Originally Published By swarajyamag
1) Y.V. Reddy who served as the governor of the Reserve Bank Of India from 2003-2008, when economy saw a massive boom, has endorsed the decision taken by the Modi government. Mr. Reddy termed the timing of the move “perfect” as it comes right before the Goods and Services Tax (GST) is all set to be implemented.
It is a historic moment. There is bound to be paradigm shift in the economic and political system. With the GST on the anvil, the system is ripe for a change. However, to take it forward, contract enforcement and judicial processes will have to play active role. It is impossible to have a big change without some inconvenience and some temporary disruptions.
2) C. Rangarajan served as governor of the RBI in the post-liberalisation era from 1992-1997. He called the demonetisation move a “standard prescription” that was tried in the past, however, he added, that this time the government was targeting those who accumulated money, who issue fake currency and those financing terrorism. Mr. Rangarajan has also called for measures so that black money doesn’t get generated in future.
The government’s move to withdraw Rs 500 and Rs 1,000 notes is a standard prescription in extinguishing unaccounted money. This has been tried in the past. But the government (this time) had three targets: those who accumulated money, who issue fake currency and those financing terrorism, the last two being of different nature. But as far as black money is concerned, this measure is a step towards reducing black money or unaccounted money from the system. It will affect the retail trade as most of the transactions are done using cash. There are some other sectors in the economy like real estate, jewellery where cash has become a major player for transaction. Those will undergo a fundamental change.
3) D. Subbarao, who was at the helm at the RBI post 2008 financial crisis, has said that positives of the current demonetization drive outweighed the negatives. However, he cautioned the RBI against treating the money not returned during the current drive as profit and handing over it to the government.
If you ride out the short-term pain, the positives will be substantial, be in terms of attracting investments, and also getting people to move from physical cash to electronic transactions. The money being deposited in the banks, as against having it in the pocket, or under the pillow, was good for the economy.Banks will multiply the money when it is with them. It will encourage banks to get lending rates down, even if the RBI does not ease any further…. demonetization will also help improve financial inclusion… banks will be able to give out more credit and all this will have a multiplier effect.
4) Dr. Raghuram Rajan, the previous RBI governor, hasn’t commented on the current drive. But on an earlier occasion, he had raised doubts about the effectiveness of demonetisation as a way of cleaning the financial system of black money. Rajan had suggested that it is better to focus on making improvements in tracking tax data and ramping up tax administration.
In the past demonetisation has been thought off as a way of getting black money out of circulation. Because people then have to come and say “how do I have this ten crores in cash sitting in my safe” and they have to explain where they got the money from. It is often cited as a solution. Unfortunately, my sense is the clever find ways around it.They find ways to divide up their hoard in to many smaller pieces. You do find that people who haven’t thought of a way to convert black to white, throw it into the Hundi in some temples. I think there are ways around demonetization. It is not that easy to flush out the black money.
5) Bimal Jalan, served from 1997-2003, overseeing the transition of the RBI from 20th century to 21st. He has termed the demonetisation drive as positive and good “in terms of what the intention is.” When asked whether the scheme will achieve its purpose, Mr Jalan said that ‘it would take three-four months to see how it works.’
It is very positive and good for us in terms of what the intention is. And over a period of time as I think he also mentioned that it will be easy to see what else needs to be done to make it available, make it accessible to the people who do not have bank account and let us hope it works out. The most crucial issue at the moment is how to increase the spread in the banking system that is the most crucial issue. The second related most important issue is that in rural areas or in semi-urban area where there are no banks accounts for the poor or for the agriculturists and, then what is to be done with their notes if they do not have a bank account.