Slamming demonetisation as a major factor responsible for the current deceleration in the economy, former Finance Minister P. Chidambaram says the government was “clueless” about the causative factors on why the GDP was declining and unless these are addressed the Indian economy would be stuck at six per cent growth.
He also said that if the government that came on the promise of “good days” (achche din) cannot deliver on growth and jobs in 1,200 days in power, it cannot do so in the next 600 days.
“Therefore, he (Prime Minister Narendra Modi) has cleverly shifted the goal post to 2022 as though his five-year term is beginning in 2017. It is for the Opposition to expose this,” Chidambaram told IANS in an interview.
Reacting to the latest Central Statistical Organisation (CSO) figures on GDP growth, he said it had declined for six successive quarters — from 9.1 per cent to 7.5 per cent, 7 per cent, 6.7 per cent, 6.1 per cent and now 5.7 per cent.
“I have been writing about it, speaking about it and pointing out why it is declining. In my view, government seems clueless about the causative factors why the GDP growth is declining. If a government is clueless about the causative factors, I am afraid, it is incapable of taking corrective actions. One of the major causative factors was demonetisation which happened in the third quarter of 2016-17. But the government is unwilling to admit that demonetisation was a causative factor,” he said, adding that the causative factors were many, and demonetisation, though a major one, was not the only factor.
He said unless the government addressed the causative factors, the economy would be stuck between 6 per cent and 7 per cent growth.
“If you go by Q1 of 2017-18 it may even be some 6 per cent. The point I have been making is in UPA-I, the economic growth was between 8 per cent and 9 per cent. Average was 8.5 per cent. In UPA-2, the rate of growth was between 7 per cent and 8 percent. In fact, it continued in the first two years of NDA government. Now since 2016-17, it has come to between 6 per cent and 7 percent. That is worrying.”
Asked what the government should do, he shot back, “I am not giving them free advise. I don’t know what they will do. They must address the factors which are causing the decline. Several people have written about it. An economy where export growth is not 15 per cent a year cannot grow at 7 per cent. That is true.”
Asked if all the present ills of the economy could be blamed on demonetisation, the senior Congressman said, it was a major factor. The declining trend had started three quarters earlier. “Demonetisation happened in Q3 of 2016-17 and then Q4 of 2016-17 and Q1 of 2017-18 also continued to see the decline. Demonetisation accelerated the pace of decline,” he said.
Chidambaram said it seemed that even after so much was being written and said, the government had no concept of what black money in India was.
“Let’s assume that what has come into the system is partly black money. That is, part of the Rs 15.28 lakh crore. But that is only the stock of black money. But subsequent to November 8, 2016, there is generation of black money. That is the flow of black money. So demonetisation has not affected the generation and flow of black money.”
Questioning the government’s claims on the money that had come back into system, Chidambaram said anyone who had the courage to go and deposit rupees one or two crores would not have done so without a reasonably credible story that he would have prepared.
He said the government had no idea when it made the claim in the Supreme Court that it expected Rs 4 to Rs 5 Lakh crore not to come back into the system after demonetisation. It was a simply a shot in the dark.
“I think if there is a proper adjudication, proper investigation, it is possible that out of Rs 15.28 lakh crore that was deposited, in a period of five to six years it might be able to an get additional tax revenue of few thousand crores of rupees.
“Let’s assume that you got about Rs 10,000 crore of additional tax. Is that worth the kind of disruption that you have caused? Is that worth the kind of pain you put the people through?” he asked.
On Raghuram Rajan breaking his silence over demonetisation, Chidambaram said there was a preliminary discussion on the merits and demerits of demonetisation and Rajan had advised against the move on the ground that the costs were far higher than the benefits.
“And I know that when he left office he had left a five-page note for the government, saying why demonetisation was not advisable. But it was the government’s decision to do demonetisation. (He advised) they should take a number of preparatory steps and give time to RBI to get ready before the announcement of demonetisation. His views were rejected both on the decision to demonetise and on the preparatory steps that were required to be taken before demonetisation,” he said.
On the logic of introduction of the Rs 2,000 currency note, Chidambaram said there was no logic behind that. “It was a foolish move that actually helped those who generate black money, to keep the money generated after November 8, 2016, in Rs 2,000 notes.”
He said 50.2 per cent by value overall of the currency in circulation was that of the Rs 2,000 note which should be slowly phased out. “I am not suggesting you should scrap it. Should not print Rs 2,000 notes anymore. And as the Rs 2,000 notes come back into the banking system, they should be impounded and replaced with Rs 500 and Rs 200 notes. I don’t think you should scrap it. That will be another demonetisation which will make the matters worse.”
On the implementation of the Goods and Services Tax (GST), Chidambaram said it was a good idea and good tax, but the way it was rolled out, the government has caused a massive disruption.
“You can’t deny that. The textile sector has been disrupted. The supply chain from people who have a turnover of less than Rs 20 lakh to people who have a turnover of more than Rs 20 lakh is completely broken. The compliance costs are so high that small and medium business are suffering a huge amount of pain and loss. And the frequent changes in the rates is extremely upsetting. For example, the automobile industry says how can we invest so many thousands of crores of rupees if you keep on increasing the tax rate,” Chidambaram said.