Demonetisation update 12- Dr. Singh’s scoot and thunder

One of the important lessons of ageing is to appreciate the virtue of silence. There is dignity in that. Some not only do not appreciate it but travel in the opposite direction.

I read the text of Dr. Manmohan Singh’s speech in Rajya Sabha as reported in ‘Indian Express’. He got a few things right and many things wrong.

He was right to focus on the short-term travails and chaos. That is where the government’s vulnerability lies. Well, the government is actually paying the price for the lack of capability of the machinery of the Indian state to pull something off like this on a national scale at short notice.  Back in 2003, Dr. Arun Shourie had lamented that the Indian state got the odd big project right (Kumbh Mela, for example) but did not sustain it. This one is even more challenging. No surprise that there is chaos and hardship. There will be some economic costs to the nation and to the people. Hope it is negligible.

He was right not to criticise the demonetisation exercise itself. He focused on the process. That is about it. He got the rest of his speech wrong.

If he did not disagree with the objectives and if he did not wish to favour ‘this side or that side’, then why did he characterise it as organised loot and legalised plunder? Strong words but what is the basis? Did he mistakenly think that we were in 2010 when there was organised loot and both legalised and illegal plunder of national resources?

He is right that even 50 days is too long for the poor to suffer. But, in that case, was it right to let them suffer for 1830 days between May 22, 2009 and May 26, 2014? Annual average consumer price inflation was 10.1% in that period (based on CPI-IW) and food inflation was 10.5% per annum. The poor suffered enormously. The rupee plunged 50%. Businesses collapsed. Telecom licenses were handed out to cronies. Supreme Court cancelled them. Mining licenses were allotted arbitrarily. Supreme Court banned mining. Economic growth, which was flying high due to the global boom pre-2008 collapsed to 5% to 6%, thanks to UPA missteps and loot and plunder. The 50-days that the current Prime Minister is talking about must be seen in this perspective.

Let me try another argument. The suffering of the people is incremental to the suffering that the State has been inflicting on an ongoing basis. Further, if the issue of corruption remained untackled, how could even one compute the suffering that would endure for much longer? By definition, that is harder and even almost impossible to estimate. Isn’t it?

Dr. Singh invoked John Maynard Keynes. Well, most economists know the context in which Keynes talked about the long run. It was in the context of the great economic depression of the 1930s and the advocacy of government remaining passive by the Austrian school. He advocated government intervention. Keynes may have been right (or wrong). It is hard to find out for it is impossible to construct the counterfactual. Indeed, many think that the non-intervening UK recovered better and faster than the American economy despite (or, because of?) Roosevelt’s interventions.

Be that as it may, in India, the situation has arisen out of government action (and not inaction) and it is handling the implementation challenges by responding to them immediately. So, Keynes’ analogy does not apply in this context at all.

Indeed, the long-run arrived for India in 2014 and the economy was nearly dead when the present government took office. It has been a struggle for it to breathe life into the economy left comatose by Dr. Singh’s government.

Dr. Singh is right that there will be economic impact in the short run and the long-run benefits are not easily identifiable or quantifiable, at this stage. That does mean that they are unlikely.

Indeed, much of India’s present economic fragility is traceable to UPA’s errors of omission and commission. Certainly, the public sector banks’ Non-Performing Assets is a UPA legacy. That is just one of many legacies of his government that India could have done without, some of which I have recounted above.

If the economic fragility persists longer, political uncertainty will follow in its wake and the Indian economic revival will end even before it began.

The government faces a very tough challenge. It has to keep up with structural reforms if it has to shut further avenues for corruption and, at the same time, mind economic growth and job creation. Not easy. Dr. Singh cannot be blamed for not offering any advice to the government in this regard, despite his impressive economic credentials. Unfortunately for him and for India, under his leadership, the government neither carried out structural reforms nor facilitated economic growth. So, he has no experience of either. Those were the dark ages.

Both this government and India need all the luck they can muster to avoid a return to those times in 2019. Palms folded or fingers crossed.

