New Delhi, Aug 9, 2017: Though demonetisation had some positives, former Reserve Bank of India (RBI) Governor Bimal Jalan says he would not have approved it had he been at the helm of the country’s central bank.
There is need to tackle the problem of black money at the root and see whether taxes are high, he feels.
“On balance, if a rupee has been guaranteed by the Government of India and issued by RBI, I should not demonetise it unless there is a crisis,” Jalan told IANS in an interview ahead of the release of his book ‘India: Priorities for the future’ on Wednesday.
Asked if there was a crisis that necessitated demonetisation, he emphatically said, “No.”
Similar was his reply when asked if he would have approved of demonetisation as RBI Governor.
Jalan, who had been Finance Secretary at the Centre, was the RBI Governor from 1997 to 2004.
“Demonetisation had a negative effect, but it also had a positive impact on savings, deposits, people’s investments, filing of more returns,” he said.
In policy making there are always two sides of the equation. Special deposit schemes were also there so that people can use them if they had black money, Jalan said.
“If the black money is being generated in real estate, we can do something about it. Go to the root of the problem. To my mind, for an ordinary citizen, demonetisation had a negative impact because he didn’t have cash. There are two sides again.
“We can take a balanced view, if we need to tackle black money, then we need to go through the source of black money — is it the high tax rates? If people are not paying authorities?” he said.
However, the disruption of demonetisation, which resulted in GDP falling to 6.1 per cent in the fourth quarter of 2016-17, would not impact the long-term growth of the country, he said.
“The economic growth of the country will pick up from the lows of 6.1. One-time impact of demonetisation will not affect growth. We have comparative advantage. We should be able to grow at a fast rate,” he said.
On criticism about jobless growth, he said it is valid if growth does not translate into more jobs and poverty alleviation.
“Whether it is 6.7 or 7.1, growth is not important. We need to have such a growth rate so that we can do what we need to do and the benefits percolate to the poor and lead to investment, alleviation of poverty, creation of jobs. Eight per cent growth is not worth (it) if the benefits are not percolating. We need to focus on essentials of economy,” he said.
Jalan, who also had a term in the Rajya Sabha as a nominated member, said revenues were increasing. “There is no need to change the income tax and Goods and Services Tax (GST) rates every year. GST is a major move. Despite hiccups, it is worth it. We don’t need to revise GST rates every year. That is the most fundamental part. Let us decide income tax, why can’t we have long-term rates,” he asked.
To a question if he was ok with a number of cesses being added to the income tax, he said, “No.”
On a suggestion in his new book about rationalising subsidies, Jalan appreciated the Direct Benefit Transfer (DBT) of subsidies and said that the subsidies should be consolidated to reduce administrative expenditure on them.
“Instead of having all different subsidies, we should have the ones for people below poverty line. Just give them direct subsidy. The government should have subsidy which is required for benefit of people up to certain limit. Instead of 73-74 subsidies, let’s see how many we can consolidate because that will reduce expenditure. What we need is a more efficient delivery system. DBT is one such step,” he said.
By Meghna Mittal and V.S. Chandrasekar