When the Prime Minister Narendra Damodardas Modi made an announcement at 8.15 pm on 8th of November, 2016 about demonetisation of the high denomination notes, viz., the Rs 500 and Rs. 1000 currency notes, people had a very mixed response. People initially supported the move thinking that this would help the economy to become clean: the black money would be wiped out, terrorism would be controlled and fake notes would be removed from the economy. But the trouble people had to undertake, reported deaths in the media and the resultant outcome of demonetisation: all had led to diminishing support from the masses. As the basic objectives of demonetisation were found not to be convincing, the Government came out with a grand narrative which included objectives like removing corruption, digitalisation of the economy, formalisation of the economy, increased tax returns, increased tax revenue earning etc.
This paper is an attempt to analyse demonetisation as a process, with particular emphasis on the demonetisation undertaken in November, 2016. The paper starts with basic meaning of demonetisation, why it is undertaken, whether other countries across the world have succeeded or failed with demonetisation, India’s experience with demonetisation, how was demonetisation planned in 2016 and an overall assessment, including the grand narrative that has come up over time.
Table of Contents
1.0 Introduction
2.0 Why is Demonetisation Undertaken?
3.0 Historical Underpinnings
3.1 Successful Cases
3.2 Unsuccessful Cases
4.0 Demonetisation in India
4.1 The Demonetisation of 1946
4.2 The Demonetisation of 1978
4.3 Demonetisation 2016
4.4 Implementation Strategies followed in 2016
5.0 Titbits of Demonetisation 2016
5.1 RBI’s Views on the Drive to Demonetisation: The Observations made in the 561st Meeting Minutes of the RBI Board of Directors
5.2 Evaluation of the Basic Objectives of Demonetisation
6.0 The Grand Narrative: Reading the Political Economy of Demonetisation
6.1 Narratives vs Counter-Narratives of Demonetisation
6.2 Is Demonetisation a Total Failure? A Critical Assessment on Select Macro Fronts
7.0 Instead of a Conclusion
Objectives and Topics of the Study
This paper aims to analyze the 2016 demonetization in India as a complex economic process. It investigates the initial government objectives versus the actual outcomes, exploring the subsequent shift in political rhetoric known as the "grand narrative," while evaluating the policy's impact on key macroeconomic indicators and social stability.
- The historical context of demonetization in India and other countries.
- Implementation strategies and immediate economic repercussions of the 2016 policy.
- A critical comparison between government claims and empirical counter-narratives regarding black money, digitalization, and corruption.
- Assessment of the macroeconomic consequences, including effects on GDP, agriculture, and employment.
- The role of political motivations in shaping the policy narrative.
Excerpt from the Book
6.1 Narratives vs Counter-Narratives of Demonetisation
Let us review some of the narrative (claims made by the Government) and counter-narrative (counter argument against the claims of the Government) of demonetisation.
(a) Demonetisation helped in digitalisation of the economy: On the second anniversary of demonetisation, Finance Minister highlighted the following statistics:
- Visa and Mastercard are losing market share in India to indigenous developed payment systems of UPI and RUPAY Card “whose share have reached 65 per cent of the payments done through debit and credit cards”.
- The Unified Payment Interface (UPI), which was launched in 2016 have grown from Rs 50 crore in October 2016 to Rs 59,800 crore in September 2018.
- The value of transactions of the Bharat Interface for Money (BHIM) app has gone up from Rs 2 crore in September 2016 to Rs 7,060 crore in September 2018. The share of BHIM transactions in overall UPI transactions was about 48 per cent in June 2017 and is currently being used by 1.25 crore people.
RuPay card transactions through Point of Sale (PoS) have increased from Rs 800 crore before demonetisation to Rs 5,730 crore in September 2018. For e-commerce purchases, it has gone up from Rs 300 crore to Rs 2,700 crore.
The Counter-narrative: In India, digitalisation has been a gradual process, which has started since the early 2000s. It is true that demonetization did accelerate the process (which subsequently slowed but has since remained at a higher level of adoption). However, the use of demonetisation to achieve digitalisation is not beyond criticism (Reddy, C. R., November 6, 2018)
Summary of Chapters
1.0 Introduction: Defines demonetization as the removal of a currency's legal tender status and its typical role in national currency changes.
2.0 Why is Demonetisation Undertaken?: Outlines the primary rationales for demonetization, including replacing old currency, curbing corruption, and fighting black money.
3.0 Historical Underpinnings: Provides an overview of past global cases of demonetization, distinguishing between successful implementations and notable failures.
4.0 Demonetisation in India: Details the history of Indian demonetization efforts, focusing on the 1946, 1978, and the major 2016 policy implementation.
5.0 Titbits of Demonetisation 2016: Discusses the immediate effects and the RBI's internal concerns regarding the 2016 policy, alongside an evaluation of its stated objectives.
6.0 The Grand Narrative: Reading the Political Economy of Demonetisation: Examines the government's shift in justification after the failure of initial goals and contrasts these narratives with critical counter-arguments.
7.0 Instead of a Conclusion: Synthesizes the findings, suggesting that the primary impact of the 2016 demonetization was more political than economic.
Keywords
Demonetisation, Black money, Digitalisation, Formal economy, Grand narrative, RBI, GDP, Tax evasion, Currency ban, Political economy, Corruption, Counter-narrative, India, Economic impact, Cashless economy
Frequently Asked Questions
What is the primary subject of this publication?
The work provides a critical analysis of the 2016 Indian demonetization policy, evaluating its stated objectives against actual economic outcomes and the political discourse surrounding the move.
What are the central themes discussed in this document?
The central themes include the historical precedents of demonetization, the implementation challenges of the 2016 policy, the shift toward a "grand narrative" by the government, and the resulting socioeconomic impacts.
What is the core research goal of the paper?
The primary goal is to assess whether the 2016 demonetization achieved its stated objectives of curbing black money, fake currency, and terrorist financing, and to determine the policy's actual utility.
Which scientific approach does the author use?
The author employs a comparative and qualitative analytical approach, reviewing existing policy data, RBI meeting minutes, historical case studies, and critical economic commentary.
What does the main body of the paper cover?
It covers the historical background, the specific implementation of the 2016 note ban, the RBI's internal skepticism, and a detailed debate on the government's shifting justifications compared to macroeconomic realities.
Which keywords define the work?
Key terms include Demonetisation, Black money, Digitalisation, Grand narrative, and Political economy.
How does the author evaluate the "Grand Narrative" shift?
The author argues that when the initial goal of destroying black money failed to show results, the government pivoted to new goals like digitalization and formalization to maintain the policy's perceived legitimacy.
What conclusion does the author reach regarding the policy's success?
The author concludes that the 2016 demonetization was largely ineffective in its stated economic objectives and that its most significant impact was political, aimed at strengthening the ruling party's base.
How did the RBI view the demonetization drive?
Minutes from the 561st meeting indicate that while the RBI board approved the scheme, it explicitly raised concerns about the short-term negative effect on GDP and doubted that the ban would effectively tackle black money.
- Quote paper
- Bhaskar Sarmah (Author), 2018, Demonetisation 2016. A Narrative of Political Economy and Beyond, Munich, GRIN Verlag, https://www.grin.com/document/492151
