The demonetisation of high value currency notes has created a lot of misery in the country. There is no way of knowing whether this decision of the government by itself has either reduced black money, or is successfully facilitating a move to a digitised cashless economy.
What is clear, however, is that it was a hasty move which has been badly implemented. Not a day goes by without the government making new exceptions or announcing new measures to deal with the consequences of demonetisation.
After a voluntary disclosure scheme for black money and the demonetisation of high value currency notes, the government has now announced an amnesty scheme, whereby those with black money can declare it, pay a 50% punitive fine on it, and have the rest sequestered in bank deposits to withdrawn over a period of time.
The rationale for such an amnesty scheme, which can end up converting money which had become waste paper into half of its earlier value, is unclear - except that it seems one more way of mopping up revenue.
The impact of demonetisation is evident to everyone who has stood in bank or ATM queues. Daily wagers have suffered a loss in income, the informal sector has been badly hit, trade has suffered, and there is simmering public anger for being unable to transact essential business.
Demonetisation, in fact, induced a slow-down of the economy. Its downward impact on the GDP in this financial year has been estimated from 0.3% to 3%. Former Prime Minister Manmohan Singh has said that according to his conservative estimate, growth in India is likely to slow down by 2% at the very least.
The banking sector has been paralysed, with its entire functioning being reduced to changing old notes or counting currency to the extent of limited state-mandated withdrawal. On top of this, banks have to face public ire, as there isn't enough new currency or cash in their treasury chests to meet the public demand.
Watch Prof. Sudipto Mundle of the National Institute of Public Finance and Policy and former member of the Monetary Policy Advisory Committee of the Reserve Bank of India discuss the fallout of the demonetisation move.