 Hello and welcome to NewsClick. The Reserve Bank of India's annual report has conclusively demonstrated that demonetization was a complete disaster. We have with us Prabhat Patnaik, eminent economist and Professor Emeritus at JNU. He has written extensively on the topic, including a book on demonetization co-authored with C.P. Chandrasekhar and J.D. Khor. Prabhat Patnaik was among the earliest economists to come up with the comprehensive critique of demonetization and his predictions turned out to be true as proven by subsequent developments. Hello Professor Patnaik. The latest figures show that GDP growth, quarterly GDP growth has declined from 7.9% in the corresponding period last year to 5.7% this year and yet there are people who argue that there is no connection between demonetization and the economic slowdown. How will you respond to that? Now, you see, I consider this argument absolutely absurd because all you need to do is to go and ask your nearest shopkeeper whether his business suffered or not because of demonetization. In fact, the English statistician Arthur Bowley used to say that most significant facts of social life cannot be measured but can be directly observed. Here we have a case where what is directly observed is also now appearing in a measurement. So when you have something that measurably states that there was a slowdown, at the same time you direct observation states that business suffered to say that no, no, no, it did not have any impact is just to my mind just plain wrong, it's just plain absurd. Arun Jayadli has argued that demonetization is still successful because it has managed to flush out black money, how would you respond to that? I mean, I think the dishonesty of that answer is quite staggering because the government throughout this period was saying that demonetization is going to succeed because black money would not come out. Because black money would not come out because people holding black money would then be considered accountable if they came to the bank to deposit it, they were even talking about a whole lot of money getting extinguished, the reserve bank's liability is going down because of which the reserve bank could print new money which they said could be distributed among the people. Some talked about the extinguished money providing a fiscal stimulus to the government because that is you know they talked of 3 lakh or 3.5 lakh crores and if 3.5 lakh crores don't come to the reserve bank then the reserve bank's asset side remains the same, liability side goes down. So, if the reserve bank simply makes up for that liability by either just giving money to the people or by giving money to the government then there is no damage done and this was the argument. The government's whole argument was that we are attacking black money in order to benefit people and the mechanism of that is that this black money is not going to come back into the banking system. So, the success of demonetization was supposed to be measured in terms of how much money was not coming back into the banking system, but now entirely the opposite is being said that no, no the success depends on how much money is coming back into the banking system, but if all the money comes back into the banking system that means black money operators have exchanged their old currency for new currency in which case where is the damage that has been done to the black economy. And what is more even to argue that now that they have come into the, you know, that even though they may have come with their old money for the new cash, new currency because the whole replacement of new currency is not 100% they are the ones who are going to be strapped for cash even that is bogus because the government's own economic survey has said that re monetization is now more or less complete meaning thereby not that is 100% replacement, but that there is no excess demand for cash anymore in the economy. Now, if there is no excess demand for cash anymore in the economy, nobody is cash strapped including the black money operators. So, the government's argument is not only dishonest it is not even correct even on the most generous interpretation that you can place upon it. There are people who have argued that there are long term benefits to dem monetization. For instance, an article in Financial Times, the London Financial Times argues that more people have been brought into the tax net. You know, I find that again very absurd because people come into the tax net for a variety of reasons. By the way, as you know, there is enormous differences in the figures which are quoted by different government agencies about how many people have come into the tax net, at least 81 lakh, Arvind Subramanian, the chief economic advisor says 5 lakhs and so on. So, that itself is something which is really not very clear. Secondly, people can come into the tax net for a variety of reasons. They can come into the tax net because you now have this pay commission which has actually raised people's incomes to a certain extent, doesn't mean more taxes are going to be raised, but many more may have come into the tax net. They can come into the tax net because there is better reporting on account of fear. I mean, let me tell you, all fascist government generate fear and of course, there is a fear that is generated by this government as well. During the emergency, you actually had a situation where trains were running on time, but during the emergency again, you had a situation where there was compulsory sterilization. Now, nobody would argue that trains ran on time because of compulsory sterilization. I would like to know what is the connection between demonetization and more people coming into the tax net. You know, in other words, nobody can possibly argue that there has been a reduction in the level of black activity, a reduction in the black economy and so on. So, what is this business about people coming into the tax net? It's not as if the black money operators have come into the tax net. A whole lot of people who have got maybe because of an increase in pay commission recommended salaries may have joined, may have come into the tax net. So, there is no connection between the two and these are complete non sequiturs and they are being bandied about by people without any reason to that argument. There is likewise a second argument which actually does the rounds that this is a helpful step towards moving to a cashless economy. Now, that is so kind of authoritarian an argument that I find it amazing that anybody seriously presents that argument. If, I mean, Omotesen called demonetization a despotic act. Now, if you tell people that please move to PayTM, please move to cashless ways of settling transactions, all of which give profits to the multinational corporations that are doing all these things, then effectively you are denying a choice to people in order to make sure that profits are made to certain corporations. Now, that I think is an horrendously despotic act and a horrendously inegalitarian act. I mean, you know, you are actually penalizing a whole lot of poor people in order to put their money into the pockets of profit making financial corporations. Now, I think that is something we should be ashamed of instead of actually projecting it as a gain from demonetization. The fact that we do so in my view is reflective of the enormous insensitivity which is developed in India of late or the plight of ordinary people. You have argued recently that the Indian economy is plunging headlong into a recession. Could you elaborate on that and whether this has something to do with demonetization? You see, I would not say that demonetization alone is responsible for the recession. It has added to a recessionary tendency that had existed for some time. That even predates demonetization and that is because of the world capitalist crisis. For a while, it appeared that countries like India and China and so on were insulated against the impact of the world capitalist crisis. That is no longer the case. We know for quite some time now that this crisis was beginning to hit them. You look at all the individual components. I mean, if consumption is more or less endogenous, then you look at investment, you look at net exports, you look at government expenditure, all of them were showing symptoms of slowing down. Government expenditure as a matter of fact increased because of the pay commission recommendations. But despite the pay commission recommendation which added to government expenditure and through the multiplier to price to the consumption of the ordinary people, nonetheless a slowing down was evident. So, I have been arguing that you take away that stimulus that may have slightly kept you above the economies face above the water. But the moment you take that, then away because you are not going to have this stimulus now all the time, slowly its impact is going to win, then you would find that the recession would become much more pronounced and that is exactly what is happening. Demanitization has added to that. It has added to that because of the fact that the informal sector in particular has been affected by it and the informal sector's recessionary experience also rubs off on the formal sector because the informal sector buys goods from the formal sector and so on. So, I think now the economy is really plunging headlong into recession. Thank you so much for talking to us and thank you for watching NewsClick.