ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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India’s Marie Antoinette Moment

Narendra Modi’s promotion of a “cashless society” shows the government’s disconnect from ground realities, and harks back to Marie Antoinette’s famous “let them eat cake” response to learning that peasants had no bread to eat. Clearly, a cashless or less-cash economy will not be achievable in the near future, and may also not be desirable.

Economic Consequences of Demonetisation

The nature of money supply and its link with transactions in the economy are discussed, with necessary modifications on account of the presence of the unorganised sector and the black economy. This helps incorporate differentiation in the Indian economy that is useful to understand and analyse the impact of demonetisation.

Economic Rationale of ‘Demonetisation’

The government’s claims about the fruits of “demonetisation” of ₹500 and ₹1,000 notes are analysed. The five claims—fighting terrorism, “black money,” gaining fiscal space, reducing interest rates, formalising informal economy—are scrutinised from an economics perspective.

Demonetisation

The stated reasons for the 8 November announcement to demonetise ₹500 and ₹1,000 notes such as eradication of black money, counterfeit currency, and paving the way for a cashless society are examined. These issues are not addressed by demonetisation and do not justify the suffering this move has unleashed on the poor and the middle classes.

Demonetisation: 1978, the Present and the Aftermath

In the context of the demonetisation of ₹500 and ₹1,000 notes, the issuance of currency and its different denominations are traced over time, while also tracking key macroeconomic features of India's changing economy over the decades. Further, the possible immediate and longer term economic effects of demonetisation are discussed.

Curbing the Black Economy

The Bharatiya Janata Party-led government, which promised to tackle the generation of black incomes and to even bring black money back to India, has over the past two years made many announcements that have little bite, like double taxation agreements, among others. Without strong deterrence, curbing the black economy is difficult. That is why widening the direct tax base from 1% of the population, evident from the recently released tax data, has not been feasible.
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