What Were They Thinking?

Nearly a fortnight has passed since Prime Minister Narendra Modi, backed by the monetary authorities, declared 86% of the currency in circulation by value as “worthless pieces of paper.” The consequences of this thoughtless, unprepared, “headline grabbing” action have been unleashed on the economy and a majority of its people. India—a cash economy—with one of the highest cash to gross domestic product ratios in the world (of over 10%), and a large informal sector which depends overwhelmingly on cash transactions has been rendered financially immobile by constraining the money supply and making redundant the purchasing power of millions overnight. This has reduced economic activity, limited consumption and continues to add to the distress of the people. The move has brought to the fore and accentuated the myriad disparities that represent India, and has stressed the magnitude of inequality of access more sharply than ever. For, one thing is certain; the move to demonetise has hurt the most vulnerable, and those on the margins much more than those with access to the formal, banked, and digitised society.

The rationale of such a move remains unclear. A 2015 study by the Indian Statistical Institute, Kolkata on behalf of the National Investigation Agency had estimated ₹400 crore worth of fake currency—roughly 0.027% of the ₹14.73 lakh crore worth of the currency demonetised—is in circulation in the ­Indian economy. This move, at best, is a one-time step to remove fake currency in circulation, something the National Crime ­Records Bureau reports show has been carried out systemically every year, and there is hardly any reason to believe that the problem will not resurface in the near future.