Demonetization as the Basis for a Fiscal Stimulus Prabhat Patnaik

A bizarre argument is doing the rounds these days. It states that the cash which gets disabled in the “black economy” because of the government’s demonetization measure, would enable the government to undertake an equivalent amount of expenditure with impunity; it can therefore spend more on infrastructure and other essential areas, or simply provide cash transfers to the people. BJP spokespersons who have been putting forward this argument, are promising transfers to everyone, in a manner reminiscent of Modi before the Lok Sabha elections, when he had promised that “black money” from Swiss Banks would be brought into the country…

Demonetization as a Means of Fighting “Black Money” Prabhat Patnaik

So many lies are being spread by the government which is currently busy wrecking the Indian economy in the manner of a bull in a china shop, so many spurious economic arguments are being trotted out by it, that one has to be extremely vigilant not to be swept away by this tide of unreason. In the current article, and the two subsequent ones to follow, I propose to examine some of the more persistent assertions that are being made by government spokesmen. The most persistent assertion of course is that demonetization is a measure against “black money”. In an…

Demonetisation: All pain for the majority C. P. Chandrasekhar

At the time of writing, chaos continues to prevail at bank branches and ATMs across India, reflecting the larger truth that the government has for no sensible reason frozen a major part of India’s payments and settlements system. The government did this by declaring, for reasons wrong and indefensible, that currency notes of Rs. 500 and Rs. 1000 denomination which accounted for more than 85 per cent of the value of notes in circulation (and around 25 per cent in terms of sheer numbers) would not be legal tender within four hours of a dramatic speech by the Prime Minister…

Demonetization and its Discontents Arjun Jayadev

You know it is trouble when the metaphor that is said to get describe your policy is backwards from the very get-go.  The demonetization decree was hailed at the outset by a breathless and chest-thumping media to be a “surgical strike’’ against black money.  But a ‘surgical strike’ is at least in theory precise and targeted- in this case presumably aimed at the ‘black’ part of ‘black money’. What has transpired instead is more akin to a carpet bombing- the very opposite sort of campaign- a widespread and indiscriminate operation without concern for collateral damage. The demonetization decree outlawed ‘money’…

Demonetisation was Primarily a Political Act Jayati Ghosh

Two weeks into the surprise announcement of by Prime Minister Modi of the demonetisation of “high value” notes, it is becoming more evident by the day that the primary purpose was political rather than economic, and that this political purpose was specifically directed towards ensuring the fortunes of the ruling party vis-à-vis its rivals. Nothing else can explain the abrupt nature of the announcement or the subsequent manner of its implementation, which has been so apparently insensitive to the specific needs of so much of India’s working population. While a lot of the criticism of this scheme has focussed on…

Interview with TM Thomas Isaac on Demonetisation

In an interview to Scroll.in, economics professor turned Finance Minister of Kerala, TM Thomas Isaac said that the secrecy surrounding the demonetisation was a blow to cooperative federalism, where the state and centre work collectively, and the move would not have a serious impact on tax evaders. In his surprise address to the nation on November 8, Prime Minister Narendra Modi pegged the demonetisation of Rs 1,000 and Rs 500 notes as a game-changer in the Centre’s attempts to target the black money economy. However, in the days since 86% of India’s currency in circulation was invalidated, many Opposition-ruled states and…

Demonetization: Illusory Gains, Enduring Damages Arindam Banerjee

The demonetization of Old High-value Denominations (OHD) announced on the 8th of November, with effect from midnight is surely the ‘Great Event’ of the times. The 1000/500 notes constituted 86 percent of the 17.8 trillion cash economy in the country has been sucked out overnight. Earlier instances of currency demonetization in India in 1946 and 1978 had been of high denominations, which were not used for transaction by common people. Similar steps in other countries have always been driven by special circumstances, hyperinflation in Zimbabwe or abolition of colonial currency after independence as in Singapore or Fiji (Currency Demonetization has…

The Chimera of a ‘Cashless’ Economy Prabhat Patnaik

A secondary justification for the demonetization of 500 and 1000 rupee notes, apart from its presumed deterring effect on “black money”, is that it ushers in a move towards a “cashless” economy. This argument too, however, like the perception that “black money” is just held in the form of a hoard of currency notes, is staggering in its simple-mindedness. All money constitutes a liability of the banking system. (The only exception was the one-rupee note which was a liability of the Government of India, but its amount, always small, has now dwindled into insignificance). What we call “currency” is the…

Modi’s Demonetisation Move May Have Permanently Damaged India’s Informal Sector Pronab Sen

At the stroke of the midnight hour on November 9, 2016, India lost 86% of its monetary base. The media – print, electronic and social – has been fulsome in its praise of Prime Minister Narendra Modi’s “master stroke”, by which he has reportedly destroyed the base of corruption in India. “Surgical strike”, “shock and awe”, “big bang reform” are only a few of the laudatory phrases that were used to describe the pre-emptive demonetisation of Rs 500 and Rs 1000 notes. There is no doubt whatsoever that Modi has pulled off a major political and publicity coup and has…

Artificially Created Distress Utsa Patnaik

Without adequate preparation or thought, the monetary authorities and the government have taken a drastic step declaring as worthless over 86 per cent by value of the currency notes in circulation with the public. A prior large increase of lower denomination notes should have been ensured through banks and ATMs, so that overall money supply did not reduce and a normal level of activity could be maintained. This was not done, so effectively a very severe monetary contraction has been imposed, the purchasing power of the population has been suddenly taken away, reducing the level of economic activity and causing…