The following is a summary of proceedings of a public meeting organised by the Centre for Financial Accountability and the Public Finance Accountability Collective at Constitution Club, New Delhi on November 18th, 2016.
1) Prabhat Patnaik, Professor Emeritus, Centre for Economic Studies and Planning (CESP), Jawaharlal Nehru University (JNU), New Delhi
According to Prof. Patnaik, the Central Government’s need to declare Rs 500 and Rs 1000 notes as ‘non-legal’ tender is defiance of reason as black money is a flow, and not a stock which can be stored under pillow cases. The decision also betrays a lack of understanding of capitalism. ‘Innovation’ would mean new businesses would open up to exchange old notes and there would be a proliferation of black businesses. These transactions would be in the millions and would be difficult to monitor by tax agencies.
In a capitalist system, profitability is the criterion and as long as it continues, business would go on. If the size of the economy is around Rs 14 lakh crore, and we assume that 50% is the size of the black economy, the size of the parallel economy would be around Rs 7 lakh crore. If there is a 30% loss to the black economy, that would amount to a loss of Rs 2.5 lakh crore which is only a loss of 10% in annual profits. This is too small a loss for a business to consider withdrawing.
Also, all payments are essentially claims on the RBI or banks to somebody else. Banks also allow you to set a claim against itself if you are creditworthy. In India, upto 50% of the population is not creditworthy. There are also studies to show that institutional credit is withdrawing from priority areas which means that informal private money lending is on the up. While the liabilities of banks can be used as money, that of these informal money lenders cannot be.
On top of all of this, the government is presenting this dialectic between abdication of reason and silent suffering which is all the more painful.
2) Dipankar Bhattacharya, CPI(ML)
Dipankar Bhattacharya emphasised on the point by Prof Arun Kumar of JNU on distinguishing between ‘black money’ and ‘black economy’. He also stressed on the current tendency of the government to attribute issues to ‘cultural shocks’. That is, not using toilets or banks because of cultural practices rather than lack of infrastructure or lesser access. He emphasised that NREGA payment prior to Direct Benefits Transfer, Mid-day Meal workers and other workers tend to be paid in Rs 500 and Rs 1000 notes. This overnight move has completely incapacitated them. He also raised concerns about the volume of notes that have become defunct i.e. 2200 million and latest reports show that the mints only have the capacity to print 300 million notes a month.
3) Representative from Domestic Workers’ Union (DWU)
DWU raised concerns of how badly demonitization has affected informal casual workers in both urban and rural areas. Domestic workers especially tend to be unbanked and store money as cash. In certain states, like Jharkhand, there is only bank for several villages. On an average day, these banks tend to be crowded. But with this move, it has hit the wage labourers the hardest. Banks in rural areas have not received adequate supply of cash.
3) Shaktiman Ghosh, National Hawkers Federation
There are 4 crore street hawkers across India and around 60% of them are unbanked. He went on to present stories from across the country on how street hawkers’ business which thrives on cash has been badly affected by the move.
4) AK Padmanabhan, CITU
AK Padmanabhan raised concerns about rural co-operatives in Kerala that deals predominantly in notes of denominations of Rs 500 and Rs 1000.
5) Thomas Franco, Senior VP, All India Bank Officers’ Confederation
Thomas Franco began by stating that Rs 500 notes comprised of 46% of the total currency circulation and that no one is sure of when the new ones will be printed completely. K.C. Chakraborty, Deputy Governor of the RBI called demonitization a ‘futile exercise’.
He raised the issue of the new Rs 2000 notes being of a different size so that ATMs have to be recalibrated. Even if 12,500 ATMs are recalibrated everyday, it will take 16 days to do all of them. As of now, only 20,000 ATMs in the country are ready to dispense Rs 2000 notes. Once the new Rs 500 notes are printed, these ATMs have to be recalibrated again as the new Rs 500 note will be of a smaller size.
He was also concerned about the quick shift to digital payments most of which is in English when 23% of the country is illiterate.
Moreover, the ceiling on foreign remittances have been increased repeatedly over the past couple of years to the current ceiling of $ 2,50,000. Yet there is no attempt on the government’s part to investigate money flowing abroad. There has also been no effort to study Rs 10 lakh and above deposit reports made by various banks to the government. But after demonitisation, the govt has re-iterated the need for banks to report Rs 2 lakh and above deposits.
Franco was also bewildered by the government’s argument that demonitisation will raise banking capital. The biggest issue facing banks is Non-Performing Assets (NPAs). There is a Parliamentary Standing Committee Report from February 2016 that has suggested measures to improve the situation. There is also a list of wilful defaulters with the government who have have NPAs amounting Rs 86,000 crores. But neither has the government revealed the names of the defaulters, nor taken any action on the same.
A Credit Suisse Report released yesterday has said that the effect of demonitization will be felt in the economy for the coming 12-15 months.
Franco went on to demand the resignation of the RBI governor, Urjit Patel.
6) T. Peter, National Fishworkers’ Forum
Peter also raised issues about unbanked fisherfolk. Moreover, he talked about the decrease in sales of fish because of the cash crunch because of which fisherfolks’ ability to buy fishing equipment has come down. He also questioned the lack of commitment of the government to deal with crorepatis.
7) Manishankar Aiyer, ex-Congress MP
Manishankar Aiyer talked about a similar demonitization effort in 1978 under the Morarji Desai government in which Rs 1000, 5000 and 10,000 notes were declared as non-legal tender. But it had a very small effect on the majority of the population that did not deal in such high denominations. He questioned the commitment of the Modi government that came to power on a plank to ‘bring back’ black money, but has taken no action on the majority of black wealth siphoned off to tax havens like Mauritius and the Cayman Islands.
There were several others who spoke who narrated their own experiences of livelihood disruption from different parts of the country.