Demonetisation significantly disrupted economy: Par Panel

Demonetisation resulted in “significant disruption” in the economy and threatened economic output as it hit “very hard” trade and level of consumption, a Parliamentary panel said on Monday.

The multi-party Committee on Subordinate Legislation minced no words in saying that it was “anguished” that such a “major exercise” has been carried out “without any adequate survey or research” on the needs of different sectors.

It also did not want the government to paint critics as “somehow anti-national or pro-corruption”, while insisting the need to fight corruption but not harass the “honest, hard working and tax paying citizens”, who were “made to suffer”.

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The committee was also unhappy with the Ministry of Finance for not tabling the notifications issued by the Reserve Bank of India on demonetisation citing the RBI Act does not have such a provision.

Acknowledging that demonetisation was an effort to combat corruption, tax evasion, fake currency and black money, the panel said, “inevitably, it is the low-income and rural households who have been hit hard by the currency reform.”

“Though the Ministry (of Finance) took steps to mitigate the effects, it cannot be ignored that it created significant disruption throughout the economy and threatened economic output,” the 15-member committee headed Congress MP T Subbarami Reddy said.

The demonetisation, which was announced on November 8, 2016 night, “weighed heavily on manufacturing sector” while it hit trade and level of consumption “very hard”.

While appreciating the efforts to move towards cashless economy, the committee cautioned the government that India’s economy relies predominantly on cash, and said the effects of demonetisation were “greater than anticipated”. The restrictions on withdrawal of cash were made uniform for all customers without considering the needs of different sections of society and businesses.

It reminded the government that the country’s economy is heavily dependent on cash as only less than half of the population uses banking system for monetary system.

During its meetings with officials and stakeholders in four centres, the committee also “raised serious” questions about the preparedness in handling such an exercise.

Taking note of seizure of fake currency of new Rs 500 and Rs 2,000 notes, the committee wanted the government to assess the veracity of such reports and take corrective steps. DH had last week reported that authorities have seized at least 29,733 fake notes of Rs 2,000 denomination since the new note was introduced in November last year following demonetisation.

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