Arun Kumar taught economics at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, Delhi, till 2015. He has a master’s degree in physics from Delhi University and Princeton University, USA, and a doctorate in economics from JNU. A ground-breaking book, The Black Economy in India in India shows how demonetization is not the way to end the black economy, since what India needs is to empower citizens and make leaders accountable.
Here’s an excerpt from the Prologue.
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The black economy is once again in the news because of the announcement of demonetization of the large-denomination currency notes. It is not that this is the first step that the present government has taken to tackle the black economy. It started its journey by forming a special investigation team (SIT) under a Supreme Court order in 2014. It has got the approval for many bills, for example, on Benami Property, Black Money held abroad and Income Declaration Scheme. But none of them had the same dramatic impact on the economy since they were not comparable in order of magnitude that demonetization is.
The present move will not be able to tackle the black economy but has the potential to devastate the economy. The impact on the poor, the farmers, workers and producers in the unorganized sectors has already been severe. Thus, it is impacting those who never generated black incomes or held much of the high denomination currency notes. According to reports, much of the high-denomination notes issued by the RBI are coming back into the banks. The implication is that those who held substantial black cash have managed to exchange their old notes for new ones. Thus, the culprits who were supposed to be punished by the demonetization have escaped while the innocent have been trapped into standing in queues or by unemployment.
The prime minister promised normalization in fifty days but that cannot happen since so much currency cannot be printed in such a short time. Not only will the currency shortage continue due to insufficient printing capacity but those with black money are first replenishing their coffers causing a shortage of cash available to the public. Further, hoarding is going on. Thus, the economy would suffer for much longer and irreversibilities have already set in, pushing the economy towards a recession.
All this happening in the context of the black economy has again brought this topic to the centre stage. Public curiosity/ awareness of the issue has suddenly increased by leaps and bounds. It is in this context that this book with a new prologue is being issued at this juncture. The prologue discusses the different remedies to tackle the black economy that have been attempted by the present government. It must also be said that the theoretical framework of the book remains as valid today as it did in 1999. In fact, there is a section on demonetization in the book which had argued against taking such a step for precisely the reasons that are playing out today.
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