Dr. K.C. Chakrabarty, Ex-Deputy Governor of RBI, explains Demonetization

Just now received this through Whatsapp. Hope the central govt does something before the situation grows out of proportion:

*Dr. K.C. Chakrabarty, Deputy Governor of the Reserve Bank of India from 2009 to 2014, is not anti-Modi or anti-BJP, explains in simple, coherent language the social and economic impacts of Demonetization.*

Following are the excerpts:

1. The economic benefit is less and the cost is more.

2. *I think the Prime Minister has not been properly briefed on the subject.*

3. Currency notes are not black money, all currency notes are white money.

4. When it (the currency) reaches a person who is not paying tax it becomes black money.

5. When the currency reaches a person who is paying tax it becomes white money.

6. The process and the person are the culprit, but you are destroying the notes.

7. If the process and people are not changed, a person can use currency, gold, other assets for black money generation.

8. Government’s understanding is that [black] money is with the rich, whereas on the contrary more cash money is lying with the poor.

9. 90% of the poor’s liquidity is in cash, so (now) they have no cash.

10. All your trade and commerce is likely to be affected.

11. The total cost of replacing the notes will be Rs 10,000 or 15,000 crore. That is a direct loss.

12. Banks will be doing only this job for the next two months: exchanging the note, managing the cash, managing the crowds. People will be more busy with these things. All this will have an adverse effect on the economy.

13. There will be a liquidity crunch, volume of transactions will go down, sometimes it may totally collapse, depending on the situation.

14. Inflation will come down because people have no money. If you withdraw the money from the people all prices will collapse, but people will not be able to eat vegetables also. Prices are collapsing because medium of exchange is not there.

15. If the economic growth comes down, the government’s tax collection also comes down….If a person goes with black money and spends it in the malls, restaurants or cinema hall then government gets a part of the tax.

16. Demonetisation is a very blunt instrument and it has to be used very judiciously and in a very very critical situation.

In general, it doesn’t give the required results.