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The RBI was kept in the shadows, which in turn has undermined its position as the country’s foremost monetary institution.ĭemonetisation essentially was a tool to manipulate public opinion by the government. The government did not rely on the usual practices of providing more scientific data to garner enough support from the public to achieve a predefined policy goal of implementing a policy like demonetisation. There was no immediate economic necessity for demonetising 86 per cent of legal currency in the country. It was imposed on the people of India during normal economic and political conditions. In India, demonetisation caused a commotion at a time when there was macroeconomic stability in the country. Rammanohar Reddy and Raghuram Rajan have observed this trend and the previous attempts at demonetisation undertaken in other countries, such as North Korea, Myanmar and Nigeria revealed that after the initial period of demonetisation, the previous situation tends to repeat itself. Many leading economists including Arun Kumar, C. There is not much evidence however on the relationship between demonetisation and the subsequent reduction in black money. However, as the RBI report showed almost all of the demonetised currency has come back into the system, raising the question of whether there was any economic rationale at all behind such a disruptive monetary decision.ĭemonetisation, as a measure to restrain black money, has been in existence for a long time in the world of economic policy. This would in effect show that some part of the ‘black money’ in the India economy, which was not accounted for, would be eliminated from the system.
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This policy was taken with the motive that a substantial amount of the demonetised currency would not come back into the banking system. At the time of the decision, the total value of these high-value currency notes in circulation was Rupees 15.45 lakh crores. These numbers represent around 99.3 per cent of the total currency notes that were in circulation when Narendra Modi announced the demonetisation of 500- and 1,000- rupee notes. The report states that currency notes amounting to Rupees 15.31 lakh crores have returned to the banking system. The currency notes that were demonetised on November 8, 2016, have finally been counted and accounted for by the Reserve Bank of India (RBI), according to its annual report for the year 2017-18. We are two years on, but the fallout from Narendra Modi’s announcement that his government would be perusing a policy of Demonetisation feels like yesterday: the decline in wages, the queues outside banks, the hit to farmers and the agricultural industry, the spike in job losses for those working in unorganised retail, the 1.5 million jobs lost and the 150 million people left without pay for weeks across India. Twenty-four months on, Bhaskar Pant asks if that decision was motivated by politics rather than economics. Two years ago today, India’s prime minister Narendra Modi, took the radical step to take all 500- and 1,000-rupee notes out of circulation in a bid to tackle ‘black money’ in the Indian economy.