Demonetisation: Hits And Misses

Demonetisation shook the economy. Did it break it, or leave it healthier?

- M.G. Arun

"My dear citizens, I hope you ended the festive season of Diwali with joy and new hope. Today, I will be speaking to you about some critical issues and important decisions.” It was a year ago that Prime Minister Narendra Modi first addressed the nation about demonetisation. Late in the evening on November 8, he spoke about corruption, black money and the fight against the two. Then came the bombshell. “To break the grip of corruption and black money,” he said, “we have decided that [the] five hundred rupee and one thousand rupee currency notes presently in use will no longer be legal tender from midnight tonight, that is, 8th November, 2016.”

The picture grew somewhat clearer in the days immediately after. The rationale for the drastic step was that it would strike at the root of India’s black economy and bring an end to a counterfeit currency market that, among other things, funded cross-border terrorism. Demonetisation was also presented as a turning point for the country, a significant departure from a system that was opaque and corrupt to one that was transparent and honest. It was even suggested that the Reserve Bank of India (RBI) (and therefore the government) stood to gain between Rs 3-4 lakh crore from the fact that the RBI’s liabilities would reduce by the amount of black money ‘extinguished’ via demonetisation.