Currency Crackdown

India’s short-sighted ban on large currency risks wrecking the economy, but still aims for long-term success.

- Rajendra Prabhu

Narendra Modi’s controversial and daring move to bring India’s economy under control has not gone smoothly. Exactly halfway through his five year term, the Prime Minister who brought the Bharatiya Janata Party to power launched an unannounced midnight “surgical strike” at the hoard of untaxable black money and counterfeit currency drowning the country. With three hours’ notice on November 8, Modi declared that high-value currency bills would no longer be legal tender as of midnight of the same day. The goal was to force tax evaders and “hawala operators”, who clandestinely convert Indian rupees and U.S. dollars, to come out with their hoards or lose them. Modi promised a fifty-fifty amnesty for those who owned up before a deadline. The Prime Minister then assured those with legal currency that they would have a window within which to deposit or exchange their notes at banks and ATMs. The result of the well meaning initiative has been disastrous.