Demonetisation: Turning Black To White

The famed Indian genius for jugaad is on display again, taking the bite out of PM Modi’s demonetisation drive. A look at why, and how, black money hoarders are laughing all the way to the bank.

- Damayanti Datta

On November 8, when Prime Minister Narendra Modi announced on television that Rs 500 and Rs 1,000 currency notes would no longer be legal tender “from midnight tonight”, to “break the grip of corruption and black money”, the nation staggered. About 86.6 per cent of cash in circulation instantly became worthless paper. With just 3 per cent of Indians paying income tax, the entire shadow economy of the nation, pegged at 20 per cent of India’s $2.3 trillion or Rs 156 Lakh Crore GDP (Ambit Capital Research, 2016), went into overdrive.

Even before people queued up in front of banks and ATMs, intelligence agencies detected an abrupt spike in Hawala, or illegal foreign exchange transactions. And “How to convert black money into white?” started trending on Google, with most searches coming from the PM’s own state Gujarat, followed by Maharashtra, Haryana, Punjab and Delhi. Meanwhile, there were serpentine queues at banks as the public lined up to deposit high-value currencies in their stock, or to exchange them for new. There was euphoria when banks, especially government-owned, became flush with funds that would improve their health and reduce lending rates.