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Debunking the Demonetization Debacle, 3 Months Later…

On the 8th of November 2016, Indian PM Narendra Modi along with the Reserve Bank of India revealed something shocking. It was the plan to scrap off 500 and 1000 rupee notes with immediate effect since that midnight. While the majority rose to share their support for this ‘bold move’, a minority did not see any point in it. Most of the people who belonged to this minority were many noted economists, including Raghuram Rajan, Manmohan Singh and Steve Forbes.

But it was too early then to decide if Modi’s plan would actually work. More than three months later, the majority now believes that the demonetization debacle was indeed a terrible decision. It did not really eliminate black money or startled the elite population. Instead, it just hit the common man hard.

The Early Effects of the Demonetization Debacle

Most people spent a sleepless night on the day of this announcement. Banks and ATMs were filled with people and queues extended to many kilometers. This continued for more than a month. Hospitals refused to accept demonetized currency, thereby leading to loss of lives. 25 people were dead reportedly a week after the announcement. Most of the deaths were due to lack of medical help, physical and mental stress to get rid of the demonetized cash.

demonetization debacle - no cash in ATMs

The stock market was severely affected and transportation came to a halt. People were not able to purchase grocery and even their daily needs were much affected. Small businesses took the biggest hit.

Long-term Effects of the Demonetization Debacle

The early problems just affected the common citizens, but 3 months later, they are recovering slowly. However, the sudden decision has ruined the Indian economy and these effects will last for a long time. Modi’s promises to keep India’s GDP up failed miserably. Many analysts cut India’s GDP forecast.

The Purchasing Manager’s Index (PMI) was hit. All manufacturing industries suffered losses and unemployment. The common man and small scale industries were the worst affected by the demonetization debacle. Even after three months, the nation has not completely recovered. 2000-rupee notes have made it easier to store black money. For the common man who wants to use these notes, it is a huge menace to receive change from shopkeepers. The government had only introduced these high-denomination notes to tackle cash deficit quickly. However, the effort still turned out to be futile.

demonetization debacle - no

Steve Forbes had mentioned that India’s demonetization plan was “sickening and immoral”. Modi, however, responded to it saying that economists have no idea about demonetization.

In the past 3 months, people who supported demonetization have turned against it, probably after they practically experienced it. The demonetization debacle has proved to be Modi’s biggest mistake of his career. This is evident because neither he nor his associates have spoken about demonetization publicly in any of their recent election campaigns. It is a failed publicity stunt that ended up in a callous catastrophe.