Myths and Realities of Demonetization

“Since India does not have a concrete GDP number, it is difficult to predict the decline in the country’s GDP due to demonetisation,” stated Dr N R Bhanumurthy, Professor, National Institute of Public Finance and Policy.

He was speaking at the seminar on ‘Myths and Realities of Demonetisation’, organised by Centre for Public Policy Research (CPPR) in association with Centre for Economy Development and Law (CEDL). Dr Bhanumurthy held that demonetisation could result in a dent on the revenue side, but more money coming to the system could improve growth in the coming year.

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“Corruption is a major source of black money generation in the country. It calls for reforms in the governance system,” observed Deepthi Mary Mathew, Research Associate, CPPR, who opened up the discussion on demonetisation.

“Demonetisation is against the objective of good economic governance,” said Mr P R Devi Prasad, IES. He added that it was a bold and audacious move to change the mindset of the people. The objective of demonetisation had completely shifted from fighting fake currency and black money to promoting a cashless economy. He urged for reforms in capital, land, asset and commodity markets.

Dr Martin Patrick, Chief Economist, CPPR, remarked that if fiat currency were withdrawn from the system, people would be affected the most and not the Government, since only a part of currency in circulation in the economy was backed by reserves. He stated that demonetisation was indeed a bold step taken by the Government to fight black money and only a ‘wait and watch’ approach could assess its impact.

Jomon K George, Founder and Managing Partner, JVR Associates, contended that the complicated tax structure was leading to black money generation in the country and KYC norms could help limit black transactions in the country. He added that the swollen banking system would bring down lending rates and could boost the economy.

Dr. K N Raghavan, IRS (Commissioner of Customs, Kochi) moderated the session. In reply to a question, he said that it was a misconception that co-operative banks were safe havens for black money holders. He emphasised that 98 per cent of co-operative account holders were genuine, but not allowing the IT department to inspect the banks for protecting the rest two per cent could not be accepted.

The panellists included Dr N R Bhanumurthy (Professor, National Institute of Public Finance and Policy, New Delhi), Deepthi Mary Mathew (Research Associate, CPPR), P R Devi Prasad, IES (Formerly, Indian Economic Service and Founder Director of Fiscal Policy Institute, Bengaluru), Jomon K George (Founder and Managing Partner, JVR Associates) and Dr Martin Patrick (Chief Economist, CPPR).


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