Much of the wealth of those enriched by the black economy would be insulated, because lots of their lucre is held not in cash but in property, gold or jewellery. Such heavy-handed measures could undermine the credibility of important government institutions. Fear that they might be used again in future could weaken confidence in the currency as a store of value paving the way for some broader institutional failure, like hyperinflation. Long-run trust in the judgment of the state might be threatened.

Assume that one day the administration of a huge and quickly developing economy got to be distinctly persuaded that it’s most elevated need was to cleanse the nation of black economy tycoons storing heaps of illicit money. On November 8th India’s prime minister, Narendra Modi, announced a course of action just as radical as that described above. He declared that all 500- and 1,000-rupee notes making up 86% of the cash in circulation in India could no longer be used.

However shrewd the arrangement looked on paper, it is both practically limited and risky. Demonetisation will likely make just constrained walks in shrinking the black economy while influencing the greater parts of India’s 1.3 billion residents who are the poorest the majority of all. The most affected are that classes small traders, farmers, daily wage workers, vegetable sellers, drivers, shopkeepers etc. whose cash in hand had zero value after the announcement on 8th November. Is it fair to term their cash in hand as black money? How fair is it to digitalise India by way of demonetisation where 1.3 billion people are without any card readers or PayTM.

A total of 33 deaths have been reported across the country that can be directly or indirectly linked to the sudden demonetisation move. While a few deaths have been out of shock, as alleged by the families of the deceased, some deaths are claimed to be owing to exhaustion after standing for long hours in serpentine queues. The legislature has called this “short-term pain for long-term gain” and numerous natives on TV have said they will persevere through short-term pain. However, what gain and by when?  The long-term objective must be to curb the arrangement of corruption, tax evasion and the era of black income. Demonetisation just focuses on that a portion of existing black income which is held as cash in hand. It doesn’t influence or handles in any way the consistent stream of black money which is created due to corruption/tax evasion.

The policy came as a rude shock and was even badly executed by the government. There were no preparations to execute the policy rather it should be termed as a gamble. The government was so unprepared to execute this policy; many belated provisions were made for weddings and farmers that could have anticipated earlier. Everyday there is a new guideline issued by the RBI changing the dates till when the old currency could be used. Prior arrangements should have been made in advance to avoid the inconvenience due to cash shortage that has even claimed lives of people as they couldn’t feed their family. The more important part of the fight against corruption involves the other set of measures to which demonetisation could have been a part at later stage.


Written By:

Raveena Dewan