Demonetisation anniversary: Rahul Gandhi gets it right, Narendra Modi disrupted India's economy with 'arbitrary' move

Demonetisation can easily be compared with the parable of a monkey who used a sword to squish a fly while guarding a sleeping king. The intention may have been right but the result was disastrous.

There is just one moral of the demonetisation story: Beware of who you trust with an important job. Sometimes even good intentions can cause irreparable harm.

Prime Minister Narendra Modi. Image courtesy PIB

Prime Minister Narendra Modi. Image courtesy PIB

Rahul Gandhi may or may not have heard this Panchtantra tale. But, debuting as a columnist, he has got the gist of the demonetisation story right by arguing that the government's "arbitrary and unilateral" move has deprived India of its economic prowess.


Demonetisation has wiped out two percent of India's GDP, destroyed the informal labour sector and wiped out many small and medium businesses; it has led to job loss and has wiped out confidence in India's economy, Gandhi argues in a searing Op-Ed for Financial Times.

Gandhi has outlined the disruption caused by Modi's reforms. He has argued how China is benefitting from India's policy misadventures. He has underlined the perils of hiding behind a narrow communal narrative, of the dangers of using anger and hatred for staying in power.

Whatever be your opinion on Gandhi, it is difficult to disagree with his basic argument: That demonetisation harmed the Indian economy and the very people who were promised "better days" by participating in this ill-conceived exercise in futility and disruption.

Modi's words on that fateful night when he outlawed Rs 500 and Rs 1,000 notes still ring in our ears. Announcing his sudden decision, he had promised that demonetisation would remove black money from the economy, bring an end to terror financing and wipe out counterfeit currency from the market. He had proudly claimed that hoarders of black money will have no option but to dump their money in the Ganges. Not one of the original objectives was achieved.

Almost all of the outlawed currency returned to the banking system, turning whatever portion of it was black into white. Terror strikes have continued unabated and the amount of counterfeit currency discovered during the exercise was almost negligible. The government's spin doctors have since proffered various ingenious arguments to claim demonetisation was a success, culminating in the hilarious argument that it led to a fall in "prostitution".

The way demonetisation was implemented and later defended gives us two important insights into Modi's psyche. It tells us that he is willing to gamble recklessly even when the odds are stacked against success. For him, the idea in his mind matters more than its practicality.


Modi went on to ban 86 percent of the currency in spite of data and studies that suggested cash was just a very small component of kaala dhan.  A white paper on black money by the government of India had put the cash component at just around five percent.

To target this small unaccounted wealth, the government disrupted the entire economy. Also, Modi forgot that he was targetting a symptom, not the ailment that leads to the malaise called the black economy. He did not realise that people would find ingenious ways to launder the money they had stocked, and this is exactly what they did by putting almost all the cash in circulation into the banking system. Unfortunately, the prime minister ignored available data, expert opinion—former RBI governor Raghuram Rajan had rejected the idea of demonetisation—and also the Indian psyche. All these are painful pointers of his understanding of economics and our society.

The other important thing the demonetisation story reiterated was that the Modi never backs down, he never admits to mistakes, doesn't believe in his own fallibility even when it stares back at him from the mirror. Since 8 November, Modi has come up with at least a dozen explanations to justify demonetisation and call it a success. His government changed goal-posts and rules so many times in the past one year that it is can easily be said that what had started out as a game of football turned into some archaic form of gilli danda (an amateur game played in the streets of India with two sticks). Unfortunately, even in this amateur game, it gave a poor account of its abilities.

What does one call a prime minister who gambles recklessly, doesn't listen to others and refuses to admit his failure? What does one call a government that destroys the economy and still struts around with its nose upturned? In his Op-Ed, Gandhi argues that this is a democratically-elected government run by an autocrat. At least the demonetisation experience suggests Gandhi is right.

Unfortunately, demonetisation has reminded us that Modi listens to nobody; that he doesn't learn from his mistakes, in fact, he doesn't even admit to having erred, misjudged or miscalculated. On the anniversary of his biggest gambit, the only thing that can be said with certainty about Modi is that his government will not learn the right lessons from the demonetisation fiasco.

Gandhi's words would literally fall on deaf ears.


Published Date: Nov 08, 2017 05:31 pm | Updated Date: Nov 08, 2017 05:31 pm



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