Senior Congress leader Mani Shankar Aiyar has never held back from expressing his views about the country’s economic and political state, even when his own party was in power. In an exclusive interview with The Dollar Business, the veteran politician shares his opinion on policies like demonetisation, ‘Make in India’ and GST, apart from forecasting the outcome of the General Elections 2019.

Manishika Miglani | March 2017 Issue | The Dollar Business

TDB: Narendra Modi-led government had demonetised 86% of the country’s currency notes in November 2016, with an intent to eradicate black money and stop the funding of terrorism-related activities. How successful has the initiative been in your opinion?

Mani Shankar Aiyar (MSA): How can demonetisation help take the lid off black money holders, when Modi’s Income Tax Department has known all along that not more than 5-6% of the black money is held in cash? Isn’t it like searching for a needle in a haystack? To rob 86% of legal tender of all legitimacy overnight, in an economy where 98% of the transactions are in cash, is to follow the example of Muhammad bin Tughlaq, who in the 14th century issued copper coins after demonetising gold and silver coins.

TDB: The shadow economy in India still constitutes a large part of the economy. What in your opinion are the other measures that the government could have taken to go head-to-head against black money?

MSA: To seriously tackle black money, the government needs to attack hoarders of gold and jewellery, unveil real estate ownership and the means used to acquire such properties, strangulate black money outflows, go after bank accounts in overseas tax havens, and most importantly, stop ‘round-tripping’ of black into white by recourse to anonymous participatory notes channelled through countries like Mauritius. All this would take an enormous investment of domestic political capital and international goodwill, besides endless time, courage and persistence in the face of many challenges. But it needs to be done.

There is no magic wand to solve the problem of black money as Modi and his economics guru Swami Ramdev seem to believe. To think demonetisation of high denomination notes would end black money amounts to ‘voodoo economics’ and the kind of general illiteracy that has characterised Modi right from the beginning of his campaign to the present-day daily functioning of his government.

The answer does not lie in issuing 138 orders, and orders countermanding earlier orders, as the Modi regime had done in just 70 days. Clearly, they were utterly unprepared, which is why the aam admi has suffered so much since the midnight of November 8 and about 120 people have actually lost their lives!

Similarly, how has terrorism been prevented by replacing old notes with new notes that are of three different types and printed in ink that runs off with a little light washing? Counterfeiting these new notes is a child’s play. The terrorists are laughing all the way to their arsenals.

TDB: Demonetisation, in a turn of events, has prompted India to move a step closer to become digitalised. That most of us believe, and even you will agree, is a good thing. Won’t you?

MSA: Since neither of his principal goals (black money and terrorism) was being achieved, Modi suddenly switched the objective of his poorly-planned demonetisation initiative, in mid-run, to promoting digitisation. Whatever be the merits of a cashless economy, demonetisation is not the necessary pre-requisite to digitisation. Not a single developed county where digitalisation has worked has ever needed to demonetise a dollar or a cent to get digitisation going.

The inescapable pre-requisite is putting in place the required infrastructure. And let us be upfront here. We do not have the banking or the telecommunication infrastructure that is needed for universal digitisation of financial transactions. Universal or even widespread digitisation is not possible in the wink of an eye in a country where 46% of the people have no access to banking facilities; 19% does not even have electricity; a tiny sliver of retailers have point-of-sale devices to accept card payments; and only about 6% of mobile phone owners have smartphones.

Moving towards ‘cashlessness’ in an instant – without making proper arrangements and which will take years to accomplish – is the perfect example of relentlessly ‘putting the cart before the horse’ that is so characteristic of the present government’s definition of “good governance”.

TDB: Speaking about FDI, is the government on the right track to attract more FDI inflows into the country?

MSA: I am concerned about the post-demonetisation reversal of foreign investment flows and the huge spurt in Indian investment seeking opportunity abroad. The figure to look at is net foreign inflows, a figure that is negative, when outflows including Indian capital fleeing Modi’s India is taken into account. It is a cause for concern when more Indian capital flows out of the country than foreign capital flows in.

The government is in the habit of making a pomp and show over the Vibrant Gujarat summits, started by then Chief Minister Narendra Modi, in the name of attracting foreign direct investments. If it is so successful then how do you explain Delhi and Maharashtra, without any summits, vibrant or otherwise, attracting 29.20% and 20.16%, respectively, of total FDI inflows into India over the first two years of the Modi regime? Meanwhile, Gujarat, notwithstanding is glittering Vibrant Gujarat summits, stagnating at a mere 5.13% – having attracted no more than $2,682 million in FDI, an amount that can just about cover the money spent on the events. As you can see this government is more about optics than about results on the ground.

TDB: The incumbent government has maintained that its core focus is to enhance the manufacturing environment in the country with initiatives such as ‘Make in India’. Do you think this approach is helping the country reap the required benefits?

MSA: With the rate of capital accumulation in steep decline, now worsened by the consequences of demonetisation, ‘Make in India’ is just one of Modi’s ungrammatical slogans. Industrial growth rates are plummeting, bank credit is contracting, the real driver of Indian manufacturing – the informal sector – has been consigned, especially since demonetisation, to the doldrums. Because of the government’s demonetisation initiative, the GDP is contracting – according to the IMF by Rs.1.5 lakh crore – and by Rs.3-4.5 lakh crore, according to Dr Manmohan Singh. If the manufacturing sector was doing well, this would not have been the case. The only thing being made in India are Modi’s fantasies.

TDB: What are your thoughts on the much-anticipated Goods and Services Tax (GST)? Do you think GST will bring the much-needed change to our tax regime?

MSA: Of course, it will. And this is why the BPJ opposed when the Congress government proposed it. Now that the boot is on the other foot, by not quickly and adequately taking into consideration the key points made by the opposition in the Rajya Sabha Select Committee, of which I was a member, the government has got itself entangled in many complications. Only a Finance Minister living in ‘never-never land’ can continue to claim that GST will be rolled out by April. Yet, whenever GST is implemented – assuming it will be implemented – GST will certainly give the economy a boost.

TDB: What is your forecast for the General Elections 2019? What results are you expecting in the critical Uttar Pradesh elections?

MSA: We expect to do well in the Uttar Pradesh elections. And reverses for the BJP in UP, following Bihar, will ensure an end to the current bizarre interregnum in Indian politics. Modi came to power with less than a third of the vote only because the opposition was fractured. The opposition has learned its lesson. A mahagatbandhan [mega coalition] in 2019 will be the end of Modi’s rule. A big thanks to Modi for schemes like demonetisation that are facilitating the process of his own political destruction!