Skip to main content

Harvard review calls Modi's noteban "failed" exercise, says it wasn't based on sound theory, cost-benefit analysis

By Our Representative
The prestigious "Harvard Business Review" (HBR), in a strongly worded commentary to mark one year of noteban, has said that demonetization in a "complex economy" should been preceded by "a sound theory; a rationale for why the underlying assumptions are valid, and the evidence for those assumptions; and cost-benefit analyses, including accounting for the systemic effects, unintended consequences, and learnings from similar actions elsewhere."
Titled "One Year After India Killed Off Cash, Here’s What Other Countries Should Learn from It" and written by Bhaskar Chakravorti, senior associate dean of International Business & Finance at the Fletcher School at Tufts University, the commentary says, "It’s unclear if any other experts have been consulted on the India policy."
Expressing surprise that the only “expert” who might have been the inspiration was "a hitherto unknown mechanical engineer-turned-turned-social-activist named Anil Bokil", HBR says, all that he did was 'a five-point plan for 'principled, prosperous, and peaceful living' and a 94-page PowerPoint manifesto that he pitched to Prime Minister Narendra Modi."
Pointing to the factors that should have been considered before "invalidating cash" of Rs 500 and Rs 1000 notes. HBR says, "Invalidating 86% of the value of cash in circulation should be an automatic red flag, because it could bring the economy to the brink of chaos."
Then, it says, "90% of India’s workers are in the informal sector, where the predominant form of payment is cash. It is hard to imagine a scenario in which such “double” invalidation would not constitute a body blow to the workforce and the economy."
HBR continues, "In a recent analysis of income tax probes, the cash component of undeclared wealth in India was estimated to be only about 6%. In other words, the policy instrument was aimed at the wrong target: most undisclosed wealth is held in noncash assets. All of this data was readily available and should have given the policy makers pause."
Also not considered, says HBR, was the fact that "in Indian society, there is access to money-laundering networks and creative schemes for getting around rules and regulations." Thus, during noteban, "people with large holdings of the old banknotes sold them at a discount to brokers who then distributed them across a network of other people to deposit smaller amounts at banks so that they would not trigger an audit."
The result was, says HBR, "India’s central bank, the RBI, recently reported that of the estimated 15.28 trillion rupees ($239 billion) in currency taken out of circulation by demonetization, almost 99% had been returned to the banking system. The original argument for demonetization unraveled because of the strategy of leaving the holders of illegal cash stranded with useless banknotes appears to have mostly failed."
As for the rationale that the "demonetization was good for weaning the country off its dependence on cash and moving transactions to digital platforms, thereby leading to greater efficiencies, transparency, and growth of online commerce, thereby catapulting India more forcefully into the digital age", HBR says, "Unfortunately, here, too, the policy’s impact has fallen short."
"According to additional data from the RBI, while digital transactions did spike post-demonetization (when consumers had few alternatives), they have now dropped below the peak levels in both volume and value. Growth in digital transactions has been slowing each month since demonetization", it says, wondering, "It is not clear why invalidating 86% of the country’s cash was necessary to promote a single payment platform."

Comments

TRENDING

Whistle-blowing IPS officer Sanjiv Bhatt's wife suspects foul play after truck hits her car

By Nachiketa Desai*
Paranoia has seized Shweta Bhatt, wife of suspended Indian Police Service (IPS) officer Sanjiv Bhatt, after the car she was driving was rammed in broad day light. According to Shweta Bhatt, it was beacon light-flashing truck without registration number plate. The incident took place on January 7, just a day ahead of the Gujarat High Court was scheduled to take up the bail application of Sanjiv Bhatt, arrested last year for "involvement" in a 23-year-old case.

Call to support IIM-Bangalore professor, censured for seeking action against Uniliver

Counterview Desk
Sections of the Indian Institute of Managements (IIMs) across India have strongly reacted to the decision to censure Dr Deepak Malghan, a faulty at IIM-Bangalore. Prabhir Vishnu Poruthiyil, who is faculty at IIM-Tiruchirapalli, has sought wider solidarity with Dr Malghan, saying, "The administration has censured Deepak for merely suggesting a meaningful action against Hindustan Unilever for their abysmal environmental record" by “disinviting” it for campus placement.

