Amartya Sen criticises Modi on currency crisis

The BBC is starting to cover the demonetisation crisis in a way that should cause concern to the Indian government – and its supporters in the UK – for its carries echoes of the way it reported Indira Gandhi’s emergency of 1975 and Sanjay Gandhi’s subsequent sterilisation campaign.

In other words, it is hinting to listeners in Britain and around the world that what has happened could have electoral consequences for Narendra Modi’s government.

It was not just that Amartya Sen, not known to be Modi’s greatest fan, was interviewed last week on BBC Radio 4s The World Tonight but the way in which the item was packaged.

Before India’s 2014 general election, Sen said: “As an Indian citizen, I don’t want Modi as my PM… He has not done enough to make minorities feel safe.”

He was not forgiven. Once in power, the BJP government forced Sen’s resignation as chancellor of Nalanda University, an ancient seat of learning in Bihar which the economist regarded as his “baby”.

The BBC item was trailed by presenter Shaun Ley in the headlines as follows: “A month since India’s government rendered much of the country’s cash worthless, we will hear the verdict of India’s most distinguished economist, Amartya Sen.”

As part of the package, listeners were told that 85 per cent of the currency had been demonetised but 90 per cent of Indians relied on cash.

As a vox pop, there was a sound bite from a farmer who was “not impressed” – he pointed out that introducing plastic payments in rural India where many people were illiterate and where often there wasn’t even a mobile phone signal would prove “impossible”.

Sen, speaking from Boston, was introduced as “one of the world’s most distinguished economists”, a “Nobel Laureate” and a “professor at Harvard”. So what did Sen think of the consequences, Ley asked.

“That was exactly what most economists anticipated, namely it was quite a disaster for transactions in the economy,” said Sen. “The people who were most able to deal with a system which require jumping over various fences are the people who hold black money,” he went on.

“The people who are poor and have difficulty in normal transactions – 90 per cent of India’s wages are paid in cash – they will be the ones who would suffer most. Indeed the voices that you played indicating what was anticipated from the day it was announced – and a lot of us were discussing it right then – those terrible effects are coming round to being a part of the reality which is dominating what otherwise had been a reasonably fast-growing economic story of India.”

Ley asked whether the currency crisis would have an impact on India’s so far very successful growth record.

Sen’s response: “The success is going to be quite a bit tarnished. The success has gone on for well over a decade, almost two decades now of fast economic growth.

“But (this) has rested on certain strengths of the Indian economy along with weaknesses – the weaknesses (are) lack of good education, lack of good healthcare which ultimately hit on the economy and will, in fact, restrain economic growth in India. But the success has been the business has been buoyant, people have been able to trust each other’s words and proceed to do transactions.”

“What you heard from the micro level, of course, (is) first of all combined together they make up the economy of India but also even other businesses which don’t deal with cash but maybe doing everything on plastic they are all based on this idea that if there is a promise, you can expect that the promise will be kept.”

He pointed out: “Now these cash notes if you look at them say, ‘I promise to pay the bearer the following etc…’. Suddenly we were told it would not work – ‘we did promise but we wouldn’t actually act according to that promise.’ So it removed the very big element of trust which had made the business economy in the world survive.”

Sen explained: “Now the government says, ‘We did promise but we won’t (keep that promise) until you show that you are not a racketeer – the onus is on you to prove you are not a racketeer and until then your cash is illegal.’ And that hits absolutely at the root of the business confidence which makes the economy go ahead and generates everything, including the fast economic growth that we have been seeing in India.”

“This has been a disastrous policy not just (because of) the kind of immorality that goes with something where you are penalising a large number of very poor people but it is also the lack of intelligence in trying to figure out how an economy would respond when the promissory aspect of promissory notes is removed.”

Ley wanted him to name the guilty party: “Who should take responsibility for this as it has not worked out as envisaged?”

Sen: “Those who envisaged it will work out must accept some responsibility as to why they envisaged such a thing.”

Ley: “The prime minister? You have called the decision ‘despotic’?”

Sen agreed: “Well, I have called the decision ‘despotic’. I think that is a statement about the government as a whole – whether it is the prime minister himself who took the decision I just don’t know. But the government announced it. The prime minister himself announced it and took credit for it and, to the extent that a credit is demanded, a certain amount of debit should be also thrust upon it.”