Indian Prime Minister Narendra Modi’s move to withdraw higher-value banknotes from circulation is hurting ordinary people rather than making a serious attempt at combating corruption, former US Treasury secretary Lawrence Summers said.
Modi this month announced that 500 and 1000 rupee notes will no longer be legal tender in a bid to crack down on counterfeiting and graft, effectively scrapping more than 85 percent of notes in circulation. It caught people by surprise in an economy where businesses and consumers often transact in hard cash.
Frustrations have boiled over across the nation as ATMs ran out of money and customers waited in long lines to exchange their old notes for new ones, while shopkeepers complained of slower sales.
Photo: AFP
“We strongly suspect that those with the largest amount of ill-gotten gain do not hold their wealth in cash, but instead have long since converted it into foreign exchange, gold, bitcoin or some other store of value,” Summers and coauthor Natasha Sarin wrote in a blog post on his Web site on Monday. “So it is petty fortunes, not the hugest and most problematic ones, that are being targeted.”
Summers said that same argument he has advocated for abolishing large denominations in the US and Europe cannot be made for poorer India.
The 500-rupee note — the equivalent to about US$7.3 — is widely used in the South Asian nation, while the biggest denomination in the US — US$100 bills — are rarely handled by even the richest Americans, according to the blog post.
“The ongoing chaos in India and the resulting loss of trust in government fortify us in this judgement,” Summers wrote.
The authors also questioned the efficacy of the measures.
While the government assesses that the move could expose as much as US$74 billion in unaccounted cash, opinions are mixed about its impact on tax evasion.
“Without new measures to combat corruption, we doubt that this currency reform will have lasting benefits,” Summers and Sarin said. “Corruption will continue albeit with slightly different arrangements.”
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