Marginalizing the marginal, all in the name of reforms: Demonetization, GST, black economy

imagesBy Dr Arun Kumar*

The chain of events in the last one year show that in India the marginalization of the marginal has strengthened. All this is happening in the name of reforms. What do reforms in India signify, more pro-business policies without concern for the common people?

These policies are often implemented in the name of the people themselves but have quite the opposite effect. The trend of marginalisation of the common people has been aggravating over the last 70 years due to the growing black economy fuelled by the rapaciousness of the country’s ruling elite. The leak of the tax havenpapers shows that all sections of the ruling elite have been siphoning funds out of the country.

Demonetization announced by the PM on November 8, 2016 wiped out 86% of the country’s currency at one go. This produced a huge shock in a `well-functioning’ economy which went into a tailspin and the rate of growth turned negative. This move, it was claimed by the PM, was to wipe out corruption, black money, fake notes and terrorism.

Businesses, especially in the unorganized sectors, came to a grinding halt. Patients in hospitals faced huge problems, farmers couldn’t buy inputs, weddings were scaled down, fishermen watched their catch rot. Many lost their jobs and could not provide two square meals to their families.

RBI announced that 99 per cent of the old currency is back in the banks. The black economy was not dented. Counterfeiting and terrorism continued. Credibility of RBI, banks and money was damaged. Accountability of the parliament and the prime minister were eroded. The social divide has widened. All this will have long term consequences.

One year later, India is still grappling with the effects of this move. It is clear that:

  1. Demonetization did not dent black money, fake notes, corruption and terrorism.
  2. Black does not mean cash’ and there is no magic bullet to tackle the black economy.
  3. The impact on the economy is both short term and long term.
  4. Many institutions and democracy itself has got damaged.
  5. It has led to greater social, political and economic instability in India.

The Black Economy has grown to 62% of GDP, that is, Rs.93 lakh crores in 2016-17. It results in policy failure and is concentrated in 3% of Indians. It marginalizes the poor who do not get the public services that they should, because `expenditures do not lead to outcomes’. The result is a demand for the retreat of the state and the advancement of the markets, where the poor are further marginalized.

The black economy results in 10% of the money going abroad but a part of that is `round tripped’ back. So, a bulk of the black wealth is in India only.

It leads to a lowering of the growth of the economy by 5% per annum. This is the prime reason that India is one of the poorest countries in the world.

It also impacts our politics and society in a wide variety of forms like, leading to poor work ethic, growing criminalization in society and manipulation of elections.

It needs to be dealt with. Hundreds of steps have been taken in the past with little success because the problem is political. It can only be dealt with by sustained movements.

GST has produced a second shock in the economy within one year of the demonetization shock.It was debated over the last more than 12 years but resulted in the further marginalization of the marginal.

It is a complex tax which is hard to implement in a complex economy like India, which consists of a huge small and cottage sector belonging to the unorganized sector. None of the political parties in the country have taken the interest of the unorganized sector into account. They have gone by the interest of the large businesses for whom `one nation one tax’ is a seductive slogan.

Thus, the interest of 94% of the work force in the unorganized sectors producing 45% of the output has been jeopardized. The tax is so complex that even if the small scale sector wishes to come into the GST net, they would still face a crisis.

In brief, not only the implementation of GST poses a problem because of defective design, it is conceptually faulty for the complex Indian reality. Just because it is being implemented in 160 countries, it cannot be the case that it should also be implemented in India.

The twin shocks have resulted in recessionary conditions in the Indian economy with output stagnating/ falling, capacity utilization low and loss of investment and employment. The economy is not growing at 5.7% but is close to 0% growth.

These two events, sudden demonetization and GST, coming one after the other in quick succession, have shown up the weakness of Indian democracy – itcaters to the interest of a ruling elite only. The voices from below are entirely ignored or manipulated for narrow interests. Our politics must change, to strengthen the nation.

*Malcolm S. Adiseshiah Chair Professor, Institute of Social Sciences

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