On 8 November 2016, Prime Minister Narendra Modi announced that, as of midnight that night, the Rs 500 and the Rs 1000 notes would no longer be considered legal tender. The prime minister stated that the move was aimed at clamping down on black money in the economy so as to fight corruption and reduce the funding of terrorism in the country. Since the announcement, however, several economists have voiced their scepticism about the policy’s ability to combat the issue of black money or black-market transactions.

Amit Bhaduri is one such economist. Bhaduri is a professor emeritus at Jawaharlal Nehru University, and a founding member of JNU’s Centre for Economic Studies and Planning. His research spans several important fields including capital and growth theory, development economics and Keynesian and Post-Keynesian macroeconomics—which argues that aggregate demand, being the sum of all spending by households, businesses and government, is the driving force of an economy, and advocates that the government intervene during economic slumps such as a recession. Bhaduri is currently a professor of political economy at the University of Pavia in Italy and a visiting professor at the Council for Social Development in Delhi. On 12 November, Kedar Nagarajan, a web reporter at The Caravan, spoke with Bhaduri. During this conversation, which later continued over the phone, they discussed whether demonetisation would be effective in achieving the objectives laid out by the government, alternative policy measures that the government could have adopted, and the impact that this move may have on the Indian economy.

Kedar Nagarajan: How much black money in the country is actually in circulation in the form of currency and how much of it is in other forms such as gold and benami (unnamed) property?

Amit Bhaduri: No one has any real estimate about this. Estimating black money is like looking for a black cat in a dark room. We know that there is a sufficient amount, but it is very difficult to estimate. It is as impossible [as trying] to get an accurate estimate of how much unemployment there is in the country.

KN: How will such a policy actually help clamp down on black money?