Demonetisation update 18 – the Chakravarty fest

There was Manas Chakravarty, Praveen Chakravarty and Chakravarty Rangarajan. Not to mention Sudeep Chakravarti who held a mirror to Modi.

Manas Chakravarty wrote:

For what Prime Minister Narendra Modi is trying to do, through the demonetisation exercise, through the Benami Property law and by pushing through the Goods and Services Tax (GST), is nothing short of a revolution….Why call it a revolution? Simply put, if the reforms being forced through now are successful, they would change the face of the Indian economy. I am not talking here of mere GDP growth, but of a fundamental structural change. It is Modi’s Great Leap Forward. [Link]

After expanding on how these would (or, could) pave the way for the transformation of an economy dominated by informal activity (mostly illegal too) into one where economic activity is conducted in the formal sector (note that economic output is already largely contributed by the formal sector), he concludes on an ominous note:

Even so, the endeavour is fraught with great risks, exacerbated by the unsettled global environment. The original Great Leap Forward, after all, was an unmitigated disaster.

That is not entirely unfair. There is many a slip betwixt the cup and the lip.

Chakravarty Rangarajan and Usha Thorat – former RBI Governor and Deputy Governor respectively – focused on the transfer of cancelled monetary liability to the Government. They came up with a suggestion that splits the gains down the middle – transfer a portion of it to the Reserves and for the remainder, cancel government debt. This precludes creation of fresh reserves to transfer profits to the government. But, this might be academic for two reasons. One, RBI is not in any hurry to cancel its ‘promise to pay’ on the specified bank notes withdrawn. Two, if almost all of the specified bank notes withdrawn come back into the banking system, there is no question of transferring any benefit to the government or cancelling government debt owed to RBI.

As it puts it – it is not demonetisation; it may be more precisely called currency swap – but I cannot now change all the headers of my blog posts!

Praveen Chakravarty says that the Prime Minister has been shifting the objectives of his announcement on November 8. As per the original speech, it was corruption, black money and terrorism. But, he has now begun to emphasise digital/cashless. That could be for various reasons. Praveen wonders if the objectives were clear and well thought-through, before the exercise commenced.

Of course, we had devoted a separate blog post to what Sudeep Chakravarti wrote.

 

 

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