After Narendra Modi-led government’s shock move of demonetisation banning Rs 500 and Rs 1,000 notes and making people deprived of cash overnight, its after-effects became worse due to the government’s inability to explain the move’s objectives. Unlike every monetary or fiscal policy, that has a well-structured format of communication, the purpose and foresight of the demonetisation were not explained or communicated to the public. This built uncertainty in the economy, says Dr Partha Chatterjee, Professor, Department of Economics, Shiv Nadar University. He also said that the unknown aims and objectives of the demonetisation kept the economy turbulent and the issue of policy communication has not been discussed at any length.
“While demonetisation surely does not fall under the ambit of standard monetary policy, the importance of clear communication cannot be understated,” Dr Partha Chatterjee told Financial Express Online. This prescription is possibly in conflict with the surprise element that is likely necessary for measures to fight corruption.
Demonetisation created the uncertainty in the economy, which is more likely to hurt in the time of a downturn, especially the ability of the government to use different stimulus measures suffers, Dr Chatterjee added.
At present, the economy is sagging and the government is trying all sorts of stimulus measures to revive growth, demand, and investment. However, the effects of such measures are yet to see and the GDP growth rate of the second quarter is due. The forecast places the GDP Q2 growth rate at around 5.5 per cent.
As India marks the third anniversary of the demonetisation this week, the shock move has shown mixed results on many core purposes of its implementation. Demonetisation was mainly aimed at curbing black money, eliminating counterfeit currency, stopping terrorism, and boosting digital payments.
While digital payments skyrocketed in India since November 2016, India has not marked a significant improvement in the status of black money. In fact, the Rs 2,000 note, introduced to curb black money, has itself been stopped from printing for the same reasons.