Demonetization: Impact on Political Economy

As Nobel Laureate Amartya Sen says, “Good policies sometimes cause pain, but whatever causes pain – no matter how intense – is not necessarily good policy.” With varied views among individuals regarding Demonetization – an amalgamation of promises and paradoxes, this article tries to bring out a ‘Politically Correct’ vision of public thoughts and aspirations before you.

To define the term, Demonetization is a policy enacted by the Government of India on 8 November 2016, ceasing the usage of all ₹500 and ₹1,000 banknotes of the Mahatma Gandhi series as legal tender in India after 9 November 2016. The government claimed that the demonetization was an effort to stop counterfeiting of the current banknotes allegedly used for funding terrorism as well as a crackdown on Black money in the country. The move was also described as an effort to reduce corruption, the use of drugs, and smuggling.

With the quantum increase in financial savings, the cost of debt capital in India should fall. This means, the interest rate a company is paying on all of its debt, such as loan and bonds is to decrease. Further, as the amount of savings increase, lending rates, that is, the amount that a bank charges on money that it lends, are likely to fall in the line. Through the demonetization exercise, the government has been pressing hard to become a cashless economy and is encouraging more and more people to adopt the digital payments system for their transactions. The government wants people with smartphones to use the United Payments Interface (UPI) app for a cashless transaction. Besides banks, online wallet companies including Paytm, MobiKwik and Free-Charge, too, are promoting their online products and wooing customers to get away from cash-based transactions.

However, questions arise regarding if Demonetization will really lead to an end in corruption. The major problem is the incapacity of the state to handle the banks. Not enough money is available at the banks and the shortage of cash has worsened the problems. This lead to a detrimental effect on all the sectors of the economy. Several deaths were linked to the inconveniences caused due to the rush to exchange cash. Yes, it is true that some steps were taken to see that people in hospitals do not face problems. However, given the huge population in the country, the conditions of the hospitals are not unknown to us. Despite the steps taken, people continue to face problems and there are cases of many health centers denying treatment without cash to the patients. A pertinent question that arises is, from when did corruption become more important than lives of individuals? Especially when the government comes to power with the votes of the individuals and in order to protect the interests of the individuals. It is definitely not about taking a pro-government or an anti-government stand. It is about seeing things as they are.

As Professor Prabhat Patnaik argues, the assumption that black money actually consists of cash-hoards makes little sense. A person possessing a huge sum of money say 20 crores, will certainly not come with the entire money to change it into the new legal tender but would rather send several factotums to the bank, and would do so over a number of days prior to the December 30 deadline. Thus, with such “black operators” exchanging black money from the old legal tender to the new, the ideas of unearthing illegal cash-hoards makes little sense. As he says, all money circulates with occasional pauses when it is held, whether it is employed in black activities or white activities. The essence of unearthing black money lies therefore in tracking down black activities , not in attacking money holdings per se. A sizeable portion of “black activities” however, is operated through banks located abroad. Thus, if foreign banks constitute the predominant source of funding “black activities”, then the act of demonetization will do little to eliminate such activities.

Demonetization therefore is unlikely to have a major dent on the black income generation but will be able to unearth black incomes held in cash which may be actually a fraction of total black incomes earned in the past. A significant part of black incomes generated in the past have already been invested in land, gold or other form of assets. Thus, the government gives the impression of fighting corruption while the black income generation continues as the propertied class remains largely immune to demonetization.

In 1978, the Morarji Desai government had demonetized 1000, 5000 and 10000 rupee notes .However, it caused no hardships as such since people had scarcely even seen such a note. It is true that this time, black money is kept at homes and to an extent, corrupted individuals are being caught. But then there is still a question of Rule of Law. Being a student of Political Science, I have been studying all my life that a law is applicable to all the individuals equally. However, case studies reflect that, while some are being let off, some others are being arrested. Also, the hardships created this time are for everyone to see.

In a cash-dependent economy like India, all of a sudden around 86% of the cash supply has been rendered useless. This has effectively imposed a tight constraint on real economic activity. This constraint will initially be felt most acutely in the cash-intensive sectors such as agriculture, construction, gems and jewellery, textile, trade, transportation and real estate as well as in the activities in the vast informal sector of the country. Beyond the initial impact, the shock from demonetization is likely to set off a domino effect that is a chain reaction with one event setting off a chain of similar events that will impinge on activities far removed from the cash-intensive sectors. This impact may result in a protracted economic slowdown going beyond the current financial year. We, however, argue that reviving the real economy and getting it back on a high growth track could be a much more difficult and time-consuming process.

