is used to claim that the economy has recovered to a 7-8% rate
of growth. This is treated as evidence that the pain was temporary.
The government did not
survey the unorganised sectors to find out what was happening there. The
underlying assumption is that the shock to the economy did not require a change
in the old methodology for calculating growth. In that methodology, the
organised sector is more or less the proxy for the unorganised sector. But the
shock to the economy changed the ratio between the organised and the
unorganised sectors. So, the ratio used prior to November 7, 2016, was no more
valid after November 8, 2016. Data from private surveys showed that the unorganised sector was hit
hard. Surveys were conducted by Punjab Haryana Delhi Chamber of Commerce
and Industry (PHDCCI), All India Manufacturers Organization (AIMO), State Bank
of India (SBI) and many others including NGOs. The RBI survey released in March
2017 showed a sharp decline in deremand for consumer
durables and so on.
Agriculture faced a
crisis due to notes shortage. Produce could not be sold, the sowing of crops
was delayed and the demand for the perishables like vegetables collapsed.
Prices fell sharply, thereby impacting incomes of farmers. Banking also went
into a crisis since normal banking operations stopped for months. With industry,
trade and agriculture facing a crisis, the problem of NPAs only increased. According to the
Centre for Monitoring of Indian Economy (CMIE), investment fell sharply during
that quarter. In effect, output, employment and investment declined, sending the
economy into a tailspin from which it has not yet recovered. The impact of the
goods and services tax (GST) from June-July 2017 again impacted the unorganised sectors and deepened
the crisis. So, now the twin impact of demonetisation and GST is being felt in
the economy. .. read more:
