THE country’s economy is now on a knife edge.
In the Lok Sabah yesterday, former Prime Minister, and Oxford Economics Professor Man Mohan Singh, described current PM Modi’s clampdown on cash held by individuals in India as ‘organized looting and legalized plunder’. Incredibly, as he spoke in the Chamber, Mr Modi was seen sitting nodding his head wisely as if in agreement with Mr Singh as he made his blistering attack on the Government!
More than 80% of India’s banknotes are now out of circulation. The sudden withdrawal of 500 and 1000 rupee notes was introduced to supposedly fight corruption and forgery and has resulted in a massive shortage of cash. People have been queuing outside bank branches for days with half the country’s ATM’s still empty. Insufficient numbers of new rupee notes were printed. Indians are being forced to exchange their old notes without sufficient notice, or lose them. Trucks are stranded, workers are not being paid, and millions of jobs are at risk.
In India’s cash economy, 40% of people still do not have access to the financial system, so cash is king and is used in an estimated massive 78% of transactions!
The situation is now alarming and scary for the country, so PM Modi needs to act fast to alleviate the situation or it could cost him dear with state elections looming. Observers say the current desperate state of affairs could lead to a major political backlash against him at the polls. It is vital that he gets the new cash out quickly into the real economy so that peoples’ livelihoods are not affected.
Mr Modi has undoubtedly started from a position of strength and has a lot of public support in principle in his attempts to crack down on corruption. However, what is seen as the incompetent manner in which this whole experiment has been handled, could seriously derail India’s reform drive. It is said that it will take 6 months at least to supply the cash India needs, in which time massive damage will be done to the economy and to its people resulting in scars which will be long lasting.
International comment has been adverse. Most observers emphasise that the rich will not suffer as corruptly acquired fortunes have largely been converted to shares, gold and real estate. Only the poor will end up losing out. Many think that the measures have much in common with the failed experiments of dictatorships and consider them to have been a dangerous miscalculation by Mr Modi.
In a shocking comment alleged to have been made by Mr Jaitley, India’s finance minister, he is quoted as wondering aloud as to how many poor people would even have 1000 Rupee notes. If true, surely this should have been considered before a potential shut down of the Indian financial system which, incidentally, has always been one of the most resilient in the world. There is little doubt in the minds of many that heads should roll!