Cash, Demonetisation and the Informal Economy in India

Shaurya Sharma and Cledwyn Fernandez

World Economics, 2018, vol. 19, issue 2, 13-40

Abstract: India took a demonetisation step in November 2016 by banning 500 and 1000 rupee notes as legal tender benefiting banks but hurting the poor and the under banked. The shadow economy was badly affected and even measured GDP growth rate slumped, but demonetisation proponents argued that the dip will reverse and the growth rate will reach 7.7% in 2019. A cashless economy would accelerate economic activities, curb corruption and protect consumers from fraud, frequent physical transactions and it has been estimated that it would save the Indian exchequer (and taxpayers) an amount equal to approximately 0.25% of GDP. The note withdrawal was a botched up job and demonetisation in India will only succeed if the Government can channelize it as a leverage point for a larger tax base, increased digitisation along with a more transparent, fluid and measurable Indian economy.

Date: 2018
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