After his interview with Latha Venkatesh, Dr. Y.V. Reddy had given an interview to Shekhar Gupta for ‘Walk the Talk’. One can find it here. The meat of the interview, as far as demonetisation is concerned, is between the 12th and the 15th minute. He says that he would have advised against the move. If not heeded, he would have advised against demonetising the 500-Rupee note. If that too was not heeded, he would not have resigned immediately but he would have admitted himself in the hospital and told the government that they could have his resignation and announce it whenever they wished.
This is consistent with his interview to Ms. Latha Venkatesh where he said that civil servants had the right to advice and the obligation to dissent.
Two months of continuing currency shortage and non-communication from RBI on the post-decision execution, etc., have exasperated many. Dr. Reddy appears to be one of those. Cannot really say it is unreasonable or unfair even though I feel that, to a large degree, the faults lie in the following three aspects:
(1) What really was the Government’s intent in doing this? – it is an important question because that holds clues to the preparedness or the lack of it.
(2) The low moral quotient in the society that has enabled the ill-gotten money to be whitewashed through deposits into banks. That also indicates that, until really followed up, demonetisation in and of itself, would not make a meaningful dent in corruption.
(3) The collusion of some in the banking system with the rich that has contributed to so much money coming into the banking system and two, inconveniencing citizens more than they needed to, since notes were distributed more through bank branches rather than through ATM.
(4) A full and objective assessment is possible only with the passage of at least a few more years. It could be as long as five years. I said in my first post on the demonetisation update on November 9, that the benefits of the government decision are speculative and long-term while costs would be real and immediate. Even if the benefits are realised over time, then they would not be attributed to the decision taken on Nov. 8, 2016.
So, if the objectives were tackling corruption, then two things are clearer now. Lot more needs to be done to really attack it and two, the initial effect of the demonetisation move on corruption is one of disappointment.
Indeed, parenthetically, one can say that the Opposition parties should thank PM Modi. Whatever windfall gains he expected for the government is not coming through; in addition, there is prolonged short-term economic pain and social pain. There may be political consequences and he will have to bear them. The benefits of the move for the economy and the country would accrue over time and whoever is in office at that time would benefit from it.
That apart, honest Indians should be concerned about two things. The exercise has not been a revelation of state incapacity. That was widely known but the adamant refusal of the so-called rich to accept their national and social obligations and the dysfunctional economic structure that previous governments have bequeathed (bank nationalisation, for example) should make us reflect on the nation’s long-term prospects. Frankly, in that regard, the demonetisation exercise deserves praise for the harsh spotlight it has shone on both societal trends and the economic policy legacy that the country is still hurting from and unable to shake off.
Therefore, well meaning citizens like Dr. Y.V. Reddy should be concerned about what the government’s decision of Nov. 8 has revealed to all of us about the nation’s incapacity to grow up as much as they are concerned about the decision itself.
[On a separate note, I do not think that, in the initial minutes of the conversation with Dr. Y.V. Reddy, Mr. Gupta really understood the difference between a ‘transparent’ central bank and a ‘opaque’ central bank or policy forward guidance and how it would stoke excessive risk-taking, etc. Yet, he mentioned that his newspaper wrote an editorial criticising Dr. Reddy for refusing to be transparent with the market. That should give us some perspective on media criticism of economic policy decisions. On that issue, this blogger wholeheartedly supported and supports central bank’s unfettered freedom and right to be non-transparent with financial markets. I devote a lot of time to this aspect in my classes.]