 Hello and welcome to NewsClick. Today we have with us Professor Surajit Majumdar. It is six months since Modi's government has announced demonetization in the country and it is also near to three years since Modi has been elected to a power. So we have Professor Surajit Majumdar to discuss these two issues with us today. Surajit, as you know, it's six months since demonetization has been announced. What do you think has been the impact on the economy? Do you think it has achieved all the things it was supposed to have achieved? Both with regard to the demonetization exercise as well as the three years of the Modi government. What one can say is that there is a yawning gap between what was promised as what would be achieved and what have been the actual results and this gap is not by chance but because of the fact that what was the professed objectives and the means adopted for them between the two itself there was a fundamental inconsistency. This you can say with regard to the Ache din promised as far as the Indian economy was concerned when the government was elected to power and this you can also say with regard to the objectives of vanquishing black money and the black economy that was promised with the demonetization exercise. Initially when the demonetization has announced the Prime Minister has promised that is a very short paying within a few months all the money will be reintroduced into the economy and people the economic activity can resume. Has it happened? Has all the money that has been demonetized? Has it been replaced with new currency? Well the full replacement has not taken place as yet. What you do have however is a clear evidence that there was an effective shortage of currency because of the fact that over time every week when the currency and circulation figures are announced the decisions of the public to withdraw currency and use currency seem to result in a situation where the currency and circulation is continuously going up. It's still going up. Every week it is going up. It has not gone down. It is now about 14.5 lakh crores as compared to around 18 lakh crores at the time that the demonetization was announced. So it is heading back towards the original figure which would mean that in the period since demonetization people have felt a shortage of currency. So coming to the point of the whole exercise of demonetization what has mainly been claimed that you know it is going to eradicate black money. Has it happened? Has it even come down? The holding of black money, the holding of black economy, has it come down? The proportion of wealth that is supposed to be black. The quantum of currency and circulation relative to that was always so small that it was never possible. It was never going to be true that a large part of black income or black wealth would be held in the form of currency. So in that sense when your own measure is basically targeting currency holding it was clear that it was not going to make a significant dent on the black economy. This was obvious and known at the time the exercise was itself undertaken. So there was no question of the black economy being severely dented by this one-off measure. What we have also seen is that even the limited part that might be held in the form of currency seems to have found its way back into the banking system. Now claims are being made that people have now all kinds of income tax notices are being sent and income tax notices keep getting sent every year to all kinds of people until you actually show results, until you are able to show that if you are being able to dent black income the number of taxpayers and the quantum of income that they declare and the generation of tax revenues unless you can show that there is a significant increase in these you clearly haven't hit the black economy significantly. The more claim that the government has made during the exercise of demonetization is that with this India is going to turn cashless. That from now on all the transactions are going to be increasingly electronic. That demonetization has created the surge in electronic transactions, transactions through cars and transactions through mobile wallets. How true is that? Well over a period of time as facilities become available as people's economic conditions permit there is a tendency to switch from cash to non-cash transaction that has been happening even before demonetization. So as the availability of new electronic forms of common transactions have induced some bit of shift from cash to non-cash transactions in the case of people who can or in a position to use that. But our economic realities are such that for large number of people it is not possible for them to use these non-cash methods of transactions. What seems to be clear is that the evidence indicates that the hit that cash transactions took because of the demonetization exercise the corresponding increase in non-cash transactions was inadequate to compensate for that reduction in cash transactions. And as cash has become more and more available the balance has again started shifting back towards cash because many transactions in this economy their very nature is such that cash and the nature of the transactors are such that cash is a better or more preferred mode of transacting. And not everyone who does cash transactions is necessarily recipient of black income or indulging in illegal transactions. The number of people in this country, their conditions, their access to banking facilities the volume of their transactions are such that cash is the most preferred form of transacting. That's the hard economic reality. So under those economic realities change it's not going to be true that there will be a switch to cash less. Lot of news reports during the demonetization exercise used to detail how a lot of migrant laborers in metropolitan cities they were unable to get work, unable to get their wages so they were migrating back to their villages. There was also news that lot of informal sector industries, informal sector enterprises they were facing severe problems, people were not buying the goods they were producing they were unable to pay wages to their workers. And so there was this anticipation that GDP was going to go down but