Analysing India’s Demonetisation Strategy of 2016

In November 2016, newly elected Indian Prime Minister, Narendra Modi made a surprise announcement to the public during a national address. He gave an official one month notice for the abolishment of the 500 and 1000 rupee bills, which were India’s highest currency bills. The reasoning behind this demonetisation strategy was to flush out all the black money in the nation and starting a new age of digitalisation in India. Surely the motive behind this move was very thoughtful as both these changes were necessary for a growing economy like India’s.

However, such a change would ideally require years of preparation if not months. Modi believed that giving the citizens such a short time period was the only way he could bring out the black money from the economy. What he did not take into account was the large population of the country and the harsh consequences of this strategy that would affect millions of people, especially the lower class of the economy such as farmers and labor. These were people who had never had access to banks and lived in rural parts of the country, far away from government institutions. Years of their savings were saved in the form of currency bills which were suddenly declared as demonetised. The next month saw huge lines outside banks and ATMS. People lined up for days in front of ration shops and banks and this led to these institutions running out of new currency several times. The two bills comprised 86% of the Indian currency and to replace such a huge amount of money in the form of bills would require months of printing.

Clearly, the government had not taken the appropriate measures necessary to carry out such a massive economical change. The replacement currency bills were new 500 and 2000 rupee bills. The 2000 rupee bill was double the size of the biggest currency bill India had ever had and those possessing 2000 rupee bills found it very hard to use them as they were unable to get adequate change in return for a purchase. Demonetisation had a lot of adverse effects. Hundreds of farmers committed suicide in the next few months and many other small and local businesses were unable to function and had to shut down. On the bright side, thousands of bank accounts were opened in that short amount of time and online payment systems such as PayTM and Google Pay flourished. More than two years later it is still hard to tell whether demonetisation was the right measure, but it was definitely not the best one.

Dissecting Demonetisation, the ‘Great Crusade’. (n.d.). Retrieved from

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