So Indian currency ban led by Modi was a costly but pointless exercise?

Reading Time:1 minute

Snaking queues at a bank in New Delhi, India, as people rush to exchange discontinued currency notes, on November 16, 2016. On November 8, Prime Minister Narendra Modi had abruptly announced in a nighttime TV address that all 500- and 1,000-rupee notes were to be immediately withdrawn from circulation, to fight corruption and target tax evaders. Photo: AP

Published: 6:00am, 5 Sep 2018Updated: 6:00am, 5 Sep 2018

The Reserve Bank of India has stated that 99.3 per cent of the demonetised 500- and 1,000-rupee notes were returned to banks and exchanged for new currency notes (“Indian currency decree does little to stop ‘black money’”, August 30).

Demonetisation was initiated by the government in November 2016, on the grounds that the amount of unaccounted wealth – an estimated 25 to 30 per cent of the currency in the country – would be uncovered. Prime Minister Narendra Modi said the money looted by many people over the 70 years since India’s independence would be exposed as a result of this demonetisation. However, the basic objective would seem to have been defeated, since almost the entire currency in circulation in the country was returned to the banks.

‘Reverse Bank of India’: How notes ban turned a revered institution into a joke

It would appear there was no “black money”, that is, unaccounted wealth, in the country – or it had been exchanged for the new currency through some machinations. And the Reserve Bank said the cost of currency printing doubled in the 2017 financial year on account of the new notes.

Ordinary people endured immense hardship for almost four months, standing in serpentine queues waiting to get legal tender for their own money. Farmers and small-scale businessmen were the worst sufferers, since many of their businesses ground to a halt. About 100 people died, according to media reports, some while waiting to exchange their savings for the new notes.

Fans wear masks of Indian Prime Minister Narendra Modi as they hold up new currency notes to support the ban on old ones, in Jammu in November 2016. Photo: EPA

Black money booming a year after Modi’s cash crackdown

The demonetisation two years ago, therefore, was not necessary, the policy was not clearly thought out and the citizens’ woes were not addressed. Governments should be more circumspect about introducing such policies, which inconvenience citizens and can cripple the economy.