governments estimates still showed that GDP, the growth of GDP is going to be 7%. Does it still hold? Has the economy recovered? Is our employment and growth prospects, are they better now? Well the GDP figures that have come have come for the third quarter of 2016-17 that is the period from October to December of 2016 which means it's about 39 days before demonetization and about 52-53 days post demonetization. So it doesn't cover the entire post demonetization period and it doesn't only cover the demonetization period, it includes the month of October. So third quarter GDP data by themselves do not necessarily tell you the full story. But even to the extent that one can make out it's clear that the controversies that have existed about the new GDP series are only kind of the doubts that people have had about whether this new GDP series which 2011-12 base is actually capturing what is happening in the Indian economy. Those doubts have been reinforced by what has happened during the demonetization. The fact that the third quarter trends don't show any departure from what was there in the first two quarters of the year is surprising given that elementary economic reasoning would tell you that the demonetization exercise in India had to have had a disruptive effect on the economy. The strange fact is that the GDP figures seem to suggest that the one item of expenditure which has not been affected at all is consumption expenditure which is even more strange because consumption expenditure is the expenditure in which a lot of cash is used. So it begs the question if people were spending so much on consumption what were they spending with? Because they clearly want spending with currency and they want spending from mobile wallets, they were not using cards. Those data hard data of that is also available. As far as the economic effect is concerned of course the effect has continued beyond the third quarter, beyond December, January, February, March also one has seen the effects and there are other evidences which indicate that you see what has happened to bank credit, you see what has happened to tax revenues. There are clear indications that the post demonetization there was a disruptive effect. Even the new index of industrial production figures show actually that from November the industrial production which in any case has been poor has been hit by demonetization. So there is enough evidence to indicate that demonetization did have a disruptive effect on the economy. Modi has come to power with a promise of employment. Many people, especially young people voted to him with the hope that he is going to provide employment to them and his policies of making India at least those he announced seem to indicate that he is trying to create those employment opportunities. How has it failed? Is the employment opportunities have increased in India now? You see employment opportunities don't get created if individuals can give good speeches or individuals can manage the media. Employment opportunities will get created if the appropriate economic policies are pursued. Now the employment problem in India has been a persistent problem and if you do not depart fundamentally from the economic policy paradigm which has created the problem, how are you going to solve the problem? Where is that departure that has happened? You talk about making India. Making India was what? Making India is also about trying to create conditions in which you can induce private investors to from India and abroad to invest in this country. But you do not address the fundamental problems that a large majority of people in this country don't have the means to buy things. As of now, even international markets are doing badly because the global economy is in such a situation. So if you don't have any demand in the economy and you just keep saying I'm going to create conditions for private investors to invest it's not going to work. So the investment stagnation that was there in the economy even before this government came has continued through these three years. So if you're not going to get that, where are the jobs going to come from? Jobs will come when economic activity expands and economic activity expands in a way which is employment creating because you can also have increase in output which takes place basically by displacing people from work. So you need a particular kind of growth pattern for employment to be generated. Nothing has been done as far as that is concerned. The primary objective continues to be to keep the fiscal deficit in check. You are trying to get your tax taxes primarily through indirect taxes. You're not trying taxing the reach to generate more resources for the government to expand expenditures on infrastructure on social sector which will create employment opportunities for people. Not only the expenditure will create that opportunity the effect of that expenditure is that once some people get some benefits, there's some expansion they in turn create a market or a demand for other kinds of products and there's a multiplier effect of that. So instead of doing that, the effort is the opposite to keep expenditure in check, to keep taxes in check and to keep the deficit in check. Now as long as that remains the primary economic policy objective there is no way that the fundamental problems which underlie the employment crisis in India are going to be addressed because the fundamental problem is the large majority of the people in this country don't have the means to spend. Those who have the means to spend therefore do not spend because they don't see a market which will allow them to make money out of their spending. So that's the fundamental contradiction which you're facing unless you're able to create some process by which spending increases and fiscal policy of the government is the main means to do that you're not going to be able to address this problem. So the agrarian crisis continues the employment crisis continues the income crisis continues is becoming a deeper and deeper crisis day by day but it's like government just refuses to recognize the reality that is staring them in the face. Thank you Prof. Suresh Majinda. Thank you for coming to us. Thank you for watching Newsweek.