Since November 8, the government has changed rules related to the currency ban over 20 times and the RBI has released more than 15 sets of frequently asked questions to clarify this change in rules. These actions create an environment of unpredictability and in such an environment, firms and households hold back their investment and consumption plans. This further puts a brake on real economic activity and it is likely that even after the currency notes are back in circulation, the brakes stay on or are only gradually lifted. During this time, the singular objective of the government should have been to adopt structural reforms to stimulate GDP and achieve a high and sustainable growth rate. Generating jobs to absorb the demographic dividend while it lasts should have been another policy priority. Instead of prioritizing these objectives, the government announced a measure that has in fact dealt a severe negative blow to the overall economy.

The associated policy uncertainty is contributing to macroeconomic instability. Arguably, this is the last thing that was needed now given the pervasive weakness in the credit and investment climate. Policymaking over the next couple of quarters is likely to get hijacked by this single event in order to ameliorate a potential economic damage. All this is very costly both in terms of the time spent and the resources used up in first delivering the shock and then in restoring normalcy.

Thus, to conclude, we are not sure if Demonetization is a political gimmick or a transformational change that has been brought to the economy. The question is for you to answer.

The author, Riddhi Sanyal, is a student of Political Science and International Relations at Jadavpur University, Kolkata.



The movie Black Hawk Down was not the first of its kind to portray the failure of UN (read USA) in enforcing peace in a war torn country. The surprising element of this event in particular though, was not just that the US army along with Pakistani and Malaysian help, failed on its mission in a country with meager resources, but that the Somalia militiamen were supported by the civilians in this venture. So, when the US army came with blazing guns, like heroes in an attempt to establish democracy in the war torn Somalia, they were shocked to see women and children not only being used as shields, but they themselves wielded guns and fought with the militia to drive the army away from Somalia. What could be the possible reason for the Somali people to spit in the face of UN’s help? Was it that the Somali people saw the ulterior motives of USA hidden under the surface of these peacekeeping missions?

Extending Help or Expanding Territory?

Citing the Vietnamese example this time, when the French withdrew from the country, US sent its troops to take control of the unstable political situation of the country through rather forceful means. The reason for such intervention was stated as an attempt to curb the threat of growing communism.  The US, at this mission too, failed miserably. Since then, it has, under the façade of countering terrorism and extirpating a totalitarian regime in many of such politically unstable countries, tried to interfere in its day to day politics and functioning. The allegations against USA have been grave. In some countries such interference has been in a bid to curb communism, in some it has been in an effort to take into their hands the resources if these countries, especially Africa. Somalia, Zaire, Chad, etc. are countries which though not rich in human resource and the capital to develop it, but are rich in uranium, cobalt, manganese, etc. In the Middle East too, its interest lies in the oil rich countries. For Colombia, it was for drug trade. USA has been trying and vying for the same things the colonist countries: territory for resources and maintaining a capitalist economy for the benefit of its market. USA has tried to extract its due and laid waste to the land which it once claimed to help.


Vested Interests to Wasted Lands

The “Midas” touch of USA has led to the systematic destruction of many countries. Colombia, which took help from USA to train its military for fighting the FARC, a military organization no less than terrorists, has recorded the world’s longest civil war. The irony of this whole situation was that the whole situation got worst in the first place because of drug trade between USA and Colombia. The war hasn’t still ended, despite the referendum and negotiation efforts by the country’s President, the same person who was also awarded the Nobel Peace Prize in 2016. Same results have been seen in the Middle East. Yemen has become one of the worst sufferers of all since the past couple of years because of Saudi border infiltration and it is no mystery who has been aiding these attacks. War torn Syria suffered a brutal attack on its most populous Governorate, Aleppo. ISIS has transgressed all limits of destruction and atrocities inflicted on the mankind. Allegedly, weapon supply to the ISIS also comes from USA itself. The result of all this “help” is catastrophic. USA has always been the strongest advocate of human rights in the UN prima facie and now, because of media, the world knows of its hypocrisy. CNN and Amnesty reports have confirmed the possession of American made weapons by the ISIS.

Resistance to American Aid

The countries that have resisted USA’s military transgression at least have the chance to prosper. The Vietnam War lasted for twenty years, but this small country in the far-east, showed the world that size doesn’t matter, nor do your non-capitalist inclinations and that too without the help of socialist Russia. The Somali tragedy has been a failure of UN and its members all together. But the failed manhunt of its antagonist, Mohammad Aidid and the death of many US soldiers made it more of an American failure than a collective responsibility. The American citizens also started losing faith in the decision making capacity of its leaders after the failure of UNOSOM I and II. The Cuban example stands greatest of all. Under the leadership of Fidel Castro, not only did Cuba escape from the military interference of America, but with the help of Russia, intimidated the USA to the threat of another war of its own kind. These countries, despite their size and military incapacity, showed that America had no right in intruding with the internal politics of a country. Had establishing peace and democracy been with the true intentions of USA, it would have been with due consent of the parties involved and the UN itself.

