- The surprise withdrawal of most Indian banknotes caused economic chaos
- The move hurt India’s oversized informal economy and crimped illegal financing of political parties
- Tax revenue and bank deposits shot up, but the impact on jobs is a concern
The Indian government’s sudden decision to declare 86 percent of the country’s currency null and void made news worldwide. The result was snaking lines in front of ATM machines, harassed bank personnel and a desperate shortage of legal tender. The move has had its merits, but its implementation was so poor as to tarnish Prime Minister Narendra Modi’s aura of invulnerability.
On the evening of November 8, 2016, Mr. Modi announced that 500- and 1000-rupee notes, the highest denominations, would be withdrawn by year’s end. He explained that the move was designed to free the Indian economy of “black money.” This referred to the large amounts of untaxed, unaccounted funds that grease the huge informal sector, accounting, by most estimates, for as much as 45 percent of India’s gross domestic product (GDP). More than half of this informal economy is “black,” profiting from illegal activities.