Former PM says even votaries of demonetisation admit to problems in the short run

The problem of black money can be solved by simplifying the country’s tax system, land registration system, and administration, former Prime Minister Manmohan Singh has said.

“That is the only way in which we can move forward to a society where there would be less role for black money generation,” he told a student of St. Teresa’s College, who wanted to know how Dr. Singh would have handled the problem of black money if he was the current Prime Minister. Dr. Singh was interacting with the students after inaugurating a national seminar on “Macroeconomics Developments in India: Policy Perspectives” organised by the Department of Economics on Saturday.

“I do not have readymade answers. But I certainly feel that demonetisation was not an appropriate response to the problem of black money. First of all, not a large amount of black money is held in currency. Estimates show that only about 6% of currency in circulation is black money,” he said.

Demonetisation had caused lots of distress to farmers and small industrialists, Dr. Singh said. The economy would remain in the doldrums for at least the next one year.

“Even those who argue in favour of demonetisation, including the Prime Minister and the Finance Minister, admit that in the short run there will be problems. Small farmers and traders and small and medium industries, deprived of cash, suffered enormously. And those shocks have led to the slowing down of our economy,” he said.

Bank recapitalisation

To a student eager to get his reaction on the problem of non-performing assets draining the financial health of banks, Dr. Singh said he was glad that the government had announced that it would come up with a scheme to recapitalise the public sector banks.

“Banks are a very important source of lending for industrial development. But when banks are burdened with non-performing assets, their ability and willingness to perform their traditional function of lending suffer. That’s why in recent years the rate of growth of bank credit has sharply declined. And if banks do not lend to the industry, industry cannot grow,” he said.

To a question on India’s standing among the economic giants, the former Prime Minister said “We need to work together and evolve a national consensus so that our economy can grow at a sustained manner at a rate of 8 to 10%. I think that’s possible and we, as a nation, have to find ways,” he said.

K.V. Thomas, MP; Sr. Christabelle, Provincial Superior and Manager of St. Teresa’s College; Sajimol Augustine M., Principal; and Thushara George, Head of Department of Economics; spoke.