Manmohan Singh calls for working towards reducing income inequality
Former Prime Minister Manmohan Singh called the demonetisation was a failure and expressed concerns about the move widening the income inequality in India. He further said that Prime Minister Narendra Modi must admit that demonetisation was a blunder and called for consensual policy decisions to rebuild the economy.
In an interview with Bloomberg Quint, Singh stated that while making the transition to a cashless economy may be a “laudable pursuit”, demonetising close to 90 percent of the country’s economy may have hurt the operations of small and medium enterprises that would be difficult to rectify in the future.
He said that the impact of demonetisation “on the weaker sections of our society and business is far more damaging than any economic indicator can reveal”.
Singh explained that India’s economy is largely fueled by small and medium enterprises which are cash based. In order for the economy to improve and the gap in the income equality to reduce in India, efforts must be made to increase the size of these industries so that they can reap the benefit of increasing scale efficiency.
When asked about the government’s rhetoric to formalise the informal economy to widen the tax base, boosting overall economic growth, Singh stated that the means are as important as the ends. He said that coercion or threats or raids to achieve these ends can be counter-productive.
Singh also expressed concerns over the erosion of institutional independence in India.
With demonetisation, Singh said the Reserve Bank of India was bypassed in making the most important monetary policy decision of India till date.
He was sure that the RBI was as unaware of the move as that of the general public, and had no choice but to carry out the procedures after the announcement.
Nonetheless, he is also confident of the RBI’s governor to assert its independence from the Centre’s influence, and in its efforts towards creating a stable economy.
Singh said that the economic prioritisation should be to provide productive jobs to the hundreds of millions of youth that are entering the job market annually and that all the economic policy initiatives ought to be targeted towards meeting this objective.