Modi's Note Worthy Move!

Despite the considerable pain, Modi’s demonetisation drive has resonated with the people as a measure that will bring economic gain.

- M.G. Arun

NO POLICY DECISION CAST as far-reaching an impact on the Indian economy as the demonetisation of high-value currencies by the government in November last year. In an address to the nation on November 8, Prime Minister Narendra Modi said Rs 500 and Rs 1,000 notes would lose their legal tender from midnight. In his words, it was supposed to be the biggest crackdown ever on black money hoarders. But the move also threatened to suck out 86 per cent of the money in circulation, with notes worth Rs 15.4 lakh crore becoming redundant overnight. That hit several business sectors hard, especially the informal sector that provides jobs to over 80 per cent of the population.

Conservative estimates suggest the economy will slow down by 1 percentage point (Crisil says India’s GDP growth for 2016-17 will drop from the earlier estimated 7.6 per cent to 6.6 per cent). Data from the Centre for Monitoring Indian Economy (CMIE) predicts a 1.6 percentage point fall in GDP growth. The economic pain is over and above the other hardships from the cash crunch, which saw serpentine queues of people at banks to deposit or exchange old notes and at ATMs to withdraw money.

Despite all the pain it brought, Modi seems to have made big gains with the demonetisation move. The medium-term benefit is the inroads he has made among the electorate in the five states going to polls in February and March. The Mood of the Nation (MOTN) survey makes this clear. While 45 per cent respondents believe that demonetisation will help curb black money and corruption, another 35 per cent feel it will have a positive impact on the economy. Only 7 per cent think it is a move to cripple the BJP’s rivals in Uttar Pradesh, Punjab and other states ahead of the assembly elections, blunting the Opposition’s arguments to that effect.