Potion or poison

THE International Monetary Fund (IMF) sees “salutary benefits” from the demonetisation that took place in India a year ago. The context is, however, important to understand the spirit of IMF’s formulation. The politically correct statement came in response to a specific query raised by a reporter at the IMF’s fortnightly news conference. The reporter wanted to know whether IMF would recommend a similar currency squeeze to other countries as a remedy to their economic woes. The IMF official conveniently ducked it by saying that “these monetary reforms are very country specific”. The official responded so after searching for an answer in the ready reckoner he was carrying with him. Obviously, the IMF has no such prescription for any of its 189 member-countries. The IMF official did mention that demonetisation led to temporary disruption in economic activities primarily “private consumption and small businesses”, however, its effects are dissipating. The Washington-based multilateral agency is right to observe that eventually the economy will bounce back. But, what it is unable to see is the millions of small businessmen, who have been edged out from the category of self-employed and forced to stand in the queue of job seekers. 

Demonetisation has scarred their lives; it will never be the same again. There is no need for the IMF to sound politically correct. It is not just an institution to maximise economic growth. It is also obliged to eradicate poverty from the global map. Indeed, the IMF’s documented purpose is to ensure “the stability" of the international monetary system. But, at the same time its other stated aim is to help in reducing “global poverty”. The IMF must not be seen endorsing a brew with adjectives like “salutary benefits”, which it would hesitate to prescribe to others. 

The IMF officials’ statement that in the medium term, demonetisation could lead to greater formalisation besides encouraging digital payments is also far from the truth. The spurt in digital payments that was seen after November last year has dropped significantly because people are increasingly using currency notes to avoid the GST. Wounds of demonetisation would not heal from these external certificates of good conduct; what may help is sincerity in simplifying its complicated GST regime.