It’s been more than three months since Indian Prime Minister Narendra Modi went on television to tell his people that 86 percent of their currency would be worthless in a few hours. Since then, his government has scrambled to find justification for such an unprecedented and draconian decision -- one justification after another, as it happens. First, the goal was to eliminate “black money” -- stacks of cash concealed from the taxman. When the program turned up little such cash, officials started talking about combating counterfeit notes and terror financing. Finally, they hit on the idea that demonetization would promote cashlessness, and that’s where we seem to have stopped for the moment.
I wonder how long the government will stick with that justification, though, because the initial data isn’t encouraging. According to the Reserve Bank of India, as cash trickles back into the economy, people are slowly abandoning the digital methods of payment they were forced to use in the first weeks after demonetization. In January, for example, the number of digital transactions fell over 10 percent compared to December -- at a time when the economy has yet to be fully remonetized. As of Jan. 18, only 9.2 trillion rupees in new bills had reentered the system, after 15.44 trillion rupees in old bills had been taken out.