Demonetisation was an ill-conceived move: Chidambaram

Former finance minister P Chidambaram hopes that good sense and good economics will prevail in the budget
Image: Anindito Mukherjee / Reuters


Even as the Indian economy emerges from the effects of demonetisation and the government tries to make a success out of the move, Congress leader P Chidambaram is not mincing words in attacking it. The former finance minister (FM), who has served the country longest in that role, calls demonetisation an ill-conceived measure and, in his view, one that will not achieve any of its stated objectives.

In an email interview with Forbes India, he talks about the state of the economy, the prospects of implementing the Goods & Services Tax (GST), and what the broad contours of the forthcoming budget should be. Edited excerpts:

Q. Has demonetisation been a well thought-out move? Will it achieve its stated purpose?
No, demonetisation was an ill-conceived move. None of the three stated objectives—stamping out black money, tackling corruption, and ending counterfeit notes—will be achieved through demonetisation. If there is a demand for unaccounted money, unaccounted money will be generated in new notes.
If there is a demand for a bribe, bribe will be given in new notes, as was found in many cases in the last two months. Counterfeit Rs 2,000 notes were found on the bodies of two infiltrators/terrorists killed in Bandipora, Jammu & Kashmir.

Q. How badly has it hurt the economy and when do you see a revival?
It has hurt the economy badly. MSMEs have been crippled. Farmers have lost crores of rupees due to crash in prices. Daily workers and the self-employed have lost crores of rupees in the form of daily wages or daily incomes. Wholesale markets were shut down for weeks.

Industrial hubs are working at 25 to 50 percent of capacity. Growth will slump by 0.5 to 1 percent in the current fiscal year. As for 2017-18, it is too early to make an estimate.

Q. Three of the four engines of growth are sputtering. Is the government doing enough to revive them?
Exports have been languishing for nearly two years. The government is clueless, and seems to have given up on exports. Private investment is at an all-time low.

Credit growth has slumped to 5.1 per cent, which is the lowest in living memory. Consumption has been severely affected due to demonetisation. I cannot say when the revival will take place.

The prime minister had no solutions in his December 31 address to the nation. I am now looking to the finance minister’s budget speech and the budget.

Q. There is speculation that the FM [Arun Jaitley] will avoid reaching the 3 percent fiscal deficit target this year too. This will free up resources for public spending on infrastructure in a bid to revive the investment cycle. Is that a good move?
I think the government will achieve the fiscal deficit target of 3.5 per cent in 2016-17. I also think that the FM will project a fiscal deficit of 3 percent (as per his road map) for 2017-18. If he pushes the target back by one year or resiles on his promise, the market will take a very dim view and react adversely. I hope good sense and good economics will prevail.

Q. When do you see the Goods & Services Tax getting implemented?
Considering the hurdles that remain to be crossed, I would put the date as October 1, 2017.

Q. Under the current circumstances, what should be the broad thrust of Budget 2017?
The budget should promote investment, especially by the private sector. It should also boost consumption demand. The space for action has shrunk due to the ill-conceived demonetisation. Nevertheless, the FM must find ways and means to revive these two critical engines of growth.