Abstract

India is in a monetary turmoil post the 8/11 demonetization. Per se, demonetization is a great step and has created a severe macroeconomic shock. It has led to a sharp contraction in money supply for a short period. Demonetization’s proponents have contended that it would cleanse the economy of black money and make transactions more formal and digital, thus improving tax collection and enhancing long-term growth prospects. No matter how brilliant the solution, the implementation certainly could have been better. The measure was humungous in scale, cloaked in necessary secrecy and complex. The possible immediate and longer term effects of demonetization on the Indian economy are debatable. Whether one likes it or not, everyone agrees that demonetization was something utterly remarkable and its effectiveness would be talked about and studied by economists and policy makers for decades to come. Demonetization has proved enduringly popular, and it appears to have made only a minor dent in the GDP. It helped to add more people into the tax net. It has reduced the size of informal economy. With the increased use of digital payments, economic transactions become recorded. The effects of demonetization will vary by sector.

This book, which is divided into 15 chapters, has the objective of analyzing some of the implications of the “demonetization” exercise in India. These chapters pertain to examining the very concept, history, critique, impact on overall economy and black money, move toward less-cash economy and digitalization, government–RBI relation, along with an assessment of 2 years of demonetization. This book has argued the need to be cautious in moving to a less-cash economy, because the economy lacks the necessary financial infrastructure. Gradualism helps avoid excessive disruption and gives institutions and individuals time to adapt. It puts authorities in a position to make adjustments as issues arise. It would be prudent for the government to focus more on proper institutional reforms to address the issues.

Keywords

demonetization; black money; corruption; tax evasion; digitalization; RBI; economic growth (GDP); informal sector; agriculture and MSMEs