Kerala Finance Minister Dr TM Thomas Isaac has said the situation in the real economy is worsening by the day as all sectors including agriculture, plantation and small businesses are affected by the Centre's demonetisation drive.
Issac alleged PM Narendra Modi's move was politically motivated keeping the upcoming Assembly elections in mind. Isaac, who is also a well-known economist, said the government should not have announced this so abruptly, taking several precautions on the trade on gold and land.
Excerpts from an interview.
A week since demonetisation has announced, are things improving on the ground?
There has been a slight improvement in money supply in terms of cash that can be withdrawn but, things in the real economy are worsening. Small producers, both agriculture and industry, have exhausted whatever they have. They cannot make payments. Wages are not given for estate labourers, cashew workers. The trade has been affected. People do not have purchasing power. This is going to have a huge impact on the economy in the short term.
Indelible ink being used on people who are going to change their currency. How do you see this move?
Government got all its priorities wrong. The major problem here is that government is not able to ensure adequate supply of cash. There is a severe shortage of cash. Now, their focus should be on increasing cash supply and not creating additional trouble to people while withdrawing. First, you are making everyone a suspect of being a black money holder but for someone who is determined on converting black money instead of sending one person repeatedly they can hire many people and achieve the same result. In fact my position right from the beginning is that instead of demonetising notes all of a sudden, give some notice, a month or two and then allow the market to adjust. All the fake notes would have been driven pout. Government should take certain precautions like alert on transactions above a certain limit and put restrictions on the trade in gold and land. It is not difficult to trace the money in the formal system. This would not have had adversely affected the final outcome , all the fake money would have gone. Instead of adopting a path which would cost least problems for the poor for some reason the government of India wanted to make it a big drama, make it appear like another surgical strike. For this propaganda purpose they have mismanaged the entire issue.
PM and BJP says that secrecy was necessary to stop people from converting their black money:
He is being silly, how can they convert the fake money. All the facilities that you are now legally providing, is allowing black money holders to convert. Same thing would have happened even if you gave time. Here the question is do you want to grind your whole economy to a halt for a month or two?
PM said give him 50 days and it is short term pain for a long term gain and only people with black money are having sleepless nights:
I think the PM must go and stand in some queues and see and hear what people are saying. Everybody is angry. To come and stand for one day means an ordinary person cannot go for work, work is lost. I went to a queue where a woman says it’s the third time she has come. By the time she is about to reach the ATM the cash is over. Third day she got 2000 rupees. She loses work for 3 days and get Rs 2000, imagine the impact.
It is true that big money holders are also affected but to catch them you don’t have to torment every citizen of India. In the long run it will be business as usual. Unless like what PM believes the blackmoney is a flow and only for a temporary period the flow is held in cash otherwise it moves into assets like gold, land, stocks. If he is very serious about catching the big black holders why doesn’t he go after people who have accounts in Swiss bank, why does he allow the Mauritius route. You leave them all free and you make a drama of capturing black money and put all the common people into such problem. My position has always been that it is politically motivated. It should have been done in a way that it doesn’t disrupt the entire economy.
Do you think that the upcoming state elections have some role in this decision?
Definitely this was politically motivated. When I first heard this I thought it is madness, you are taking away 85 per cent of the cash so the economy is going to freeze. So I criticised and next day somebody in Nagpur replies to me. It shows how carefully things are monitored. Now data is coming out that increase in the deposit of banks in the second quarter is a big jump compared to the past three quarters. Somebody has been forewarned, some set of people has been converting their black money. it can become a big scandal if this is true, but there is enough reasons to suspect this was true.
Thirdly, if this is true BJP has demonetised its rivals in UP and other states who are going for elections early next year.
Centre says that black money will come back into the system with this move and this can compensate all these negatives?
Government and RBI stands to gain, depends on the quantum of blackmoney that goes out to the system. Suppose it is something like 3 lakh crores which is very likely, which means RBI reserve will go up, it is a gain to the government in the short term but the economy will face severe destabilisation. The total loss of production to the economy as a whole will be three to four times of what the government gets. This cash taken away is just a miniscule part of the black money in India so it’s not going to have any big impact. In the long run unlike what PM says it is going to be business as usual.
Immediate impact of the decision on Kerala :
One major casualty in this whole exercise will be our primary co-operative societies. These societies have played a major role in mobilizing resources and for strengthening the economy. Entire co-operative system is shaking as RBI is not allowing them to take deposits. Their money is frozen in the state co-operative banks.. Local BJP units are supporting this move they are accusing that co-operatives banks are having all black money and abetting central government to take action.
Our plantation sector work has come to a halt . Cashew workers, coir workers are all affected.
No trade is happening , I am expecting a big decline in the tax revenue.
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