Here are three lessons from demonetization Indian policymakers must internalize
Mint · Mint Editorial Board ·
A decade after this ill-advised move, few even within the government list demonetization as an achievement. The episode holds several lessons for Indian policymakers which they'd be wise to heed.
On 8 November 2016, the Indian government announced the scrapping of ₹500 and ₹1,000 notes, which then accounted for 86% of the currency in circulation. The main goal was to curb the menace of ‘black money’ hoarded by tax evaders and crooks. The secondary objectives were to promote digital payments and ‘formalize’ the economy.
While millions of honest citizens had to queue up outside banks and ATMs to withdraw limited amounts of their hard-earned money, the wealthy found a way to deposit all their ill-gotten wealth through mules. An under-prepared banking system failed to deliver adequate amounts of new notes, leading to an unprecedented cash crunch.
In the initial months, the move was popular among a large section of voters. Even if they suffered hardships, they felt that fat cats had been hurt more. Once people realized that most of the demonetized cash had returned to the banking system, even the government’s ardent supporters stopped defending the move. Today, very few government officials list demonetization among the achievements of the ruling regime.