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Cashless society in India: Demonetisation gives way to chaos
Prime Minister Modi thought he had figured it out. Generations of the Indian economic life going about its business unrestrained, India's chief of government thought of a way he could bring it all under his control, so as to ensure fiscal revenue would be multiplied and finally give the government the means to implement reform. By killing cash, he hoped to bring "black money" to an end. Instead, he inadvertently created chaos in his own country.

A new term was coined for the reform: Black money. After decades of industrialization, modernization, and flat-out economic build-up, India has come to the point where its own government is trying to figure out how to get its hand on all the money within and become a "modern" state, controlling all levels of the economy. To truly reign in its own economic force, the Indian government needs to monitor the economic channels: find out where the money is. 

Other modernizing states, such as Greece, have encountered similar problems in finding out where the country's money was flowing. The BBC reported that "nearly one in four euros that potentially could be taxed in the country's economy simply weren't declared to the authorities, and the Greek government missed out on approximately 28bn euros ($31bn) of additional revenue each year [...] There is also evidence to suggest that the Greeks aren't very good at collecting taxes even outside the shadow economy." In India's case, the trouble is that the country still works on a very basic economic model, one which has worked very well for it for the past 30 years and which India is in no hurry to smash and move on. Economic surveyor Pymnts assesses that "India has long been a cash economy. Until November last year, nearly 95 per cent of transactions were conducted in cash, with nearly 90 per cent of merchants unable to accept any other form of payment." So, how to get to the money?

The Prime Minister's plan was simple: kill cash. On November 8, 2016, Narendra Modi announced the immediate suppression of 500-rupee and 1000-rupee banknote validity. Given that these banknotes are the most commonly used in transactions, 85 per cent of the nation's physical currency was suppressed overnight. By doing so, he wasn't doing things very differently from other countries, he was simply pushing it one step further, and carrying out the reform in a brutal and abrupt way. The war on cash has been going on in many countries, including in Europe and America. Michael Cheng, financial reporter for Payment Week, says: "Two decades ago, roughly 80 per cent of Danish citizens relied on hard cash while shopping. Fast forward to today, that figure has dropped dramatically to 25 per cent [...] Eventually, establishments may soon have the right to reject cash- a practice that is common in Sweden. Government officials have set a 2030 deadline to completely do away with paper money." For India, the reform occurred unannounced and overnight. 

Within hours, chaos ensued in the streets of India, with people lining up to the banks by the hundreds of thousands, with their savings stuffed in their bags and pockets, in a desperate attempt to save their life savings from financial oblivion. India Today reported, within days of the reform: "Huge crowds gathered outside Canara Bank in Delhi's Yamuna Vihar. People continue to face difficulties in paying for household items, essential commodities and vegetables. Serpentine queues were witnessed at banks across India on Thursday as people thronged to exchange their old currency. Some of the banks ran out of cash." The dire consequences went beyond financial and economic, and multiple deaths, with Manish Singh reporting: "Nearly three dozen people have died in the aftermath of India's bold, surprising move to demonetize its Rs 500 ($7.5) and Rs 1,000 ($15) currency bills overnight last week."

One year later, economists, who have kept a close eye on the evolution of the economic situation, are drawing their conclusions. Economist Vivek Kaul reviews what he dubs an epic failure: "As many as 250,000 units in the unorganised sector were closed and the real estate sector was badly affected, with a large number of workers losing their jobs. India's demonetisation is unprecedented in international economic history, in that it combined secrecy and suddenness amidst normal economic and political conditions. All other sudden demonetisations have occurred in the context of hyperinflation, wars, political upheavals or other extreme circumstances.

As often happens after a failed reform, the Indian government is trying to push the envelope, blaming the sup-par results on lack of discipline and compliance. In a recent declaration, decision has been made to push the monitoring, surveillance and repression one notch higher still, with added regulations for gold, as an alternative form of peer-to-peer payment system. 

A brief overview of history's boldest reforms should, for once, get liberals and conservatives to agree: violent shifts in the economy, whichever the political bearing supporting it, will deal heavy damage to the citizens' lives. The national-socialist government in Germany managed to stave off consequences after the government's rash decision to continue printing money by the truckloads; but only by violently repressing inflation with death squads and, even then, it amounted to flying too high with borrowed wings. India just learned at its own expense that history's lessons are not always learned and that extra-strong remedies will often hurt the patient even more than the illness will.

Editorial NOTE: This article is categorized under Opinion Section. The views expressed in this article are solely those of the author and do not necessarily represent the views of merinews.com. In case you have a opposing view, please click here to share the same in the comments section.
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