November 22, 2016

Cash Crisis: Who to Blame Can Wait, What Must Be Done Cannot!

Shakkar Aiyar, Visiting Fellow at IDFC Institute, advises the government to explore external sources for immediate solutions to mitigate the distress. 


"To appreciate the anatomy of the cash crisis, consider this. In 2015-16 private consumption expenditure accounted for over half the GDP—for over `80 lakh crore out of `135 lakh crore. Sure. Not all of it is in cash. But it is known that over 45 per cent of the economy is in the informal sector—that is, fuelled by cash. The big employers—agriculture, mining and construction—account for over `33 lakh crore of the GDP. With eight of 10 rupees sucked out, the wheels of the economy are stalling.


The brunt of demonetisation, aimed at unearthing illicitly stored value, is felt most by middle and lower-middle class India, which is left without a medium of exchange  for day-to-day economics. And demonetisation arrived bang in the ‘busy season’—the post-monsoon period of economic activity when consumption takes off...


Across India, there is consensus on three points. One:  The objective of demonetisation is laudable. Two: The implementation has been appalling. Three: Institutional issues will follow individual hardship as the economy is hurt in the medium term. To be sure there will be a debate on where the buck stops, for accountability and answers on how this went so haywire...


The blame game, though, can wait, what must be done cannot! Measures like use of indelible ink and cash disbursal at petrol pumps address the symptoms. The need is to bridge the gap between availability and need. Ergo, the government must look outside the system for real time solutions to alleviate the pain..."


Read the full article in The New Indian Express here


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