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December 26, 2016

The Carnage of Demonetisation in India

By: Justin Podur


People have already died from Modi's sudden assault on 80 percent of India's

On the evening of November 8 , the Prime Minister of India, Narendra Modi, went on
live television to tell over 1 billion people that their 500- and 1,000- rupee bills were
invalid as of that night. They could exchange their invalid bills for new 500- and 2,000-
rupee bills at the bank. The exchange of notes was stopped on Nov. 24 , equally
abruptly. There is a new deadline of Dec. 30 , 2016 for the deposit of all of the
demonetised notes.

  India’s Demonetization Devastates the Working Class and Poor

The economic damage caused by this unannounced fiat remains to be calculated. But
it will be devastating. A ratings agency, Fitch, predicted a reduction of growth of 0.5
percent of GDP solely due to this "demonetisation." Other estimates have been a 1
percent reduction, or a 2 percent reduction in growth. But the Forbes article reporting
the prediction, in its title, points out that “No One Really Knows.”

As for the editor of Forbes Magazine , he has called demonetisation “sickening” and
“immoral”: “What India has done is commit a massive theft of people's property without
even the pretense of due process — a shocking move for a democratically elected
government.” Forbes compared the move to the forced sterilization program of the
1970s: “Not since India's short-lived forced-sterilization program in the 1970s —this
bout of Nazi-like eugenics was instituted to deal with the country's 'overpopulation' —
has the government engaged in something so immoral.” Historian Sashi
Sivramkrishna pointed out that induced currency shortages helped cause the Great
Bengal Famine of 1770.

The idea of demonetisation was to crack down on “black money.” The government
claims that the users of this “black money” to attack India's currency and conduct illicit
business include, of course, the insurgents in Kashmir, the Maoists in Central India
and Pakistan. A flood of articles predicting the damage that would be done to these
“black money” users followed — sourcing the police and army. Like this one , that said
the demonetisation was “set to cripple the Maoists.” Or this one, a week after the
announcement, that says that youth in Kashmir stopped throwing stones at the Indian
military because of demonetisation. Other miracle cures by demonetisation will surely
follow, as these ones are discredited .

It is worth noting that “black money” is unpopular. But, as this video from The Wire
shows, demonetisation doesn't address “black money” production by big businesses
who don't declare income or bribes by politicians who move their money overseas.
Indeed, an astounding exemption was made for political parties who will be able to
deposit their old currency freely.

The problem is that hundreds of millions of Indians —80 percent of them, providing 40-
50 percent of the GDP  — work in the rural and informal economy and depend on
cash transactions to survive. They don't have bank accounts and consequently
facedstrict limits on how much they could exchange . Their small businesses are done
in cash.

  India Engulfed in Red Banners as Workers Strike Back

Investigators from the left website Newsclick found a 25 percent reduction in the flow
of vegetables to Delhi. These people had to run to banks that don't work well for them
at the best of times. They traveled to the banks however, they could, stood in queues,
and went back cashless day after day. The Indian Express counted 33 deaths in the
first week . This video by the news site The Wire is indicative. A villager needed cash
to see a doctor. Her husband waited in line for four days at the bank before giving up.
She died. Now the husband has no cash for her funeral rites.

The other problem is that, while the surprise nature of the announcement was
designed to catch black money users off their guard, the government also surprised
itself — the banks weren't ready, the printing presses weren't ready to produce the
new currency, and people who got the new notes were so afraid that a problem of
hoarding the new currency immediately arose — a classic cash crunch. The best
move at this point, would probably to be to walk back from this manmade disaster and
re-monetise the notes, as Sashi Sivramkrishna argued in The Wire . Sivramkrishna
also noted that the government was unlikely to re-monetise, but instead likely to
double down and proceed into an artificially induced recession.

The government's response has been to ease the process of demonetisation for the
middle class — those with bank accounts and cards for cashless transactions — and
to mount a PR campaign, including some paid tweets with the hashtag
#IndiaDefeatsBlackMoney. But “black money” will emerge from this fiasco unscathed,
while poor people lose their livelihoods and, in unforgivable numbers, their lives.

As Venezuela, facing genuine economic warfare including attacks on its currency,
makes desperate moves to try to counter its own “black money” problems, Modi's
demonetisation should be a warning. The Venezuelan government backed away from
a sudden plan to demonetise the 100-bolivar bill and has extended the deadline once,
showing a flexibility in the face of reality that Modi has lacked. There are better plans
out there for a government that actually cares about its poor majority than following
Modi in bankrupting them.

Justin Podur is a Toronto-based author and blogger. He has reported from India
(Kashmir, Chhattisgarh), Afghanistan, Pakistan, Haiti, the Democratic Republic of
Congo, Colombia, Venezuela, Mexico (Chiapas), and Israel/Palestine. He is the
author of "Haiti's New Dictatorship (2012) and the Demands of the Dead" (2014)