When Manmohan Singh speaks, which he seldom does, it is worth listening. But his speech in Rajya Sabha on Thursday on the demonetisation issue was a let-down. Not because he is known for great speeches, but because what he said made only partial sense.
If his purpose was to highlight the government’s failure in handling the fallout of demonetisation, that is par for the course. It is possible to accept his criticism (with some qualifications) that there has been "monumental mismanagement" of the process of demonetisation. The persistent queues before some bank counters seems to justify his hyperbole, if nothing else.
So far, so good. But after calling on the Prime Minister to "find practical, pragmatic ways and means to provide relief to the suffering people of this country", he goes overboard by calling demonetisation "organised loot and legalised plunder."
This is bunkum, and pure politics. If there was "organised loot and legalised plunder", that happened right under Manmohan Singh’s nose, with the 2G, Coalgate and Commonwealth Games scams being exactly that. The former PM was directly linked to those instances of "organised loot" since A Raja pulled off the scam by forcing Singh to look the other way, and Coalgate happened in a ministry Singh was himself in charge of for a while.
Another point he made was that demonetisation would reduce the GDP by two percentage points, but we won’t know if this is right till the year is over. But the best estimates of professional forecasters are far below what Manmohan Singh’s crystal-ball has indicated. Goldman Sachs sees a 1.1 percent fall, Care Ratings 0.5-0.3 percent, Emkay Global 0.9 percent, Icra 0.4 percent, and ICICI Securities by 0.4 percent. Barring Ambit Capital, which adopted a faulty methodology to come up with an unbelievable GDP drop of 3.3 percent from earlier estimates, not one projection comes anywhere near what Manmohan Singh’s claims.
The third point Singh made was that demonetisation would "erode our people’s confidence in the currency system and in the banking system." For good measure, he added: "I would like to know from the prime minister the names of any countries he may think of where people have deposited their money in the banks but they are not allowed to withdraw their money. This alone, I think, is enough to condemn what has been done in the name of (demonetisation…".
Whether demonetisation and the replacement of old notes with new ones are enough to damage confidence in the banking system is questionable. One would have thought that prolonged inflationary policies through unabated money printing — which was what happened during UPA 2, when the fiscal deficit crossed 6 percent — would have done more to debase the currency than a demonetisation to replace currency notes. And just to refresh his memory, the first major bank scam happened during his watch in 1992, when Harshad Mehta actually looted bank cash to make hay in the stock markets. And as for restrictions on people drawing their own cash, any banking system can — at times — place such restrictions. Banks even now place restrictions on daily cash withdrawals from ATMs. When banks fail, then too restrictions happen.
Singh also seems to have forgotten the Indira Gandhi emergency, when the government froze a big chunk of citizens’ earnings in compulsory deposits in order to contain inflation. If that did not bother Singh, one wonders why the orderly withdrawal of deposits is a great curtailment of citizens’ rights.
While Singh is right to say that such restrictions do not happen except at times of crises or bank failures, surely temporary restrictions at a time of policy change can be justified?
Perhaps the best point Singh made was the one where he pointed out that while 50 days to restore normalcy is reasonable, for the poor 50 days of financial denial could be "torture". For good effect, he quoted Keynes to say that in the long run, we are all dead. So the short-term does matter – at least in politics.
The former prime minister had some good lines to offer in a polemical sense, but one doubts if this was a former Reserve Bank Governor and finance minister talking. He did not make the kind of heavy-duty points that one expected from him. He delivered some below-the-belt punches without realising his own midriff is vulnerable.