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On the eve of the first anniversary of demonetisation, former Prime Minister Manmohan Singh, the architect of India’s liberal economic reforms of 1991, termed last year’s ban on high-denomination currency a “disaster” that only benefited China. He also trashed GST, calling it “tax terrorism”.
Singh said India’s imports from China in the first half of the fiscal rose 23 per cent to ₹2.41 lakh crore, largely due to demonetisation and GST. “These twin blows damaged India’s MSME sector and our businesses had to turn to Chinese imports at the cost of Indian jobs.”
‘Reckless step’ Addressing traders and businessmen here, the former PM said: “With immense pain and a sense of deep responsibility [I say] that the eighth of November was a ‘Black Day’ for our economy and indeed, our democracy. I remember feeling shocked when I heard the Prime Minister’s (Narendra Modi’s) announcement and I wondered who advised him to inflict such a reckless step on our nation, and whether any considered thought went into it.”
Stating that a ban on high-value notes had been suggested in the past as a means of eradicating black money, but “we never took such a drastic measure because, in our reasoned analysis, the costs of demonetisation always exceeded the benefits.”
“Demonetisation has proved to be mere bluster to reap political dividends while the real offenders have escaped. I repeat, it was organised loot and legalised plunder,” Singh said, referring to a similar statement in Parliament last year.
He said no world democracy had undertaken such a “coercive” move of withdrawing 86 per cent of legal tenders in one single swoop. Singh questioned the logic of introducing a higher denomination note — that of ₹2,000 — after invalidating 500 and 100 rupee notes.
‘GDP growth hurt’ Singh blamed on demonetisation the fall in GDP growth to 5.7 per cent.
“Even this is bound to be a gross underestimate as the pain of the informal sector is not adequately captured in the GDP calculations. Every one per cent loss of GDP annually costs our nation ₹1.5 lakh crore. Think of the human impact from this lost growth — the lost jobs, the youth whose opportunities have vanished, the businesses that have had to shut down and the entrepreneurs whose drive to succeed has turned into discouraged disappointment.”
“What is even more tragic is that none of the lessons from this monumental blunder has been learnt by the government, which, instead of providing relief to the needy, chose to inflict on them a badly designed and hastily implemented GST. These twin blows — demonetisation and GST — have been a “complete disaster” to the Indian economy.
Floundered on GST Citing statistics and examples, the former PM pointed out that the UPA’s GST envisoned a single tax capped at 18%, while the current one has transformed it into a “complicated mess with multiple slabs”.
“This was done by the government without paying any heed to our advice…Compliance requirements have become a nightmare for small businesses. The unending notifications and changes, a repeat of the chaos of demonetisation, have caused needless confusion.”
All this has sown a deep-rooted fear of tax terrorism among the business community. At a time when the economy has slowed down considerably, despite favourable global economic conditions, the fear of tax terrorism has eroded the confidence of businesses to invest. “As you know, the growth in private investment is at a 25-year low. This is terrible for India’s economy.”
Invokes Gandhiji “Did the Prime Minister (Narendra Modi) stop to consider the wisdom of the Mahatma while asking the RBI Governor to sign on the dotted line [for demonetisation], or while implementing the GST in haste? Did he think about the impact on those who toil in the informal sector whose earnings dried up because of shortage of cash? Did he think about the millions of people who lost jobs and had to return to their villages in despair? If the Prime Minister had paid attention to the Mahatma’s talisman, the poor of India would not have suffered the way they did.”
Singh said the UPA government had lifted 140 million people out of poverty, a task no democracy in the world had achieved.
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