Lessons from Demonetisation Nov 8, 2016 - Man Mohan Singh

• Demonetisation was a misguided act of coercion that shocked and had impacted every single Indian. It was an ill-conceived economic policy decision. 
• Even if one were to take the purported economic motives of eradication of black money or enabling a digital economy at face value, arbitrary demonetisation was not the means to achieve those objectives.
• Contrary to belief, demonetisation was not a case of a “good idea, bad execution”. It was a fundamentally flawed idea. 
• One year later, it is well established that the reckless decision caused enormous damage. Not just economic but social, institutional and reputational damage.
• The economic impact of demonetisation is evident in the slowing of GDP growth and deterioration of other economic indicators. The precise quantum of the negative impact of demonetisation on economic output is both inestimable. 
• The current economic slowdown triggered by a liquidity shock due to demonetisation was needless and entirely self-inflicted. Such a shock may be temporary in nature but can have a lasting damage on the weaker sections of our society and industry. 
• A liquidity crisis often turns into a solvency crisis for the weak, as is borne out in data and stories from poorer households and small businesses that are struggling to recover from the damage to their livelihoods caused by demonetisation.
• Money is an idea that inspires confidence. A sudden withdrawal of money can dent confidence. Business confidence has plummeted. Stability and certainty are essential ingredients for a well functioning macroeconomy. Demonetisation has dented both. 
• At a time when individual and regional economic inequalities in India are rapidly widening, measures such as demonetisation have only exacerbated such inequalities. 
• Millions of our youth are being left out of economic development with limited access to jobs. Three-quarters of non-agricultural employment is in small and medium enterprises. Construction and small manufacturing have been hit the hardest post demonetisation.
• Mahatma Gandhi, exhorted us to “recall the face of the poorest and the weakest” while contemplating policy decisions. Advice that was evidently not heeded in the decision to demonetise India’s currency. 
• Demonetisation inflicted tremendous suffering on the weaker sections of our society is now indisputable. The demonetisation idea was whimsical is well established. It is only appropriate that the Prime Minister now graciously accept this monumental blunder and seek support from all to rebuild our economy for the larger good of the nation and her youth.
• It is likely that GDP growth will now begin to recover from current lows but the nature of recovery is likely to be unequal and unhealthy. Any headline economic recovery may not adequately capture the permanent damage to the informal sector. 
• Unequal and jobless economic growth are the twin challenges confronting our nation today. In a quest to construct a facade of justification for the demonetisation decision, there is a genuine risk of chasing wrong priorities for our nation. 
• Pretentious pursuit of a ‘less cash economy’ to justify a fundamentally flawed act neither recognizes nor solves these twin economic challenges. 
• It is imperative that we move beyond the rhetoric and politics of demonetisation and come together to find solutions to our challenges of employment and equality. 
• But economic damage of demonetisation aside, I also worry deeply about a creeping culture of erosion of institutions and their credibility.
• The India that awoke to freedom in 1947 was a geographical mass of impoverished humanity embarking on an audacious journey of self-governance and nation-building. Seven decades later, we are a proud, cohesive nation rapidly ascending the ladder of global power. This enormous rise of our nation has been built on the edifice of strong institutions, conceived, built and nurtured by our founding fathers and subsequent leaders. Lok Sabha and the Vidhan Sabhas, High courts and the Supreme Court, the media, public universities, Election Commission, Central Bureau of Investigation, Central Statistics Office, Reserve Bank of India, the Securities and Exchange Board of India etc have formed the bedrock of India’s steep ascent in the global stage.
• These institutions frame rules and ensure continuity, regardless of individuals in power.  Independence, credibility and trust of these institutions is of utmost importance to India’s sustained growth and development. It is these institutions that ensure the nation is accorded greater importance than individual leaders. Any attack on an institution’s independence or credibility is a direct attack on the nation and her citizens. 
• RBI is an institution of utmost importance with carefully nourished independence and credibility. The demonetisation decision was an impingement on RBI’s institutional authority. RBI was not given a chance to exercise judgement or opine in the decision to demonetise currency. 
• The inexplicable delay by the EC in its announcement of election dates for Gujarat, adds to growing concerns about the solidity of the nation’s institutions. Attempts to thwart the freedom of such institutions portend grave dangers for the nation.
• The independence and integrity of the media, investigative institutions, educational institutions and cultural institutions are all being tested and subject to intense pressure. India today is experiencing a clash of the might of executive power against the resilience of its hallowed institutions. The leaders of India’s institutions shoulder an enormous responsibility to defend their institutions with all their might for the sake of the nation’s future.
• Every political leader is faced with a temptation to override institutional procedures in the garb of speed and efficiency. Leaders with a political majority even have the ability to fulfill those temptations. But succumbing to such temptations will be a betrayal of the sacrifices made by our freedom fighters and founding fathers in establishing the sovereign republic of India.
• I sincerely hope demonetisation was just an economic blunder and not a harbinger of institutional erosion. Overriding institutions, circumventing consensus, and haste are what made the demonetisation decision possible. A truly liberal society is one that strives to ensure that not even a single innocent is punished unfairly. The role of institutions is vital in ensuring such order. It is indeed time to move on from demonetisation but not move away from institutions, procedures and processes.

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Not withstanding what ever MMS said, at least Rs. 4 lakh crores evaporated from Indian economy during past one year and recouping is painfully slow and might take another 2-3 years, even then some permanent scars will be left behind. Modi believes in Goebbels like propaganda and keeps on telling that demonetisation is giving positive results at every uptick in vast number of economic parameters and trolls followup in social media while maintaining stoic silence on negatives. He will never accept it as a flawed idea implemented badly, even if the whole world says so loudly. He is a demagogue and with chilling similarities of Fascist Mussolini, bulldozes and does whatever nonsense comes to his stupid brain. He has no regard for institutions and their independence. No amount of persuasion will change this stubborn fellow. The only way out is to throw him out in 2019 general elections and by defeating in Gujarat elections now.