Demonetisation 2016 – A Policy Shock Slowdown

 

Demonetisation 2016 – A Policy Shock Slowdown

Economic downturns aren’t always born on Wall Street or triggered by pandemics—sometimes they’re made in Delhi. In November 2016, India decided to junk 86% of its currency overnight. Officially, this was a war on black money; unofficially, it was a crash course on how to paralyze a cash-driven economy.

For weeks, the country became a giant queue: ATMs ran dry, daily wage workers struggled to make ends meet, and kirana shops doubled up as counselling centres for frustrated customers. GDP growth slowed from a breezy 8% in early 2016 to about 6% by mid-2017—not quite a recession, but certainly a policy-induced “pause button” on economic momentum.

Formal businesses grumbled but couldn’t do much about the crumble; the informal economy, where most Indians earn their livelihoods, took the real beating. If downturns expose structural weaknesses, demonetization was a masterclass in how to create one yourself—fast, free, and domestically produced.

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