[Postscript: Here is Keynes’ full quotation on the issue of long-run. It is easily located in the Internet:

But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task, if in tempestuous seasons they can only tell us, that when the storm is long past, the ocean is flat again. Source: A Tract on Monetary Reform (1923), Ch. 3, p. 80.

Keynes was addressing some economists. In the case of India, no one is advising the government not to address the short-term issues nor is the government being indifferent to them.]


12 thoughts on “Demonetisation update 12- Dr. Singh’s scoot and thunder

  1. AN, Why have you written a reply to MMS speech? Why have you not written on the negatives of the whole initiative. This initiatives was opposed by the very same people who want just credit as they a failing to deliver. How much PR work you want to do. Can’t you see all failure at every front, and thus loosing all elections. All politicians do things for wining elections. The
    Financiers behind our PM are now running the show, and they are all very busy making money.


    1. You are welcome to the blog and comment. But, please do mind your language. There is no compulsion on any one to agree or even visit this blog. It is my blog and I record my thoughts here. I am not doing PR work for any one. If you wish to disagree and can do so, without getting personal, you are welcome to do so. Otherwise, not.


  2. So your criticism of Dr. Singh too finally can be summed up as this. He is right to criticise the process (ie he is right in calling it a monumental mismanagement) and in calling it organised loot and legalised plunder he is wrong because many such loota happened during his times as FM and as PM.
    What logic?
    If you read the text closely he also said he would not want to say anything more because he wants the PM to focus on alleviating suffering of common people, meaning he does not want to currently dissect the loot & plunder issue. So it can be read differently as well.


  3. I think Dr. Manmohan Singh was intellectually dishonest in his address yesterday, in focusing wholly on the immediate hardships. As an economist, he knows the enormity of the task that the PM had taken (part of which MMS himself had created) – so he could have desisted from adding to the noise. He degraded his own reputation in parliament and the country by being the pot that calls the scrub black.


  4. Excellent analysis. My hope is that person of intellectual abilities of MMS comes out of the “cast of spell” from his masters when he became a mute spectator of monumental loot . He would do a great service to the nation if he spills beans and documents all who are responsible for these scams and exposes players behind shenanigans which happened under his watch. That will go a long way in rooting out the corruption and put those responsible behind bars. After all, his words would count a great deal in courts. Someone needs to tell him that if he wants to go down in the history as someone with a wee bit of positive legacy, that he should do that service to India otherwise, he will go down in history as yet another “Dhritarashta.”

    Well, I muust confess that that chances of that happening are negligible and am perhaps too much of an optimist to think about that possibility.


  5. Most of the criticism on the demonetization issue is very broad-brushed – typically on the lines of we don’t disagree with policy decision- but the short-term crisis is overblown, with little or no constructive sugggestions for consideration. No one denies that there is no crisis… policymakers have asked for time till December 31 to put the economy on even keel. Any reform of this magnitude will have some consequences/ pain… this is where national resilience and will to resolve deep rooted malaise must take its firm stand and fight it out – only problem is unfortunately the enemy is within!

    Well analysed, Ananth , on MMS’s short speech… he could have done much better for the accolades/ credentials attributed to his caliber…



  6. Hi Dr VAN “…the then government did much worse” is not an appropriate benchmark. Clearly parts of the implementation could have been organized better. One must always be open to constructive comments and suggestions, rather than question the credibility of the person asking the question (i.e. you did nothing when you were elected). I wish your commentary focused on lack of suggestions or ideas presented by Dr Singh in parliament.


    1. this man do not have any credibility in the 1st place.. the respect he got from everyone eroded the day he took decided to become slave of nehru family… he should not have accepted the role of PM in 1st place where every file has to pass through madam..he never acted like a PM of this large nation. he always acted an slave of Gandhis. he always carried the burden of post. he diminished the post of PM.. he lost credibility when he allowed everything under his nose to continue.. what credibility you are talking about.. our economy on the edge of bankruptcy…


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