Indian Prime Minister Narendra Modi’s 2016 move to demonetise 500 and 1,000 rupee notes was “an unbelievably rash, irresponsible action”, according to Rahul Gandhi, the president of the country’s opposition Indian National Congress.
Speaking to reporters in Dubai on Saturday at the end of a two-day visit to the UAE, Gandhi said that the move – which Modi’s government said would help clamp down on the use of illicit cash – backfired badly in the country’s largely cash-based economy.
“He [Narendra Modi] was directly responsible for the decimation of the informal sector,” he said.
At the time, the Indian government said it believed the move would force people to declare their earnings, which could then be taxed.
According to statistics from India’s Central Bank, however, 99 percent of the illegal cash made it back into the country’s banking sector. The demonetisation drive also caused severe cash shortages and led to protests and strikes against the government.
Gandhi’s comments echo those of former Reserve Bank of India governor Raghuram Rajan, who told reporters late last year that the move “created more problems” than it solved.
“The problem is that many of these notes are used for household and small savings, typically by a housewife, as well as vegetable sellers and others in informal transactions,” he said at a Mastercard event in Barcelona in September. “Turns out, when you do this [demonetisation], people who have money in their basement don’t go to the government.”
Rajan added that many people responded to the demonetisation regulations by finding local touts, who in turn used young boys to open accounts. The net effect, he said, was that “the government didn’t collect very much on taxes.”
On Saturday, Gandhi outlined a number of “rational” economic moves he would take if his part won the India’s 2019 General Election.
“Priority number one would be job creation, where the current government is failing,” he said. “We have a massive unemployment problem.”
Earlier in January, statistics from the Centre for Monitoring the Indian Economy found that employment rose to 7.38 percent in December, the highest in 27 months.
Gandhi added that he would work to “rebuild trust” in the country’s institutions, including the Reserve Bank of India.
“It’s the first time in Indian history that the chief of the RBI has resigned,” he said, referring to the December 2018 resignation of RBI governor Urjit Patel. “We will build confidence in institutions like the RBI, like the Supreme Court, like the election commission, which are under systematic attack.”For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.