Sunday, December 25, 2016

Fact File – IV (Note Bandi) 18th, Dec. 2016

Narendra Modi - Demonetization or Demonization / jkgr ;k vkQr

Experts View :

The Stink From The Banks – Cleaning up rot in banking system is Modi government biggest challenge on demonetization

Criticizing the Modi government’s great demonetization gamble as a “calamity” former finance minister P Chidambaram used a telling Hindi colloquialism: “khoda pahar aur nikli chuhiya (you dug up a mountain and only found a rat)”. It is till too early to write the final word on whether demonetization – in economic or political terms – eventually turns out to be just a ‘chuhiya’ or a ‘babbar-sher’ revo-Iutionary change in the way the hidden wellsprings of Indian society operate.

But in administrative terms it has laid bare the great rot in our banking system. Fixing this is not only the Modi government’s biggest challenge but also something which it should have factored in from the get-go.

Fist, only about 29.8% of the money that was withdrawn on 8 November and has so far been replaced in cash (Rs. 4.61 lakh crore between 8 November and 10 December in place of the approximately Rs 15.44 lakh crore that were demonetized.

Secondly, the sheer mumbers of seizures of contraband money in new notes show an endemic rot in the banking system.

Third demonetization has shown up a mirror to the relationship between the government’s finance and economic branches on one hand and RBI and banks on the other.

RBI and finance ministry have issued 51 communications so far on demonetization. We still don’t know what were the data sets, calculation and projections that went into the making of such a decision, at least the data should be put in the public domain.

With demonetization, Many of the old networks of patronage and cosy collusion have been reactivated – this time for a special commission

Nalin Mehta
An Economist 

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