India's Demonetization: Purging Black Money?
On November 8, 2016, the Indian prime minister announced that in an effort to counter corruption, black money, and counterfeiting, high-value currency notes of 500 and 1,000 denominations would be withdrawn from circulation. The currency to be removed in the demonetization exercise was worth 15.4 trillion, or 86.9 per cent of the total value of currency in circulation. The old currency would be replaced with new 500 and 2,000 notes, but the transition would limit cash liquidity for 50 days in the Indian economy, which was heavily dependent on cash to facilitate both consumption and production. How would this process affect India, which had been identified as the world's fastest-growing economy? Would demonetization have the desired effect of purging the economy of black money and moving India toward a cashless economy with increased growth? Or would it simply bring India's remarkable growth story to a grinding halt and discourage investments? Tulsi Jayakumar is affiliated with SP Jain Institute of Management & Research.