WHEN Narendra Modi, India’s prime minister, announced the shock recall of high-denomination banknotes on November 8th, economists hailed the move as strong but necessary medicine. The overnight scrapping of some $200bn-worth of cash would flush out forged rupees and corrupt earnings, dragging India’s vast underground economy into the bright modern world of electronic payments, bank accounts and taxes. Political pundits called it a masterstroke. Not only would citizens queuing to exchange old notes for new see for themselves how Mr Modi had kept a campaign promise to smoke out bad guys. With crucial state elections looming, the sting would also render worthless the vote-buying war chests of his political rivals.
The practice, however, has not lived up to the theory. The surprise scrapping of what amounted to 86% of the cash in circulation could, in fact, turn out to be the worst mistake of Mr Modi’s career. For hundreds of millions of Indians who cannot pay for essential goods with credit or debit cards, it has brought not satisfaction but the misery of waiting in angry queues outside overwhelmed banks, only to get limited quantities of new...Continue reading
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