SHREYA KEDIA
There is a wide difference between noted economist John Maynard Keynes’ original quote, and Manmohan Singh’s selective pick of that quote to ridicule demonetisation. Ask economist and author Bibek Debroy, who has lampooned the former Prime Minister.
Almost a month since Prime Minister Narendra Modi announced one of the biggest decisions of his Government on November 8, the debate surrounding the currency reform refuses to die. People were surprised with the Prime Minister’s decisive strike on the country’s black economy that had been thriving on corruption, hawala trade, narcotics, terror funding, counterfeit currency notes, and other illegal activities.
The public at large has hailed the Prime Minister’s move, with a few not content with the implementation of the scheme of things. As expected, political parties vitiated the environment in the country, with opposition parties terming demonetisation as a ‘dictatorial move of the Modi Government’. While some in the Opposition willy-nilly countenanced the idea of eradication of black money, they had reservations about the Government’s implementation strategy. They have since then made several attempts to corner the Modi Government by stalling Parliament, to calling for a nationwide bandh and protests. The currency reform is a game-changer, which has in one stroke silenced adversaries and critics of the Modi Government, who have for long been ridiculing him on the black money issue.
Amidst this rumour-mongering, there have been speculations regarding the Government’s ‘intent’ behind the drive. An exponential number of people, including economists and politicians, have come out to air their views, with many calling demonetisation a ‘draconian measure’. Others have laughed on the shape, size and colour of the new currencies. There have also been numerous commentaries on the impact of demonetisation on the economy, with some predicting a fall in the country’s GDP growth.
In the backdrop of a long list of questions and scepticism, a recent interaction between noted economist and Niti Aayog member Bibek Debroy and senior columnist Ashok Malik, organised by the Syama Prasad Mookerjee Research Foundation and Nehru Memorial Museum & Library, gave some interesting insights on issues surrounding demonetisation that require immediate attention. The conversation tackled in detail wide-ranging issues, from demonetisation to governance to reforms to performance and transformation of the Modi Government in the last two and half years. Many misconceptions prevailing on the issue of demonetisation ought to have got cleared in the process.
At the very outset, Debroy made it clear, in pure economic terms that, to understand the intellectual logic behind demonetisation, “One has to separate the intention beyond the transition period and issues of implementation during transition period of transition.” He alluded to the fact that demonetisation was not all-encompassing, and that it would have to be inter-linked with subsequent policies to have a larger impact on black money.
He said, “On a broader perspective, demonetisation should not be seen as a magic wand and the single magic wand that would solve the black money problem in totality.” The current move ought to be seen in the backdrop of a whole lot of other measures being taken, and to be taken in the future, to address the issue of new black wealth.
The second confusion doing the rounds is: What is black income and what is the estimate of it in the Indian economy? Also, how do we distinguish between the ‘black’ and the ‘white’? The common perception is that black money refers to the money that is buried in people’s backyards, and that which circulates in the economy is fine. Yes, black wealth is indeed held in the form of cash, but it can be held in the form of property, gold, shares etc too. And the current move is perhaps just about adequate to clear hordes of wealth stacked at home. To address those other forms, the Government has to take more measures.
Debunking claims made by economists and the like, who have made fantastic claims, Debroy bluntly said that “there can actually be no estimate to black wealth”. The last estimate of black money was done by the National Institute of Public Finance and Policy in 1984-1985. It was 20 per cent of the GDP; today, one’s guess is as good as another’s.
Black wealth is generated because of two reasons. First, it is the income due to illegal activity. Second, money is black when the activity is legal but tax had not been paid. The present drive is aimed to destroy both two these kinds. Added to this, is the issue of counterfeit notes that have increased exponentially.
Extending the debate on black money, the most interesting part followed next, when, during the conversation, Malik alluded to, without naming former Prime Minister Manmohan Singh, about demonetisation critics quoting British economist John Maynard Keynes. Malik was referring to Singh’s recent speech in the Rajya Sabha, where the former Prime Minister expressed his concern about a two per cent fall in GDP growth, saying that demonetisation was an ‘organised loot and legalised plunder”, and also that it was a “monumental management failure”. Singh further referred to Keynes’ quote: “For those saying this is good in the long run, it reminds me of John Keynes’ words, ‘In the long run we are all dead’.”
It’s normally the questioner who is direct and blunt and the responder often finds roundabout ways to answer. But here the question came in a roundabout manner and Debroy came straight to Singh. Debroy was retorted, “Keynes’ quote is a favourite expression that every non-economist is familiar with. What Singh is familiar with is that which is there in his subconscious; he spoke half-truth about Keynes’ quote, that too out of context. The reference to Keynes quote is his 1926 book, A Treatise on Money, where he said, ‘The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again’.”
There is a wide difference between Keynes’ original quote and Singh’s selective pick. Keynes said that the quantitative theory of money was singularly ineffective for predictive purposes in the short run. According to him, quantitative theory was essentially linked to output and, therefore, GDP, with the amount floating in the system. Keynes also said that, in the short run, all attempts to link the quantity of money with output/GDP are completely ineffective; they have some role to play in the long run(and in long run we are dead”.
Next, Debroy dismissed the claim that GDP growth will dip due to demonetisation. He pointed out that transfer payments did not appear in GDP numbers, which are only about what is legal. The black does not enter GDP calculations. India is an economy where a significant number of transaction is done in cash. More people should be listening to Bibek Debroy.
(The writer is Assistant Editor, The Pioneer)