26 JUNE 2023


1.0: We take demonetization as the second example. We are taking several comments and quotes made by expert economists, journalists, and politicians on demonetization as examples. As our effort is to find what is right and what is wrong, and not who is right and who is wrong, we are not mentioning the names of individuals who made these comments.

2.0: On Tuesday, 8 November 2016, the Government of India announced the demonetization of all ₹500 and ₹1,000 banknotes of the Mahatma Gandhi Series. It also announced the issuance of new ₹500 and ₹2,000 banknotes in exchange for the demonetized banknotes.

2.1: The receiving system or the Supersystem SS1 for this measure is obviously the country and the people i.e., India, and Indians. Let us see what they got out of this, a plus or a minus, short- term or long- term as far as the end-result goes.

3.0: Aims and their achievement:

3.1: The government said that the main objective of the exercise was curbing black money, which included income which had not been reported and thus was untaxed; money gained through corruption, illegal goods sales and illegal activities such as human trafficking; and reducing counterfeit currency and terrorism. Other stated objectives included expanding the tax base and increasing the number of taxpayers; reducing the number of transactions carried out by cash; reducing the finances available to terrorists and radical groups such as the Pak sponsored J&K terrorists and Naxalite Maoists.

3.2: The aim behind the government’s action was, in short, to combat tax cheating, corruption, counterfeiting and countering terrorism.

4.0: Short term shortcomings:

4.1: “The announcement was on Tuesday. By Wednesday, the picture on the streets had begun changing somewhat: The demon started surfacing. India is a cash economy; almost everyone keeps a few Rs500 notes as a nest egg. Lines began forming in front of ATMs and banks which could exchange old notes for new. A mere exchange — a new Rs500 for an old Rs500 — was not enough; there was also a limit imposed on how much one could exchange or withdraw from their accounts. In some cases, there were altercations as people waited for hours. People also wanted smaller currency notes to serve their daily needs.”

4.2: Yes, no one can deny there was short term minus to SS1, the people all over India. No doubt about that.

5.0: Let us now take the objectives one by one and see to what extent it affected the people.

5.1: Reducing Counterfeit currency and terrorism:

5.2: Even in short term, demonetization had a profound impact on J&K: The stone-pelting that was practically on a daily basis, instigated by Pak. to show how Kashmiris were very unhappy being part of India by pumping Pak-printed counterfeit Indian currency to these terrorists, came to a standstill almost immediately. Pak took some 3 months to print the new counterfeit currency and pass it on to the paid terrorists within the valley and Kashmir was peaceful in those 3 months. This was a tremendous relief to the people of J&K.

5.3: But experts felt: “This intervention is a one-time draining of this current stock of counterfeit currency and black money but unless the root causes of corruption are removed, corruption will continue. It is sort of like a dialysis, more of a short- term cleaning up than a solution of the problem. It needs to be repeated periodically.”

5.4: It is now 7 years now and we have not repeated this even once, and yet kept the black money and counterfeit currency under check.

5.5: Another expert felt: “It is remarkable that PM Modi has taken this bold step. Clearly, there will be howls of protest from some. A simple analysis can be done by asking ‘cui bono,’ which is Latin for ‘who benefits’ from the status quo. Just who has the stacks of Rs500 and Rs1,000 bills and cannot account for them? Those parties will not be happy with this step. But for the ordinary Indian, while there may be some discomfort during the transition, this will be fine in the term.”

5.6: This expert opinion has been proved right in these 7 years. It is important to note that the political parties that are opposing the demonetization even now, after 7 years, were the ones severely affected by demonetization. Even after resorting to converting as much as possible by all kinds of means, they lost quite a lot of money. Even individuals who could not convert are still calling demonetization bad.

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