The RBI annual report says that 99 per cent of the demonetised currency is back with the central bank, which means the Modi government propagated falsehood in the name of action against black money. What would you say?

The annual report released by the RBI is not of much importance because cash component only makes one per cent of total back money. It was known to all, including those who announced demonetisation, that 99 per cent of the black money would not be recovered.

So, of what 99 per cent the RBI is talking about, is part of that one per cent. It was (demonetisation) that was destined to be a great disaster, a great failure. We should understand what black money is. Most of the people think that black money is found in cash which is not true. Black money is found in cash, in form of assets, in form of gold and jewellery.

The RBI report is not only an embarrassment for the government but for the RBI itself. That is why, perhaps, the government is changing goalposts. Now, they are saying recovery of the black money was not the aim. Digitisation was the purpose behind demonetisation. But, the reality is that digitisation has nothing to do with demonetisation.

How...Finance Minister Arun Jaitley spoke very firmly of digitisation as the main goal of demonetisation?

For digitisation, you need to have point machines, you need electricity connection everywhere, Internet and all. You need huge infrastructure for digitisation. A full-proof cyber security system is also required for digitisation. Without having proper infrastructure, digitisation cannot work. Financial literacy is another crucial factor. People should know/have been told what digitisation is. It has nothing to do with demonetisation.

After 9 months of demonetisation, can you find any justification for it?

It was basically a political move. Modi thought that he would be considered as a Robin Hood who took from the bad rich guys and gave it to the poor.

But, it has not happened the way it was thought to be. The rich saved their black wealth while poor suffered the most. They did not get anything. The poor lost their jobs and livelihood. So, the impact of this has been negative mostly for the poor people and the unorganised sector.

Our unorganised sector provides 93 per cent of employment and 45 per cent of the production. Since the poor working in unorganised sector operate in cash, they were squeezed out very badly.

That is why demand for MGNREGA went up in the month of November-December by almost three to four times. And people think it could have gone further up, if the government would have released the money.

Many surveys that came at the time showed that the unorganised sector was hit by 70-80 per cent. That means their output fell, their employment fell. Therefore, the growth rate of the economy became negative. Farmers were affected very badly because they could not sell their produce in mandis. They could not repay loans. Suicide rate among farmers increased during demonetisation. In one word, demonetisation raised farmer distress all over the country. The negative effect was very strong.

But, the Modi government claimed that demonetisation had the least effect on growth. Do you agree?

My own estimate is that growth rate of the economy during the last year was close to zero per cent rather than the 6 per cent which government claimed. In the first seven months up to the October, growth rate was 7 per cent but after that, it turned negative. If you combine both, it would be close to zero per cent.

Data show profit has fallen in private sector. Investment has gone down because capacity utilisation, according to the RBI, was already down to 70 per cent. When capacity utilisation goes down, investment slows down. When investment slows down, future growth slows down. This year again, the impact will be felt on the growth rate.

After demonetisation, the Modi government propagated the GST as the biggest tax reform. What is your take?

The GST has further negatively affected growth rate. Demonetisation and the GST together have been two blunders created in the economy in the last one year. Because of all this, the whole economy’s credit off declined. In October 2016, credit off take was only 5 per cent, a record low in 50 years. And then in November-December, it became lower, record low in 60 years. This year in July, it has turned negative. It means investment has further declined. So, in my view, the GST will create a big problem for our economy.

Was the GST also a political decision?

The GST was not a political decision. It was on the discussion table for last 10 years. It was a long-standing issue. Initiated by NDA, it was continued by the subsequent UPA governments.

But under the new taxation system/GST, unorganised sector is being hit badly. People working in unorganised sector are not capable of computerisation and digitisation.

Who is to be blamed for the demonetisation disaster? The PM or FM?

The Prime Minister is to be blamed because in his November 8 speech, he took the onus. He said if something went wrong, you could punish him.

However, later he changed tracks to say that problems would become less after December. But, the problems are continuing. In other words, the Prime Minister did not consult economists. This is something very damaging for the economy. The RBI’s role, the role of the Minister of Finance, has come under serious doubt. There should have been widespread consultation.

How do you analyse the role of the RBI in this whole demonetisation saga?

In 1978, when the demonetisation was announced for the first time, then RBI governor IG Patel said that the kind of step should not have been taken because it would have a negative impact on the economy.

This time around, no consultation was held. The RBI did not tell the government what the negative effects would be and how the RBI would tackle them. Banks were not prepared, the RBI was not prepared.

Currency notes were not printed. The ATM machines were not calibrated. So, without consultation of the key ministries, key departments, demonetisation was implemented. Therefore, PM is directly responsible for this. He is also responsible for the degradation of the RBI as an institution.

Was demonetisation a scheme designed to benefit the big corporates, to convert black money into white? Former FM P Chidambaram alleged so.

Everybody has suffered from demonetisation. In the long turn, it is said that big industry will benefit because unorganised sector has been adversely hit. But we cannot say whether it was intended or unintended. Some people said the companies which were opting for digitisation like Paytm, made huge money. According to a conspiracy theory doinf the rounds, a US company pushed for demonetisation and digitisation but it cannot be proved.

How much time will our economy take to fully recover?

This will depend on the steps that our government takes. As far as private sector is concerned, investment has gone down. The GST has added to the problem. This will require effort on the part of the government to try to move the economy forward by investing in a big way. For that, we will need heavy investment in infrastructure, will need to boost investment in certain sectors like health and education. Employment generation again needs to emerge strong.

How do you evaluate the performance of the Modi government on the economic front?

At the time of UPA-2, there was a sense of policy paralysis. There were charges of corruption. Industrialists, businessmen and foreigners were unhappy with the UPA-2. That is why they supported the NDA government in a big way, expecting that there would be a change in sentiment. But what has happened is that there are a lot of slogans but action has not come. Very good slogans were coined such as Swachh Bharat, Make in India, etc. Who could disagree with them but the question is how would you make true to the word? What is the roadmap?

Unless demands rises, investment comes, the performance of the Modi government would be evaluated as negative.