Today, June 30, marks six months from the day Indians had to change their old 500 and 1000 rupee notes following the “demonetization shock” announced by the government. The turmoil in the economy has since calmed to a large extent. In the past six months, the government also launched a concerted effort to wean Indians away from cash as the preferred method of payment for transactions.
CGD Policy Blogs
Demonetization is yesterday’s news. The India of today is going full steam ahead towards a digital economy powered by financial inclusion, the mobile revolution, and Aadhaar—the biometric ID system that now covers 90 percent of its 1.3 billion population. And the social compact of the future will restructure subsidies and provide a basic income for the poor.
It has been more than 100 days since the Modi government declared that the two largest denomination notes in India—the 500 and 1000 rupee notes—would no longer be accepted as legal tender. The announcement of “demonetization” had an immediate and sweeping effect on Indian households, which were no longer allowed to use the notes (outside of a few narrow exceptions) and were given less than eight weeks to deposit or exchange them.
Prime Minister Narendra Modi’s announced a bold measure on Wednesday to reduce the role of unaccounted for cash or “black money” in the country’s economy by “de-monetizing” higher-denomination currency notes. The new policy bans the use of 500 rupee and 1,000 rupee currency notes. While this measure may have the positive (though potentially temporary) effect of forcing illicit activity out of the regulated economy, the process could be disorderly, with the poorest members of society bearing the brunt of the disruption.
The Indian government has sent a clear message with its latest budget: it is now up to the states to take leadership on health and invest more from their own coffers.