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A Look at India’s Demonetization: Will it Really Combat Terrorism?

By Staff Writer Taylor Veracka ‘18

· Taylor Veracka

Less than a month ago, India’s Prime Minister Narendra Modi made the unprecedented economic move of outlawing the country’s 500 and 1,000-rupee notes. These notes, worth about 7 USD and 15 USD respectively, were the most common bills used by the Indian population, which makes the move seem counterproductive to India’s economic process. However, Modi did have a reason for the drastic change: he believes eliminating these notes from circulation will help fight terrorism.

Modi’s reasoning is slightly more complex. “Black money,” or cash that has escaped government taxation, has been a problem in India for a long time. The “shadow economy” that has been created by the circulation of black money makes up over one fifth of the Indian GDP, according a recent article in the New York Times about the ordeal. This shadow economy the Prime Minister is trying to minimize withholds money from the government that it would use to invest in infrastructure, healthcare, education, and other necessities the Indian people require. As only one percent of Indians pay taxes, this is a way to get all the illegal, non-taxed money deposited into the banks in order to be taxed, which is intended to provide government funding and help mitigate inflation. Additionally, Modi wishes to crack down on criminal elements in Indian society: offenders with large stores of cash will not be able to explain how they acquired all this money without paying taxes on it without repercussions. The final justification, of which Modi speaks of with the most pride, is that the government also expects to be able to filter all counterfeit money printed by terrorists out of national circulation.

However, the demonetization has first and foremost harmed the majority of the Indian population. Should Indians try to use these bills at a store now, the owner could, and under law should, refuse to accept them. This means people must now exchange their currency for smaller bills, which the banks are quickly running out of. Much of the population has found themselves standing in line all day to do this, especially those who do not have bank accounts and cannot use an ATM (or, as is common, the ATMs have run out of cash). In doing so, they are forfeiting their day’s pay, something that many impoverished Indians cannot afford to do. Additionally, the New York Times reports that ninety-eight percent of all transactions in India are conducted using cash. Because most of the cash they use is now useless, many Indians are cutting back on their buying (whether by choice or necessity) which means merchants, even those who sell necessities like food, are taking a hit, something that does not bode well for the Indian economy. And yet, the Prime Minister argues that this will be, and already is, effective in fighting black money in India.

Though the endeavor is only three and a half weeks old, it appears this tactic will be unsuccessful in combating black money and continue to harm the economy. While it may weed out some criminals when they decide to turn in their black money and pay a fine, or even simply burn their defunct currency rather than turning it in, it does not seem like this will extend further than that. More pressing, however, is the justification for this measure that argues that it will catch terrorism. While it may help identify counterfeit bank notes, it does not help track or uncover the terrorist cells that printed them, and the government will not be able to prevent more of these bills from entering circulation, much of which are used by everyday people who are unaware that the bills they have are counterfeit. Though the government may have had good intentions with the plan, it was not well thought out, and likely should be reversed. The Prime Minister continues to stand by his measure, insisting that it is and will work. As the lines grow longer and everyday citizens, especially the poorest and most marginalized, struggle to adjust to this major economic change, it is becoming increasingly evident to the rest of the world that this policy will have drastic negative consequences for the Indian economy, and the Indian population as a whole.

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