Demonetization 2016 and Black Economy

Abstract

On 8 November 2016, India demonetized high denomination currency, wiping out 86 per cent of the currency in circulation. India’s well-functioning economy went into a tailspin.

This move, it was claimed, was made to wipe out corruption, deter the generation of black money, weed out fake Indian currency notes and curb terrorism. Did it achieve any of this? RBI has admitted that 99 per cent of the old currency notes are back. To understand these issues we need to know more about the black economy.

Businesses, especially in the unorganized sectors, came to a grinding halt. Farmers had difficulty buying inputs and many lost their jobs. India continues to grapple with the effects of this move. Credibility of RBI, banks and money is damaged, accountability of institutions has been eroded; and the social divide has widened. There have been many arguments and counter-arguments, but the complete picture needs to be understood.