Prime Minister Narendra Modi’s “grand gesture” of demonetisation has proved to be one of the most “disruptive experiments” in recent economic history and it brought India’s cash-dependent economy to a “standstill”, according to a report published in a top US magazine today. The report in the latest issue of ‘Foreign Affairs’ magazine said demonetisation made “little sense” economically even as it proved enduringly popular.
“This (demonetisation) has proved to be one of the most disruptive experiments in recent economic history, and one from which Modi’s administration now risks learning all the wrong lessons,” wrote author James Crabtree. A senior visiting research fellow at the Lee Kuan Yew School of Public Policy NUS in Singapore, Crabtree who is currently on sabbatical from his previous position at the ‘Financial Times’, has been highly critical of demonetisation policy.
“So far Modi’s economic achievements are real, but his record on delivering growth-enhancing reforms, especially those that risk upsetting the public, is mixed,” Crabtree wrote. “Although his grand gesture of demonetisation made little sense economically, it has proved enduringly popular, and it appears to have made only a minor dent in the GDP. As he approaches 2019, it is not hard to see the lesson that he might learn,” he wrote.
“The fact that demonetisation has been bad for short-term growth is no longer in doubt. Last week, India released GDP figures for the first quarter of 2017, the period when Modi’s demonetisation had its largest impact,” he wrote. According to the report, hundreds of millions of Indians were forced to line up at cash machines and bank counters to replace their old 500-rupee and 1000-rupee notes which made up about nine-tenths of the value of all currency in circulation.
“The crunch hit the poor particularly hard, and brought swaths of commercial activity in India’s cash-dependent economy— and especially in its large semi-legal gray market— to a standstill,” Crabtree said. Modi announced the biggest-ever demonetisation exercise India has ever seen on November 8.