Demonetisation and the ‘Common Man’

by Arup Kumar Sen

The demonetisation of 500 and 1000 rupee currency notes by the Modi Government is an unique event in the history of monetary policy in post-colonial India. It should be mentioned in this connection that at the time of demonetisation, Rs 500 and Rs 1000 notes comprised about 85 per cent of the total value of currency in circulation in India. In his demonetisation speech, Narendra Modi justified this measure in the name of the ‘common man’. To put it in the words of Modi, “This government is dedicated to the poor. It will remain dedicated to them...This step will strengthen the hands of the common man in the fight against corruption, black money and fake currency.”

Time will tell us the long-term outcome of this tumultuous move by the government. But, there is no doubt about the fact that at present the ‘common man’ is paying a high price for demonetisation. The worst sufferers of the demonetisation-induced liquidity crisis and economic slowdown are the ‘footloose people’ working in the vast unorganised sector and the people who derive their livelihood from agriculture. Prabhat Patnaik has reminded us in this connection that the “peasants’ inability to sell the kharif crop may have an adverse impact on their rabi output as they might lack the requisite working capital for it”. In such a situation, the worst victims will be the small/marginal farmers, and the agricultural workers.

The paradox lies in the reported fact that the Pradhan Mantri Jan Dhan bank accounts, which were opened for the poor, have seen huge deposits to the tune of Rs 21, 000 crores in the first fortnight since demonetisation. While the ‘common man’ is fighting for survival in the wake of the unexpected liquidity crisis and economic slowdown, the bank accounts of the poor are being used as a new mechanism for conversion of black money.