Note blow to trust: Amartya

TT, New Delhi, Nov. 30: Amartya Sen has described the Centre's demonetisation move as "a despotic action" that "undermines the entire economy of trust".

"It's a disaster for the economy of trust which makes a very big difference to the success of the Indian economy, which is quite successful in terms of economic growth, not in distribution," the Nobel-winning economist told NDTV 24x7 in an interview aired tonight.

"For more than 20 years, the country has been growing very fast. But it's all based on the acceptance of each other's word."

The Harvard professor added: "Capitalism has had many successes and the successes have come from having a trust in business. The root of the trust is the faith in the promissory note.... Suddenly the government says, 'Well, we did promise but we're not going to pay you that amount'. That's a despotic action. It undermines the entire economy of trust."

Sen explained: "The government can issue an order today saying bank accounts over a certain amount would not be accepted, until these people show they are clean dealers, not racketeers. By undermining basic faith in the currency... by undermining that, you undermine all other things which turn on a promise being kept, and that applies to bank accounts as well. Right now the bank account is not under attack but it could be, once the people come to accept that the government's promise means nothing."

He added that only a "small fraction" of black money is held as currency.

Calling the demonetisation "a relatively small fry in terms of dealing with black money", he added: "It's a big, big disruptor of the economy. It creates a particular hardship for those who are not used to black money, who carry out normal trade, sell fish in the market, housewives who keep their savings in notes. Those who are seasoned dealers of black money often find their way out of these situations.... We Indians would like the government to do something about black money, yet we would also like it to be intelligent and humane."