What Happened After India Eliminated Cash

IN 2016, the Indian government abruptly wiped out most of the na on’s currency in hopes of ending black money and curbing corrupon. Has the experiment worked?

On the night of Nov. 8, 2016, there was a surprise announcement on Indian television. In a live telecast to the na on, Prime Minister Narendra Modi declared that the country’s two highest-denomina on currency notes (Rs 1,000 and Rs 500) would be withdrawn immediately from the market. The plan, termed demone sa on by the press, was planned in secrecy and announced dramacally, as Modi’s masterstroke against black money.

As economic experiments go, it was a big, bold move. There was no precedent, anywhere in the world, for a sudden economic shock of this scale. The withdrawn notes, amoun ng to US$320 billion at the me, represented 86 percent of the total currency value in circula on in India. By making the notes worthless almost overnight, the government hoped to destroy large piles of black money hidden away by tax evaders. In addi on, the government claimed the plan would strike a major blow against corrup on and counterfeiting and would kick-start India’s transi on into a digital, cashless world. In a country with a huge informal economy, dependent on cash transac ons, demone sa on was a big poli cal gamble, too.

The immediate fallout was chaos, as the country scrambled to cope. There was a rush at banks and ATMs to exchange old notes and withdraw new currency. Queues at banks grew; many people suffered, especially the poor, who had no access to credit cards or mobile wallets; and dozens of deaths resul ng from the crisis were reported.

Two years later, the dust has settled, and it has become obvious that demone sa on was not the resounding success the government expected it to be. India’s black money problem has not gone away. The economy has taken a bea ng, huge financial losses have been incurred, and the marginalised poor, least able to withstand adversity, have been nega vely affected. There have been some gains in tax collec ons, and the country has progressed toward digital payments, but these advances could have been achieved through other, less dras c means.

For countries tackling black money or promo ng a cashless economy, India’s experience with demone saon provides rich lessons. Although the long-term social, economic, and poli cal consequences of demone sa on are s ll playing out in India, answers to many complex ques ons are now apparent.

What Happened to the Black Money?

Economists who supported demone sa on predicted that black money hoarders would destroy their stashes rather than declare them, thus delivering a bo om-line bonanza to the country. But in August 2018, the Reserve Bank of India (RBI), the country’s central bank, confirmed that 99.3 percent of the demone sed notes had been returned to the banks. Almost nothing was ex nguished.

Osun Defender

Publisher – Moremi Publishing House Ltd.

Deputy Editor – Ismaeel Uthman

Produc on Editor – Petkola Taiwo Ibitowa

Reporter – Yusuf Oketola

Reporter – Kazeem Badmus

Photo Journalist – Olushola Aderinto

Computer Graphics – Zainab Olalere

OSUN DEFENDER is published by Moremi Publishing House Limited, Promise Point Building, Opposite Guarantee Trust Bank (GTB), Gbogan Road Osogbo, State of Osun

ISSN : 0794-8050

Telephone : 0809-301-9152

Website : www.osundefender.com/index.php e-mail : osundefender@yahoo.com osundefenderbank@gmail.com

The Centre for Monitoring Indian Economy (CMIE), a private forecaster, es mated that 1.5 million jobs were lost between January and April 2017. The labour force further shrank from 439.7 million in the fiscal year 2016–17 to 426.1 million in 2017–18. And the labour force par cipa on rate (which expresses the labor force as a percentage of the working-age populaon) fell from 46.1 percent to 43.5 percent. According to CMIE, those ages 15 to 24 were the most affected, probably because they were relavely new to the workforce and typically held low-skilled, informal jobs paid by cash.

All correspondence to the above email addresses.

Culled from Strategy+Business, a pwc publica on.