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Out of my Mind: Keep changing

The BJP should be proud that it has undertaken several policy initiatives which have begun to clear the decades of debris left from earlier economic policies.

Written by Meghnad Desai | Updated: November 12, 2017 4:33 am
Demonetisation, Demonetisation anniversary, Narendra Modi, BJP, NPA Pieces of old fake 1000 rupee notes lay on the street during a protest  to mark a year since demonetisation in Ahmedabad, November 8, 2017. (Reuters Photo/File)

Memories are short. When 26 years ago, Narasimha Rao and Dr Manmohan Singh launched their revolution in economic policy with a double devaluation, there was near unanimous denunciation by the leading economists of what they had done. Ruination was predicted. The World Bank was thought to be dictating India’s policy. Even after all these years, the CPM/CPI keep denouncing neoliberalism. They prefer socialist stagnation.

For a government to be criticised for undertaking deep reform is almost invariably a compliment. The BJP should be proud that it has undertaken several policy initiatives which have begun to clear the decades of debris left from earlier economic policies. Lenin said you could not make an omelette without breaking eggs, nor a revolution without breaking heads. There is still unfinished business which will bring forth cries of anguish; ignore them.

At the anniversary of Demo (demonetisation), it is worth repeating that old currency was not devalued. It was converted into bank deposits. Total money supply was unchanged. This is shown by what people cite as the failure of the policy, i.e., 96 per cent of the outstanding cash came into the banks! The difficulty was Remo (remonetisation) not Demo; new currency did not arrive in time or in sufficient quantity during the first two months after Demo was launched. The new Rs 2,000 notes being unsuitable for ATMs compounded the difficulty. This was an implementation failure by the bureaucracy, not a policy error. The problem of cash shortage was sorted by end of the first quarter of 2017. The loss in growth rate of GDP was not more than 0.5 per cent, for the two quarters.

The government has been untiring in trying to bring money stashed abroad, as much as it will be in chasing the black money which came to the surface during Demo. It has tackled the insolvency legislation which has harmed the economy all these many decades. That then opens up the possibility of dealing with bank NPAs. The State Bank of India has been consolidated to give India, for the first time, a place in the 50 largest banks in the world.

The pace of reform needs to be kept up. PSU banks have had some recapitalisation, but the real solution is to consolidate them by merging and, when the climate is right, privatising them. Indira Gandhi’s move to nationalise banks was the biggest step in corrupting Indian politics. If Modi is serious about tackling corruption, PSU banks have to be divested. Otherwise another mountain of NPAs will rise up.

There is more unfinished business. The 2013 land acquisition Act is the most serious obstacle to growth and, if anything, the most anti-farmer, despite what its proponents claim. To increase infrastructure and manufacturing investment, the government needs to make the release of lands from agriculture to the larger economy easier. It will help many subsistence farmers sell land, get out of their hopeless situation and take up productive occupations.

The final challenge is labour market reform. All trade unions will fight these reforms. But if Indian manufacturing has stagnated for 50 years, it is due to these laws. Labour laws defend a minority of workers, leaving the vast majority insecure in the small and medium enterprises or informal sector. Clear this obstacle to see Indians grow rich.

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  1. S
    Nov 13, 2017 at 1:50 am
    If 96 per cent of the outstnding cash at the time of demonitisation has come back into the banking system and thus circulating in the economy, then demonitisation cannot have caused any long term liquidity crunch. There was only a short term disruption. This is Desai's argument. The same evidence also paints a disturbing picture which Desai misses. This massively disruptive, albeit in the short term according to Desai, exercise was undertaken on a false expectation of finding large ds of black money. Almost all of the money circulating in November 2016, at least 96 per cent according to Desai, is now in circulation through the banking system.
    1. A
      Nov 13, 2017 at 12:51 am
      I wonder at the spaciousness of the arguments by the author a remarkable supporter of Modi 1. Bank nationalisation for all its faults permitted bank network to expand in unbanned areas. The banks were owned by industrialists and they lent money for inventory profits - till the advent of Tandon Committee 2. The author would know that there is no correlation between ownership and efficiency. The blind privatisation advocates by the author is not reccomend Even by the Neo Liberal ins utions like IMF 3. The privatisation of education and health services has had a disastrous impact on India. We have a situation where children die for lack of oxygen and the best tertiary care is available next door at an unaffordable price. The privatisation of education has caused so much social unrest- patidar agitation 3. The demonetisation has not resulted in reduction in black money. The author Cooley transfers the blame on the bureaucracy. The author does not explain how the demon has helped
      1. p
        Nov 12, 2017 at 10:23 pm
        Excellent observations. Chidrabum, a chronic and a possessed hated of the government, should read it again although he knows the truth. Manmohan Singh, the socalled author of the modernization of the import/export policy and devaluation has till now pretended to be a blind-folded henchman of the Gandhis, should at least use some common sense. Criticism won't take us far but can hurt the common cause. Of course, we can't depend upon the silence of the Gandhis as they know not basic economics. THANKS TO THE AUTHOR.
        1. G
          Nov 12, 2017 at 10:17 pm
          Most sensible article in Indian express. Otherwise, this is just a pro-nepotistic yellow rag.
          1. D
            D Prakash
            Nov 12, 2017 at 8:57 pm
            Congress is not for India's fast development. Fast pace of development's prerequisites are good quality education for all , long term social peace and harmonious living ethos in all and inclusive development. Congress , especially UPA has always been averse to these basic prerequisites , because of fear of power loss by party and power loss of the family. For BJP , these pre-requisites are the the nutrients to thrive on. UPA rule of 10 years not only did bad on economic fronts , it was brazenly a rule of religious minority communities for benefit of minorities only - creating social division in the extreme form. Congress can not answer a simple question - how that community , which was responsible for the par ion , came to same demographical level again in just 70 years. It was also abrogation of the basic democracy rule of "law of majority ". If this country has to do good on the economic front , go on fast holistic progress, BJP should rule this country for next 20 years.
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