On the evening of November 8, 2016, even as families across India were getting ready to watch their favourite soaps, Prime Minister Narendra Modi appeared on television and announced that from midnight that day, all Rs.500 and Rs.1,000 notes would cease to be legal tender. He claimed that most black money was held in higher denominations and demonetisation would put a stop to terror funding, end corruption, and eliminate Fake Indian Currency Notes (FICN).
More objectives were added by BJP leaders in the following days, as Indians scrambled to return the old notes and lay their hands on fresh cash from banks and ATMs. Demonetisation, people were told, would help them move to a cashless economy, bring more people into the tax bracket, integrate the informal and formal sectors, and even bring down interest rates.
Since there had been no forethought or preparation, the government was not prepared to handle the mayhem that followed the announcement. Millions of citizens were forced to queue before ATMs every single day for weeks on end to get a few hundred rupees in cash.
The small and informal sectors came to a grinding halt; even big companies could not pay daily wages, all of which again affected the poor and the marginalised.
Scholars and economists who studied the move have criticised the decision and shown how none of the stated objectives were met. The 2017-18 Economic Survey said that the ensuing economic slowdown was because of “dissipating effects of earlier policy actions,” namely, demonetisation. Kaushik Basu, former Chief Economic Advisor, tweeted in March 8, 2017: “India’s Economic Survey admits GDP growth doesn’t capture the negative effect of demonetisation.”
To this day, no BJP leader, including its spokespersons, has admitted that demonetisation was a mistake.
Joseph Stiglitz, the economist, told an English TV channel four years ago: “India went into this peculiar experiment of demonetisation and people…. all round the world did not know what you were doing because what you did was to hamper small businesses by taking away the currency that they needed. And you reintroduced small currency, so you didn’t solve the problem that you said you were attacking, which was corruption and all that. So you look at it is a mystery why you did that to your economy.”
Stiglitz would not have had to look too far to discover the mystery. Some opposition politicians believe that the move had only a political motive—winning the Uttar Pradesh Assembly election slated for February 2017. But its impact is still being felt.
