Demonetization and the Black Economy
On 8 November 2016, the prime minister announced the immediate cancellation of all
Rs 500 and Rs 1000 denomination notes, 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. Overnight, people in India realized that the cash in their pockets had no value. A window of fifty days was granted to 1.3 billion people to convert their old notes into new ones.
Businesses, especially in the unorganized sectors, came to a grinding halt. Patients in hospitals faced huge problems, farmers had difficulty buying inputs, weddings were scaled down, and fishermen watched their catch rot. Many lost their jobs and could not support their families.
A year later, the RBI announced that 99 per cent of the old currency notes had been deposited with
it. India continues to grapple with the effects of this move. The black economy has not been
dented; counterfeiting and terrorism continue; the credibility of the RBI, banks and currency is
damaged; the accountability of the Parliament and the prime minister has been eroded; and the social divide
has widened. There have been many arguments and counter-arguments from both sides, but they have
missed the complete picture.
Demonetization and the Black Economy, for the first time, lucidly explains the story
of demonetization along with its effects on the economy.
Arun Kumar is the country's leading authority on black economy and has written, studied and lectured extensively on the subject for nearly four decades. He studied at Delhi University, Jawaharlal Nehru University (JNU) and Princeton University, USA, and taught economics at JNU for three decades till 2015.
His areas of interest include public finance, development economics, public policy and macroeconomics. Kumar has written widely on these subjects, both in the popular press and for academic journals. At present, he is the Malcolm S. Adiseshiah Chair Professor at the Institute of Social Sciences, New Delhi.