Whatever Prime Minister Narendra Modi’s claims about demonetisation, his move to replace old Rs 500 and Rs 1000 notes with new ones, it has been clear that implementation has been incredibly reactive. The Finance Ministry and the Reserve Bank of India have put out new notifications just about every day, while the economy struggles because of a massive liquidity crunch. The pain in the system has raised questions about how prepared the government was for the demonetisation move. And now there’s an official theory, from NITI Aayog Vice Chairman Arvind Panagariya no less, for why this may be.
“It is also probable and, this is where I don’t know the facts, but at least I know the news that this had begun to leak out,” Panagariya told India Today’s Rahul Kanwal in an interview on Thursday. “There was a report in Dainik Jagran, on November 6, the 2000-rupee notes as they were being transported from the Reserve Bank to various branches, the pictures actually came out, those activities of transportation.”
Panagariya was careful to insist that he didn’t know this for certain, but nevertheless said that it seemed probable – and that may have forced the government o be more reactive with its implementation.
“It’s probable that it led the prime minister to take the action before he had planned. And that of course does make the subsequent behaviour a little more reactive. You then did not get to plan because of the secrecy issue sufficiently in advance and then as the process unfolds, and in any case, even if you had actually thought through the thing, situation will never unfold precisely in the way you anticipated....
It’s possible. It’s not something that I know. What i know is that the leaks had begun to happen. I’m not in the know. In the first week I said I was delighted to find out.”
Panagariya also attempted to defend the implementation, saying that the secrecy made it harder for the government to fully prepare for the scheme.
“Here, as you started off, you said this is an unprecedented step. The step did require a fair bit of secrecy. Even after the step, people are being creative in turning black and white. You can imagine what would happen if they found a month before it had been done, or if it was actually pre-announced and then done. So there had to be some bit of secrecy on this which does limit the scope for a lot of discussion, wider discussion in any case.”
The renowned economist also said that though there were clear signs of distress in the economy, he believed that activity was already picking up and the gains following the pain would more than make up for it.
“I will not indulge in any number crunching, it is a difficult thing to do in the absence of any quantitative evidence,” Pangaraiya said. “As we are going forward, certainly we’ll see some decline in the third quarter. The point I’m making to you is that the activity is very rapidly coming back and so I think we’ll see some decline in the growth rate in the third quarter, some bit, less than the third quarter will happen in the fourth quarter. I think whatever losses will happen in this particular year in aggregate we’re going to recover in a big way as we go into the next year and the following year. Because this ultimately a major efficiency enhancing impact on the entire economy.”