India’s demonetisation exercise has garnered a lot of attention globally and while reactions domestically seem mixed, with many lauding the move and others bitterly criticising it, The Economist magazine has announced its verdict – demonetisation “was a bad idea, badly executed”.
In two commentary articles about Prime Minister Modi’s attempted attack on the black economy, the magazine has laid out why the move’s execution was flawed.
Banknotes are not just a way for the rich to store their wealth; they are also how the unbanked survive. As so often, the burden of this reform has fallen most heavily on the poor (see article). Over four-fifths of India’s workers are in the “informal” sector, paid in cash. Untold numbers have been laid off because their employers cannot pay them. Tens of millions have queued for hours at cash machines and bank branches, to get rid of the useless notes and get hold of some spending money. A new business has sprung up in laundering cash for a fee for those without the time or inclination to queue, or with more notes than they can account for.The Economist
While one of the articles focuses on the implementation and all that went wrong with it, the other looks at the possible consequences of such a move.
However clever the plan looked on paper, it is both extraordinarily blunt and risky. Demonetisation will probably make only limited strides in shrinking the black economy while affecting all of India’s 1.3bn citizens, the poorest most of all.The Economist
There are many messages doing the rounds on social media in India trying to tap into patriotism to encourage people to wait out the period of inconvenience for the greater good of the nation. The promises of the gains from demonetisation have caught the fancy of many who believe in the optimistic picture being painted by the Modi government.
If Mr Modi’s plea for patience for a 50-day period until the end of the year looks optimistic, so does the promise of “the India of your dreams”, purged of the corrupt and their loot.The Economist
The Economist is scathing in its criticism and says that while there is no turning back from the move now, the government needs to do all it can to limit the damage already being done across the country.
Both for the sake of Indians and for his premiership, Mr Modi needs to mitigate some of the harm he has caused. He should find ways of printing the new money more quickly. More important, he should also lengthen the period over which notes may be exchanged or deposited and allow the old notes to remain valid as payments for a range of goods and services (tax payments, say, would seem logical).The Economist
The Economist insists that the while the overall plan seemed smart and executable on paper, in actual practice, it is risky and could lead to a loss of trust in the government and currency, hyperinflation and a huge potential loss of economic activity.
With a bit of forethought, much of the mayhem could have been avoided.The Economist