99% MGNREGA funds "exhausted", Govt of India makes no additional sanctions: Study

Counterview Desk
A letter, addressed to Prime Minister Narendra Modi, and prepared by senior activists led by Aruna Roy on behalf of the Peoples’ Action for Employment Guarantee (PAEG), and signed, among others, by 80 members of Parliament, has regretted that, despite repeated public statements by his government promising employment and job creation that will boost the country’s growth, the country’s only employment guarantee programme, Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), “is being systematically undermined.”

Morari Bapu, who has installed new statues of Ram, Laxman, Hanuman without weapons

By Sandeep Pandey*
A saint is one who can give some inner peace by his/her voice. This will happen only when s(he) will talk about love and harmony. Morari Bapu is one saint who has been conveying the message of love, peace, harmony, fraternity, etc. Today when a number of saffron clad figures with aggressive posture, spewing venom, fanning hatred to polarise voters are at the forefront of politics of Hindutva it is a relief to see Morari Bapu in a different mould.

Nuclear reactors sought from French giant "not safe": Letter to Modi on Jaitapur project

Counterview Desk
Amidst reports that the French nuclear giant EDF has submitted a “techno-commercial offer” for the world’s largest nuclear power park proposed in Maharashtra’s Jaitapur nuclear power park in Jaitapur on the Maharashtra coast, Dr EAS Sarma, India’s former Union Secretary in the Minister of Power, and an eminent voice in the civil society, has written an open letter to Prime Minister Narendra Modi, who also heads Department of Atomic Energy (DAE),  protesting the move.

World Bank clarifies: Its 26th rank to India not for universal access to power but for ease of doing business

By Our Representative
In a major embarrassment to the Government of India, the World Bank has reportedly clarified that it has not ranked India 26th out of 130 countries for providing power to its population. The top international banker’s clarification comes following Union Power Minister Piyush Goyal’s claim that India has “improved to 26 position from 99” in access to electricity in just one year.

Kaiga NPP expansion: Karnataka to get just 400 MW, but lose thick forest, fresh water

Counterview Desk
In an open letter to the chairman and members of the Atomic energy Commission (AEC) on the issue of Kaiga nuclear power plant (NPP) expansion plan in Karnataka, Shankar Sharma, well-known power policy analyst, has argued that that in case of expansion, the site will face “exponential increase in radiation emission risks”, underlining, “Nuclear safety experts identify such a scenario as enhanced risk for NPPs with multiple reactors and shared technical facilities."
Sharma says the questions that also be asked whether Karnataka should lose more than 54 hectares of thick forests and about 152,304 cubic meters of fresh water per day from Kali river for a meager benefit of 400 MW from the Kaiga NPP, for which “there are many benign alternative options available for the state at much lower overall costs to the state.”
Text of the letter: This has reference to the public hearing under the Environmental Impact Assessment (EIA) Rule 2006 of Ministry of Environment, Fore…

Uttarakhand High Court: Biodiversity boards can impose fees on Ramdev's Divya Pharmacy

By Mridhu Tandon
In a significant decision, the Uttarakhand High Court on December 21, 2018 has dismissed the writ petition filed by Divya Pharmacy founded by Baba Ramdev and Acharya Balakrishnan, challenging the demand of the Uttarakhand Biodiversity Board (UBB) imposing fees under the provisions of the Fair and Equitable Benefit Sharing (FEBS).

Modi becoming Prime Minister now appears to be an "accident" to the people of India

By Sandeep Pandey*
Anupam Kher's film 'Accidental Prime Minister' has targeted Dr Manmohan Singh who served for two terms and may be again acceptable for the job if his party regains power. But his tormentor Narendra Modi seems to be out of breath even before his first term is over. Disillusionment with him is so widespread and deep that people of India may not bear with him for another term. As the general elections approach again the difference between the two needs to be examined.

Story of a foot soldier of Gujarat riots coming from a vulnerable community, Chharas

By Rajiv Shah
He is one of the more prominent "foot soldiers" of the 2002 Gujarat riots. Suresh Jadeja, alias Langdo, alias Richard, is indeed a well-known name in the Naroda Patiya massacre case, in which 97 persons were killed on February 28, 2002, the first day of the riots that shook the nation. Ordinarily, such a person should have been subjected to sociological scrutiny. What have here is a keen journalistic account, with clear political-ideological overtone.