The Great Currency Swap

- Ajit Ranade

The 14th edition of the World Bank’s Doing Business report—commonly referred to as ease of doing business (EODB)—ranks India at 130 out of 190 countries. The country’s rank has moved up by just one notch since last year and, to that extent, it is disappointing. Prime Minister (PM) Narendra Modi had announced an ambitious target to take India to the top 50 by 2018. EODB is also integral to the prime minister’s Make in India initiative.

The EODB ranking is based on ten well-defined metrics, and India fares poorly on four of them: Starting a business, getting construction permits, resolving insolvency and enforcement of contracts. The latter two are getting addressed through a new insolvency and bankruptcy code and judicial reforms, respectively. The first two require the cutting of the proverbial red tape and the unnecessary burden of bureaucracy.

The hidden and silent word in this context is ‘corruption’. The prime minister and his party rode to victory on a powerful anti-corruption plank. The outcome of corruption is black money and ill-gotten wealth. Black money is created not only by tax evaders or government officials through the abuse of their discretionary powers, but also more ominously through illegal activities such as terror financing and drugs. So, an attack on black money was to be expected, as part of a multipronged, anti-corruption strategy.sa

What the nation was unprepared for, was not just a ‘surgical strike’, but a pressing of the nuclear button. The PM’s announcement—to demonetise high-value currency notes of Rs 500 and Rs 1,000 denominations on November 8—meant that 86 percent of the nation’s currency would cease to be legal tender instantly and was an astounding, unprecedented, audacious and politically risky move.