The case of demonetisation in India

Context: Five years on, the trajectory of the demonetisation policy demonstrates that popular narratives can trump economic facts.

Issues associated with demonetisation

• Faulty narratives: Like association of black money with physical cash. 
• Economic shock: Caused widespread disruption in the economy, whose costs are still to be properly reckoned.
• Unable to meet its declared objectives: Like eliminating black money, corruption, moving towards a “less cash and more digital economy”, or increased tax compliance.
  • More than 99.3% of the cancelled notes returned to banks.
  • Cash-in-circulation has now exceeded pre-demonetisation levels.
• Money laundering: If black money had existed as stockpiles of illegal cash, clearly all of it was very efficiently laundered.
• Continuous change of narrative: When it became clear that the cancelled currency was being returned to the banks in larger numbers than expected, the narrative changed focus from black money and fake currency to digital/cashless payments.
• Disproportionate suffering to poor: People have to stand in long queues and faced loss of income and savings in the name of collective sacrifice.
  • People were reminded of the sacrifices of the soldiers guarding the nation’s borders and not to think of their own suffering.
• Ambiguity in criticising the decision: Most tended to distinguish the intention from the reality. 
• Main theme of criticism: That the policy was good but perhaps not implemented well. 
• Accountability issue – Very little political cost: Since, popular narratives of hurting rich trumped economic facts. A failed policy that carries no cost is likely to generate more such policies.