Economist S Gurumurthy Explains Why Demonetisation Was Needed – Says “Only A Strong Prime Minister Could Have Taken This Decision”

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Financial Expert, well-known political and economic analyst from Chennai S Gurumurthy has been a long-time crusader against black money. And he has given his views on ‘demonetisation’ move by the Government in the recent interview  to Doordarshan. He explained why ‘Demonetization’ was needed and how it will help in India’s economic growth.

On Why Demonetisation Was Needed, S Gurumurthy says:

“This move was long overdue. The growth of cash economy in proportion to the gross domestic product (GDP) was less than 10 per percent until 2001, now it is almost 12 percent of the GDP. Actually, this should be going down as new banking habits pick up. The cash to GDP ratio must actually go down, it has increased. This has also been facilitated by the rise in the proportion of the high denomination currencies (as high as 87%).

It has led to distortions in the economy in the real estate, gold prices, usurious lending to small and micro businesses. This is also partly because of the failure of the banking system.

The fact is that cash economy has moved deep into the Indian economy. Studies show that 50 per cent of Indian economy is in cash. Cash economy does not mean it is an illicit economy, it’s actually genuine cash economy. Ninety per cent of employment is attributed to an economy driven largely by cash or what is called the sector which is largely funded by cash. This has resulted in huge cash hoardings.

So, it had distorted the economy in the last 10-12 years, because of what is called the wealth effect. The high rise of the stock market also contributed to the growth of cash economy in India. This situation had to be handled. Only a strong Government or a strong Prime Minister could have taken this decision.”

He also spoke about the consequences of Demonetisation. Watch full interview in the video below:

video Source: DD News