Weeks after Prime Minister Narendra Modi’s demonetisation move, Gita Gopinath -Harvard University Professor and financial advisor to Kerala Chief Minister Pinarayi Vijayan- has asked if there is no less costly alternative to PM Modi’s demonetization move.
In an article titled “Demonetisation Dos and Don’ts” published in Project Syndicate –a website that delivers op-ed commentaries by global leaders and thinkers to a worldwide audience- on Thursday, Gita did term it ‘an unprecedented move…the boldest policy intervention till date’.
Even while Gita lauded its motivating economic principles as ‘beyond reproach’, she also spoke about the people’s initial cheering of the Modi government’s effort to ‘target black money diminishing with each passing day due to the Centre’s failure to meet the market demand for ‘new printed notes’.
Quoting from her article:
“The near-term impact will be the equivalent of an ‘anti-stimulus’ policy intervention and the consequent drag on demand will be significant. Moreoever, as real-estate prices decline, so too will household wealth.
Although lower house prices will make new homes more affordable, the stock of occupied homes will far exceed new purchases in the near term, so the negative-wealth effect will overwhelm the gains.
Given these large upfront costs, it is reasonable to ask how effective demonetization is in fighting tax evasion and corruption, and if there is a less costly approach to demonetization.”
Gita opines that a gradualist approach would not only induce better compliance while minimizing corruption over a period of time, but also ensure a large denomination currency-free financial scenario.
“India’s current policy of replacing 1000-rupee notes with 2000-rupee notes undermines the long-term effectiveness of its policy,” she believes.
A gradualist take would also be practically administrable, one that would minimize the ‘collateral damage’ to the economy, she adds.
Mainstream media however chose only to highlight Gita’s cryptic praise for Modi, forcing Pinarayi to take to Facebook on Friday to clear the air.
"Read the entire article before forming an opinion….It addresses the current crisis and the irregularities in the policy," says the CM.
He also points out that Gita was not a full-time advisor, and that she was entitled to hold an opinion different from the Left government.