Holding that the demonetise move was not well thought out, former Finance Minister P Chidambaram today said its after-effects will continue for a longer period than expected and wondered whether government had consulted its chief economic advisor before taking the decision.
The demonetised Rs 500 and Rs 1,000 notes accounted for over 86 per cent of the total Rs 16.24 lakh crore value of banknotes in circulation as on March 31, 2016, according to Reserve Bank of India’s latest annual report.
“You are seeing the first-order effects of sucking out 86 per cent of the currency in circulation from the market. The first-order will continue for several weeks now. Then you will see the second-order effects,” Chidambaram said at Mumbai LitFest here, when asked what the repercussions he was seeing of the exercise.
“My suspicion is the only knowledgeable economist in the government, Dr Arvind Subramanian, was not consulted,” he said. Talking about the first-order effects, he said there are many people now living with very less money and are not consuming, which means produce, especially perishable produce like vegetables, fruits, are not being sold.
Chidambaram said the second-order effects are already visible in places like Tirupur and Surat, where lay-offs and retrenchments have started. The second-order effects will be more prominently felt if farmers, who have sworn their farms, do not have money to buy fertiliser and hire labour. “So I think the consequences will certainly be negative,” he said.
He, however, said it was too early to quantify the damage, which has been done because of the decision. Talking about the 50 days’ time Prime Minister Narendra Modi had asked for his anti-black money initiative to show results, Chidambaram said it might ease the liquidity crisis for individual hands, but won’t solve many other issues.
“The PM’s time out for 50 days might ease the liquidity crisis at individual’s hands, but it won’t solve many other problems. “Take a simple arithmetic…they demonetised 2,200 (total volume) crore Rs 500 and Rs 1,000 notes. The capacity of all printing presses taken together is 300 crore per month. So, even if you print note for note, it will take seven months. If you print smaller denominations notes like Rs 100 for Rs 500, it will take five times more time…Think somebody didn’t think through…that’s not unusual for government,” he said.