 Hello and welcome to New Slick, this program with Real News. Today we will discuss the effect of the demonetization, what we call the demonetization, but really deflating the economy by a huge amount. We have with us Surajit Bajindar and Vikas Raval and both are economists and we will discuss what is the likely impact on the economy. First, quick question, how much of the economy has been re-monetized after 86 percent of the cash was drawn? Well according to the latest figures are available up to 27th while about 14.5 lakh crores of currency that was in use was deactivated by the decision of the 8th. Only about 2.5 lakh crores have actually gone back in. So it's still about 12 lakh crores less than what was in circulation in the economy on the 8th. So less than a third of the total currency that was in use on the 8th is in use at the moment. How much of the money that was withdrawn has now been put back into the economy? 17, around 17 percent has been put back. So at the moment 83 percent is still out of the amount that was originally put back. So what is the likely impact on the economy? Well since less than a fifth has actually been put back into circulation it would mean that even if you are able to replace at the same rate as you're doing right now it would take 100 days or more than three and a half months for that replenishment to take place. But however you started with a situation where you already had some old new currency printed. Whatever you're now adding is something that has to be printed over this period and it doesn't seem that it is going to be possible to print all the required currency within this particular period. So it's more than three and a half months is what you're going to face this problem of a shortage of currency in the economy. But really the effect has been much more on the rural economy, the gradient economy. Can you tell us what is the situation particularly in view of the fact that this is also the sowing season. So the effect of lack of liquidity would be really more. So you actually already had rural economy under huge distress because of two years of successive drought. So all the whole context of withdrawal of public investment and so on and then comes the demonetization. Now demonetization actually comes at a particularly bad time for agriculture because as you said it's Karif Harvest just got over. It was time for Rabi sowing. Now such a thing typically would set in motion very complex dynamic in the rural economy pushing people into distress, pushing people into indebtedness and deeply affecting agricultural workers. One part of it is agriculture. What happens to the farming community itself. But it's also a large part of the rural economy is also informal in other ways. In fact that's also been hit because it appears that the rural banks either don't have cash or really they're catering to a much larger set of people and people have to walk long distances to come to the bank and not get any money. So is it also the rest of the rural economy? You basically have a situation where agricultural workers poor peasants are being paid in old currency which they then go to Mahajans to convert at a commission of anything from 25% to 40%. As a result this basically means the effective wages fall their incomes take a huge hit. So there is a double blow to the poor. One in terms of the farm incomes agriculture labor small peasants and so on and the second the family members who are actually supplementing this income by working in the towns they also seem to have gone back because no work is available in the towns because again same reason. So is it also going to is it also hitting? Absolutely completely informal labor both rural and urban agriculture and non-agriculture and construction would be one major sector because construction over the last 10 years or so has really emerged as a sector that absorbs a lot of residual labor and suddenly all of that just comes to a standstill no there is no work people go back. The other thing is that we are actually you know it's incredible how little we think of rural India and think of public distribution system. How do people go and buy grain now because you don't have money you don't have cash you've done something with petrol pumps petrol pumps are allowed to take 500 rupees what about ration shops and nobody's even talked about ration shops. When it comes to the industrial sector other sectors in the economy what has been the impact? See the process that is at work is essentially one in which once you have withdrawn so much currency from circulation spending activity is bound to come down. So its first defect is whatever is produced and yet to be sold doesn't get sold. The industrial sector always has stocks of goods that are produced which have to be sold so that process of that movement stops. The process of producing also gets disrupted because A goods are not moving out and B because you are not in a position often to purchase all the inputs if you require currency particularly in the unorganized manufacturing activities there would be large use of currency the organized sector may not be using so much currency but they also need currency to pay wages for various other kinds of activities that are required for daily production activity. So there will be a loss of work where people on the one hand face the problem that the process by which they receive money to spend which is their work that process gets disrupted so they are not receiving money as income and they are also not being able to spend the money that they already have earned. You take a whole bunch of industries in and around the country Thirupur the textile the garment manufacturing sector all of them seem to be slowing down it was it was felt that maybe after two three weeks things would become normal therefore they did not send people back immediately but now all of them seem to be closing down. You see because if you have this process where the inability to spend the money that you have leads to a disruption of production and the process by which income is generated then the following effect of that is that the income that people would spend has not got created. So the consequences for demand are not just the immediate effects but the loss of income that people are suffering that will have an effect on the demand even beyond this immediate period. You know a quick question to both of you what is the likely impact in the next six months in the economy? Well what the effect on calculated GDP will be I cannot say because our GDP figures themselves are now very suspect so I know can't say what's going to happen on that but if for a three month period which is one quarter if you have roughly 10 percent of economic activity disrupted that's two and a half percent of your GDP gone annual GDP gone and of course the effects of that go beyond that see when economic activity gets disrupted so lots of small units people will get disrupted shortage of cash will lead to various ways of trying to make up for that people will go into debt and the effects therefore on the production process will continue way beyond these three or four months and if there is a disruption of economic activity there is no automatic process in the kind of economy we have of bringing it back on track so it's not that if you disrupt it will just bounce back tomorrow once you put the money back in. Now what's going to happen effectively is that to a large extent people are going to have to borrow to survive during these months so you go to your grocery store and you basically pick up goods on credit. Now when things get monetized eventually people would have to pay that debt what happens to the prices then because your production not you've not had your production. So what explains this kind of decision do you think it's essentially to force the economy to move into the paytm kind of channels which both the supports even if one is thinking in terms of moving towards a cashless economy and promoting other things the infrastructure required for that and the conditions required for that simply do not exist in the Indian economy now we don't have those conditions even in much more advanced economies forget about India where so many people don't have bank accounts banks are very far away even there is the so-called digital divide people don't have access to all the equipment required for that nor can they afford it and a large number of transactions their size and magnitude and nature are such that cash is the more convenient way and the more economical way of undertaking payment so it is you don't have the wherewithal at the moment for a cashless economy. The other thing is that it really reflects somewhere how little the powers that we know what India is and it's it's obscene when you hear on the radio or the TV and advertisement telling people pick up the smartphone use something like paytm and pay I mean do they know what they are talking about I mean do they know what people you know destitution and poverty for working classes of this country live in I mean do they have any idea of what this country is about okay on that note that the Indian people are going to be hit are continuing to be this hit is going to continue for months to come the economy is going to take a hit what benefits it will have for the ruling dispensation we have yet to see. Thank you very much for joining us at NewsClick do keep watching NewsClick for further episodes on these issues.