Note Ban Was An Inappropriate Response To Black Money: Manmohan Singh

Demonetisation was not an appropriate response to the black money issue, former Prime Minister Manmohan Singh said today suggesting that the government should simplify tax and administration systems to address it.

“The answer to the black money problem was to simplify our tax, land registration and the administration systems,” Singh said interacting with students of St Teresa's College, Ernakulam, Kerala. “That was the only way in which the country could move forward in a society where there was less role for black money generation,” he added.

He said demonetisation had caused a lot of distress to farmers, small industrialists and many people died while standing in queues in front of banks to get cash because of the ban of Rs 500 and Rs 1,000 currency notes last year. Asked how demonetisation has affected India's economy, Singh said it has put the economy in a state of stagnation.

Inaugurating the national seminar on macroeconomic policy developments at St Teresa's College, Singh said the last few decades of rapid economic expansion have been accompanied by rising income inequality, both at the individual and regional levels.

"Social mobility in India continues to be restricted, especially among the lower castes and minorities. Recent economic research has pointed out how income inequality in India has grown since independence," he said.

Singh said economists have also pointed out that state level regional inequality has also grown in independent India where some states are outperforming the rest. "It is time we pause, step back and re-calibrate our macroeconomic thought that will acknowledge both the virtues and pitfalls of free markets," Singh said.

He noted that the nature of economic development was not leading to the creation of enough jobs to absorb all the estimated 10-12 million new entrants to the labour force each year.

Inequality and joblessness could be extremely dangerous in a diverse nation like India, Singh said. There are no easy economic solutions for these problems as the world grapples with the dilemma of balancing the benefits and damages caused by globalisation, market failures and domestic imperatives, he added.

Singh said the first three decades of India's economic policy focused on nation building through a strong state, developing capabilities in private enterprise and providing strong social foundations for economic development. The next three decades of economic policy have been driven by increased private sector participation and a smaller role for government.

"Today we stand at the threshold of another beginning," said Singh. Ever since the 2008 global economic crisis, the wisdom of markets as a panacea for all economic issues was under severe doubt, he said. "Markets can fail. They fail often. When they fail, they fail big," Singh added.