ASSESSMENTS

As the Results Trickle In, a Mixed Bag for Indian Demonetization

Sep 15, 2017 | 09:00 GMT

An Indian man signs his name to use a makeshift ATM as a bank cashier looks on in December 2016.

In November 2016, Prime Minister Narendra Modi declared that banknotes in the most widely circulated denominations could no longer be spent and that the notes had to be turned in by the end of the year before they became worthless.

(SAM PANTHAKY/AFP/Getty Images)

Highlights

With 99 percent of the demonetized cash returned, India’s government will begin the long process of tracking down illegal funds within the banking system.
The tax base showed stellar growth after this policy was implemented, but since much of the gains likely came from the separate Income Disclosure Scheme, they are unlikely to be sustained.
The digitization of the economy has taken great strides as a result of demonetization, but an August decision by the Supreme Court has thrown this progress into doubt.

In late 2016, India's government put in motion a bold experiment in demonetization. In a surprise address to the nation, Prime Minister Narendra Modi declared on Nov. 8 that banknotes in the most widely circulated denominations could no longer be spent and that those possessing the notes had until the end of the year to return them to banks before they became worthless. The move was both politically and economically risky, but the government deemed those risks worth taking, given its goal of downsizing the country's large, cash-heavy informal economy and its campaign against so-called "black money," either counterfeit or illicitly obtained notes that India asserted were aiding the funding of terrorists....

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