Demonetisation disastrous to poor, beneficial to corrupt rich: World media

Since the announcement of Prime Minister Narendra Modi to withdraw Rs 1,000 and Rs 500 notes in an attempt to curb black money, there have been all kinds of reactions in the media across the world. While the world media had mixed reactions on the demonetisation move initially, it is now criticising the move.

Now, the world media is explaining the decision of demonetisation as disastrous, a costly political move, disastrous to poor, bad economics, beneficial to corrupt rich, prone to protests.  

Below is the take of leading world media houses on demonetisation:

BBC: The BBC has written that if the banks are unable to ease cash supplies soon, the reported goodwill for Prime Minister Narendra Modi's so-called game-changing, path-breaking crackdown on illegal - or black - money could easily lead to an angry backlash. BBC mentions that the move will turn nightmare for poor and middle class.

The BBC has also mentioned the decision of demonetisation as bad economics. "Typically, what happens in capitalism in a situation like this is that there would be a new business opening up about how to change old currency notes into new ones... A whole range of people would come up who will say you give us 1000 rupees and we will give you 800 rupees or 700 rupees or whatever. Consequently, instead of curbing black business it will actually give rise to the proliferation of black business," economist Prabhat Patnaik told.

"India now operates under a monetary policy regime known as inflation targeting. If a portion of the stock of currency in circulation, consisting of currency and demand deposits gets 'burned', metaphorically or literally, the Reserve Bank of India, the central bank, can in principle fully offset this through what economists call 'open market operations'," economist Vivek Dehejia says.

The Guardian: The Guardian reasoned that the corrupt rich will welcome Modi’s ‘surgical strike on corruption. It reasoned that demonetisation of bank notes is a common practice, but it is usually done gradually, allowing time for people to replace the old notes with new ones to prevent too much disruption of economic activity. By contrast this overnight shock is hugely destabilising. The suddenness is supposed to prevent hoarders of cash being able to use it to buy other assets – but that is a poor argument, since the government could have simply announced a time-bound demonetisation and then tracked large transactions.

In fact, only a small proportion of the funds received from illicit tax-evading activities is kept in the form of cash, and almost never by large players. They tend instead to buy real estate and other property, hold gold and stocks and shares and, most of all, move the money abroad. So this move touches only a tiny fraction of the assets accumulated through illegal activities. In any case, it also does nothing to control the source: not just bribery and corruption, but also inaccurate invoicing by companies, under-reporting of sales values and overstating costs, reporting non-existent transactions and so on. These don’t require cash: they are easier and faster using electronic means.

The Economist: The economist has mentioned that the demonetisation move has not lived up to the theory. The surprise scrapping of what amounted to 86% of the cash in circulation could, in fact, turn out to be the worst mistake of Mr Modi’s career. It has spurred protests in many areas. For many among the estimated 80% of wage earners who are paid in cash, for the tens of thousands of villages with no banking facilities, and for the traders, drivers, farmers, prostitutes, beggars and others who work in the “informal” economy that accounts for anywhere between 25% and 70% of India’s GDP, it has brought anxiety and hardship.

Herald: Pakistani magazine Herald quoted that currency note promise has been broken in India. “A currency note is a promise that must be kept, whatever the circumstances. Because this trust has been broken in India, queues have formed outside banks and ATMS, with banks closing down mid-way through the business day, saying they have run out of cash… Pro-establishment die-hards would snigger and argue that the two high value notes have been withdrawn to check black money. It had to be done in total secrecy, they say, to thwart nefarious attempts by hoarders to dump currency. But what is it that these hoarders could have done in a reasonable time frame that they are not doing now?” the article read.