Prime Minister Narendra Modi’s announcement to demonetise the ₹500 and ₹1,000 currency notes late on 8 November has conflated the issues of curbing unrecorded transactions using high denomination currency notes with the financing of terrorism and national security. Modi is clearly seeking to obtain political mileage from this move, even as this sudden decision has put large numbers of ordinary people, especially the poor, to great inconvenience. Indeed, the government’s public relations machinery is hard at work to convince the underprivileged—and indeed the middle class—to tolerate short-term pains for promised gains in the longer term, while the government and the Reserve Bank of India (RBI) surely know that shorn of hype, the decision to demonetise cannot make a major dent in the magnitude of the country’s black economy.

Demonetisation will at best only partially and temporarily curb the operations in the black economy. One of the more obvious reasons is that a substantial portion of the stock of illegal wealth in the system, as is well known, is not held in the form of currency notes. The wealthy typically hold assets disproportionate to legal sources of income as undervalued assets, including real estate, land, gold and jewellery. A large portion of the black money obtained through fudging of trade invoices is not just stashed outside India, but is typically spent overseas. A portion of this money returns to the country after being laundered white through tax havens. Yes, a portion of the illegal money in use, which is held in the form of cash by politicians, criminals, dubious builders and realty operators among others, will re-enter the system through banking channels. And, yes those dealing in counterfeit currency will certainly be affected. It will be tiresome to argue that demonetisation will have no impact on the corrupt nexus between business and politics that funds political parties in general and election campaigns in particular.

What is perplexing about this demonetisation is that as replacement for ₹500 and ₹1,000 notes, not only will the same value notes be reissued, but a larger denomination of ₹2,000 has been introduced. If high denomination currencies are used for illegal activities, including terrorism—and governments world over want to demonetise such currency—why is the government and the RBI introducing a higher value note into the economy?

Nevertheless, as news reports over the past few days have shown, a substantial part of the now demonetised notes are also held by persons who are far from wealthy, and are dependent on cash transactions that involve no credit/debit cards and bank accounts. There is no doubt that the hard-earned savings of many of the poor, especially women, are held in the form of currency notes. It is this section of people who have been the most inconvenienced. Obviously, India has a long distance to traverse before it comes anywhere close to being a cashless economy.

There is already some evidence that ingenuous means have been found to beat the system. Gold prices shot up even as the income tax department conducted search-and-seizure raids across the country. Relatively expensive wait-listed train tickets have been purchased because the cancellation fee on such tickets is negligible. Those holding high denomination currency notes illegally are using the services of poor people to convert these into white money on payment of a small commission.

The January 1978 decision of the Morarji Desai government to demonetise notes with denominations of ₹1,000, ₹5,000 and ₹10,000 was described as “very successful” although the EPW rightly raised questions at the time as to why details of the amounts actually demonetised had not been disclosed. The major difference was that 36 years ago high denomination currency notes comprised only a minuscule portion of the value of the total currency in circulation. Unlike then, the current demonetisation has a more disruptive impact on the economy because ₹500 and ₹1,000 notes comprise over 84% of the total value of the currency in circulation.

In the run-up to the 2014 Lok Sabha elections, Modi had repeatedly claimed that if elected, his government would bring back enough black money from abroad to distribute a sum of ₹15 lakh to each and every poor Indian family. His supporters like Baba Ramdev even claimed that the money would be brought back within 100 days of the government coming to power. Clearly, these were tall claims.

The issue became controversial when Bharatiya Janata Party President Amit Shah remarked that what had been said before the elections was in the nature of jumla—a quaint word which means an idiomatic statement made with rhetorical flourish or exaggeration. Half-way into his term, with elections scheduled to be conducted in Uttar Pradesh, Punjab, Uttarakhand, Goa and Manipur, the Prime Minister is keen to refurbish his image as a person who acts and not merely makes false promises. Modi’s brand management skills are legendary, especially if he is the brand being promoted. In this instance, he has gambled on the hope that the inconvenience caused to common citizens will be short-lived and that he will be able to project himself as a fighter against corruption and terrorism. As things stand, the Modi government is yet to make any concerted effort to tackle the sources of black incomes in India. Demonetisation this time as in other policy interventions is more theatrics than a real assault on the functioning of the black economy.