The Indian Demonetization Gambit

On the evening of November 8th 2016, the Indian PM Narendra Modi mounted an offensive, one that caught many off guard. Starting the very next day, currency notes of the 500 & 1000 Rupee denominations would no longer be valid legal tender. The high denomination notes can be exchanged by the end of the year, deposited in bank accounts or spent on government utility bills but each such transaction will require an ID proof. In the course of a 40 minute speech, PM Modi touched upon the need to tackle unaccounted and counterfeit money circulation and gave out a strong signal to tax evaders that the state can call their bluff and be a step ahead of them. I was just getting started for the day while on travel out of India and there I knew the first question of the following day’s meeting “How do you expect demonetization to work?”. Damn! I had 8 waking hours to think of an answer while income tax evaders in India counted their cash. I managed to get through that question with some spiel and logic that none of my education had prepared me for. In fact, getting away with the ego bruised was a good result in my own estimate. So, with the ego intact, I spent the better part of the evening watching America vote Trump into the presidency over food and drinks. Fortunately, I’ve had some time since then to compose my thoughts and this post is an effort at working through as many angles. Let me warn you that this is a long note and a mug of strong brewed coffee would surely help.

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