Modi govt's demonetisation drive biggest scam, may erode 4.7 lakh crore from GDP: Amit Mitra

The govt on November 8 embarked on a demonetisation drive by declaring high denomination notes -- Rs 500 and Rs 1,000 -- as illegal tender

West Bengal Finance Minister Amit Mitra on Thursday called the demonetisation drive started by Prime Minister Narendra Modi-led National Democratic Alliance (NDA) government a "scam".

"The government's demonetisation drive is the biggest scam about to happen," Mitra told India Today news channel.

The government on November 8 embarked on a demonetisation drive by declaring high denomination notes -- Rs 500 and Rs 1,000 -- as illegal tender.

Mitra said the move by the Centre was "a dictatorial streak by a government which has lost touch with the ground level".

Pointing out that black money estimated in circulation at around Rs 400 crore being only a miniscule part of the total currency, demonetisation has only come as a "hammer blow" for people that is completely disproportionate to the result being sought.

"Government has 86 per cent of currency, or around Rs 14 lakh crore. Black money is mostly in the form of other assets. You have put a hammer all for nothing," Mitra said.

This move has facilitated some people to convert black into white, ending up with no surpluses for the RBI. It is a government that is either ignorant and incompetent, or worse has acted intentionally to help launder money, he added.

Calling demonetisation "a big magnum-sized tsunami", Mitra said India's gross domestic product (GDP) in the current fiscal (2016-17) will take a huge hit on its account.

"In the best case scenario, the GDP for the current fiscal could go down to 5.5 per cent from the 7.5 per cent it had touched in 2015-16," he said.

"From an estimate that I have, the growth rate in aggregate will fall over 3 per cent and arrive at 4.3 per cent," he said.

"This means a loss of Rs 4.7 lakh crore of GDP, this will be extinguished. This is in the worst case scenario...the best case scenario is loss of Rs 3 lakh crore," Mitra added.

Highlighting the devastating impact of demonetisation on the economy of Indian states, Mitra said West Bengal stands to lose Rs 7,000 crore in taxes owing to the contraction in economic activity resulting from the scrapping of high-value currency.

"By conservative estimates, Bengal will lose between Rs 5,000-6,000 crore in taxes as Chief Minister Mamata Banerjee has said on the floor of the assembly," Mitra said.

"This figure could maybe go up to Rs 7,000 crore. Where will the money come for social programmes, for health, education, social development projects," he asked.

He said the informal, unorganised sector, including agriculture, which is larger in Bengal than many other states, had collapsed.

"A jute mill closed yesterday. Tea garden workers are crying to be paid and we even asked the Reserve Bank to send cash to the District Magistrates, who could then disburse salaries, but the RBI refused," he said.

The West Bengal Minister said that diamond workers from the state were returning from Gujarat, where the diamond industry in Surat has been badly affected by demonetisation.

He also cited the case of Maharashtra, where 70 per cent of the power loom industry had closed and workers were returning to their home states like Bihar and Uttar Pradesh.

Mitra, who is Chairman of the Empowered Committee of State Finance Ministers and member of the GST Council, also said the postponement of the Goods and Services Tax regime could be an option to stabilise the economy badly hit due to demonetisation.

"Should we rethink of stabilising the economy from this big hit resulting from demonetisation and then go for GST? Do we take the risk of a second whammy at this stage," he asked.

According to Mitra all the decisions regarding the GST were taken before November 8 when Prime Minister Narendra Modi announced the ban on high-value currency notes.