The threat to mankind has become greater due to the possession of nuclear warheads by many countries. USA preaches about peace in times of war but acts otherwise. Presidents have come and gone, but its military tendencies have long remained the same. Peace cannot be maintained in such an unlawful way. Or has this become the American way?  And if so, then you know what they say about Karma.

God Save America.

The author, Shivani Karnik, is a student of law at HNLU, Raipur.

Coldplay in India: A Head Full of Controversies

Look at your fingers. You know exactly what I meant by the word “fingers” even though I did not personally go to you and gesticulate at the area near your palm. This is because you and I have mutually agreed upon a certain code which we shall follow to communicate with each other. This code is called language, but you see- it is nothing but a consensus on using symbols.

Now let me tell you about another symbol. Think about a white rectangular piece of cloth. You can use it to wipe sweat off your face, dry utensils or to save your hands from the heat of the container while taking a dish out of your oven. What if I took this piece of cloth, painted green and saffron borders through two respective lengths and drew a blue wheel with twenty-four spokes in the white area? This will never let you do anything but revere that same piece of cloth. That’s how immense the load of the symbols I have imparted to the piece of cloth is.

It’s the same with religion, isn’t it? You regard an object as sacred- so much so that it eventually becomes a totem. You treat it with respect; admonish yourself even at the thought of bringing it down to the profane sphere of existence. Think of a rosary to a Christian, or the Holy Quran to a Muslim. If nationalism was a religion, the national flag would likewise be its most revered totem. I cannot remember a time when I did not know that this flag is sacred. Similarly, I do not remember why it is so.

This brings us to some relevant questions: Is the nation then a religious group? If so, who are its prophets- our political leaders? These questions demand logical answers, but let us keep them for another day because right now we are at a political juncture that claims the solution to a more pertinent dilemma. Who gets to decide which gesture to our flag is disrespectful? We have assigned meanings to symbols and none but we can change them. I do not know how tucking the flag to one’s rear pocket, as Chris Martin did last night at the first ever Coldplay concert in India, is disrespectful, but I’d like to know if by the same rule, draping six yards painted with the tricolor around one’s entire body is not equally disrespectful.

#Coldplay singer #ChrisMartin insults Indian Flag in presence of #BJP &#ShivSena leaders. Hurts sentiments of 120 Cr Indians. @PTI_News

Nawab Malik, Spokesperson, National Congress Party over Twitter

A still from Hymn for the Weekend

This is not the first time that Coldplay has been accused of slighting the heritage of India. When Hymn for the Weekend was released in January this year, the band was charged with cultural appropriation, implying that it has narrowed India down to yogis, poor children and the colours of Holi among others. A careful look at previous works of Coldplay will suggest how they have always cast their songs in a different setting which goes well with the theme. Their settings have always transcended reality, be it in the elephant reuniting with its band in Paradise or Chris returning to the idyllic past in The Scientist or the chimpanzees partying in the middle of a forest in Adventure of a Lifetime. So is it with Hymn for the Weekend which is a fusion of alternative rock, pop and R&B about having an angelic person in one’s life. It is not a Britpop centred around Holi. It merely seeks to recreate an ambience of psychedelia reminiscent of the hippie culture of the 60’s. This necessitates yogis and a colourful screen. There could be no place better than India to find this setting. That’s all. As a student of sociology, I do not find anything objectionable in the video, barring the cameo by Sonam Kapoor, but that’s my personal bias. Like come on, stop overthinking about issues that do not need attention and spare some of it over the ones that need it.

Ten months ago, Coldplay was blamed of cultural appropriation by the very Indians who went gaga when Chris Martin hummed a popular Bollywood number Channa Mereya at the Global Citizen Festival India last night (because hey, Europeans trying Hindi is so cute OMG but Pranab Mukherjee speaking English in a Bengali accent is hilarious). The Indians who are now blaming Martin of “disrespecting” the flag are not supposed to be amused at homogeneizing a culture, if one is to go by the recent political happenings here. It is almost the rule of the day here to marginalize every identity other than that of the majoritarian Hindu. Why else would a Muslim Najeeb meet such apathy from the bureaucracy? Hence, it sounds hilarious when Indians accuse foreigners of insulting their culture.

The double standards of the Indian audience has been exposed too much through how Coldplay has met with controversies in almost every recent association with the country. It took us many years to give back something to the West after globalization- we are successfully leading the world on the path of anti-globalization and I know not where the journey that has begun with shaking hands with a right-wing bigot will end. The ripples India is sending across the globe reek of jingoism; what scares me is that these ripples are not far from becoming formidable waves.

The writer, Meghna Roy, is studying honors in Sociology at St. Xavier’s College, Kolkata.

Note: This article has been published in the personal blog of Meghna Roy before. The link to her blog is