Nearly a year ago, the Indian government announced demonetisation and withdrew Rs 500 and Rs 1.000 notes from circulation. (Express illustration) Nearly a year ago, the Indian government announced demonetisation and withdrew Rs 500 and Rs 1.000 notes from circulation. (Express illustration)

Nearly a year after the Prime Minister Narendra Modi-led government announced demonetisation and withdrew Rs 500 and Rs 1,000 notes from circulation, the Harvard Business Review (HBR) on Friday reiterated that the policy “was poorly thought out and executed and that its net impact would be negative and particularly bad for the poor.” A write-up by Bhaskar Chakravorti, titled “One Year After India Killed Off Cash, Here’s What Other Countries Should Learn from”, lists out at least four lessons that the world can learn from India’s cash ban.

In the first lesson, “Choose Your Experts Carefully“, Bhaskar said that every economic policy needs to be guided by experts in economics, business, technology and those in policy execution. However, he added, that in the case of India, it is “unclear” if any experts were consulted. “When considering action as drastic as shutting down highly used currency in a large and complex economy, as was the case in India, such professionals ought to have been part of the process,” he stated. “Governments need to be able to demonstrate that they have done their homework regardless of the ultimate outcomes of the action,” he added.

Secondly, Bhaskar said that basic data shouldn’t be ignored and that a policy needs to implemented following a fact-based cost-benefit analysis, taking into account basic data. “Any policy ought to be able to pass a simple test: If the basic data on the economy in a pro forma assessment suggests that the policy runs a high risk of failure or has a major negative impact, stop and ask more questions before proceeding,” he wrote. According to the article, ahead of demonetisation, the Indian government ought to have weighed several factors before taking the decision. These factors included the consequences of invalidating 86 per cent of money in circulation, the impact it would have on India’s 90 per cent of workers in the informal sector and reports that undeclared wealth was estimated to be only around 6 per cent.

Through the third lesson, “Consider Human Behavior“, the article said it is important to look at how the policy is expected to translate into impact. This “translation mechanism” is based on people’s response to change in their environment. In the case of the note ban, Bhaskar said, “In Indian society, not unlike in societies around the world, there is access to money-laundering networks and creative schemes for getting around rules and regulations.” He also referred to a report by the Reserve Bank of India which stated that nearly 99 per cent of demonetised currency returned to the banking system post-note ban. .

The fourth lesson, “Beware of Digital Silver Bullets“, acknowledged that it is “tempting” for policy makers to advocate technology and the “digital uptake”. When the narrative of black money failed, the Modi administration promoted the idea that demonetisation would help India become a cashless economy. “According to additional data from the RBI, while digital transactions did spike post-demonetization (when consumers had few alternatives), they have now dropped below the peak levels in both volume and value. Growth in digital transactions has been slowing each month since demonetisation,” the article stated further.

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