'Is Modi a King of Good Times Only?'

 

The staggering rise of India’s super-rich

India’s new billionaires have accumulated more money, more quickly, than plutocrats in almost any country in history. By James Crabtree in The Guardian

On 3 May, at around 4.45pm, a short, trim Indian man walked quickly down London’s Old Compton Street, his head bowed as if trying not to be seen. From his seat by the window of a nearby noodle bar, Anuvab Pal recognised him instantly. “He is tiny, and his face had been all over every newspaper in India,” Pal recalled. “I knew it was him.”

Few in Britain would have given the passing figure a second look. And that, in a way, was the point. The man pacing through Soho on that Wednesday night was Nirav Modi: Indian jeweller, billionaire and international fugitive.

In February, Modi had fled his home country after an alleged $1.8bn fraud case in which the tycoon was accused of abusing a system that allowed his business to obtain cash advances illegally from one of India’s largest banks. Since then, his whereabouts had been a mystery. Indian newspapers speculated that he might be holed up in Hong Kong or New York. Indian courts issued warrants for his arrest, and the police tried, ineffectually, to track him down.

It was only by chance that Pal spotted him. A standup comic normally based in Mumbai, he happened to be in London for a run of gigs. “My ritual was to go to the same noodle bar, have a meal, and then head to the theatre,” Pal said. “I always sat by the window. And then suddenly Modi walks past. He was unshaven, and had those Apple earphones, the wireless ones. He looked like he was in a hurry.”

It was another month before the press finally caught up with Modi, as reports of his whereabouts emerged in June, along with the suggestion that he was planning to claim political asylum in the UK. (Modi denies wrongdoing, and did not respond to requests for comment.) In the process, Modi also gained entry into one of London’s more notorious fraternities: the small club of Indian billionaires who seem to end up in the British capital following scandals back at home.

The most prominent among these émigré moguls is India’s “King of Good Times”, Vijay Mallya, the one-time aviation magnate and brewer, who transformed Kingfisher beer into a global brand. A few years ago, Mallya was one of India’s most celebrated industrialists, famous for his mullet haircut and flamboyant lifestyle. But in early 2016, Indian authorities filed charges relating to the collapse of his Kingfisher airline, which went bust in spectacular fashion in 2012, leaving behind mountainous debts and irate, unpaid staff. And so, facing allegations of financial irregularities and of refusing to repay outstanding loans, Mallya quietly boarded a plane for Britain, too.

Like Modi, Mallya denies wrongdoing. Last month he released a long statement accusing India’s government of conducting a witch-hunt against him. And to the extent that this claim has some merit, it is because Indian prime minister Narendra Modi (no relation to Nirav Modi) has of late been under great pressure to bring supposedly errant tycoons such as Mallya to book.

Men like Mallya and Modi were members of India’s expanding billionaire class, of whom there are now 119 members, according to Forbes magazine.Last year their collective worth amounted to $440bn – more than in any other country, bar the US and China. By contrast, the average person in India earns barely $1,700 a year. Given its early stage of economic development, India’s new hyper-wealthy elite have accumulated more money, more quickly, than their plutocratic peers in almost any country in history.

 

A cardboard cut-out of billionaire jeweller Nirav Modi at a protest against him in New Delhi in February. Photograph: Chandan Khanna/AFP/Getty Images

Narendra Modi won an overwhelming election victory in 2014, having promised to put a stop to the spate of corruption scandals that had dogged India for much of the previous decade. Many involved prominent industrialists – some directly accused of corruption, while others had simply mismanaged their finances and miraculously managed to escape the consequences. Voters turned to Narendra Modi, the self-described son of a poor tea-seller, hoping he would deliver a new era of clean governance and rapid growth, ridding India of a growing reputation for crony capitalism.

Narendra Modi pledged to end a situation in which the country’s ultra-wealthy – sometimes called “Bollygarchs” – appeared to live by one set of rules, while India’s 1.3 billion people operated by another. Yet as they continue to hide out in cities like London, men like Mallya and Nirav Modi have come to be seen as representing the failure of that pledge; the Indian authorities “have a long road ahead”, as one headline put it in the Hindustan Times last year, referring to a “long and arduous” future extradition process in Mallya’s case.

And as Narendra Modi gears up for a tough re-election battle next year, he is fighting the perception that India is unable to bring such men to heel, and that it has been powerless to respond to the rise of this new moneyed elite and the scandals that have come with them. “This ongoing battle to get India’s big tycoons to play by the rules is one of the biggest challenges we face,” says Reuben Abraham, chief executive of the IDFC Institute, a Mumbai-based thinktank. “Getting it right is central to India’s economic and political future.”

India has long been a stratified society, marked by divisions of caste, race and religion. Prior to the country winning independence in 1947, its people were subjugated by imperial British administrators and myriad maharajas, and the feudal regional monarchies over which they presided. Even afterwards, India remained a grimly poor country, as its socialist leadership fashioned a notably inefficient state-planned economic model, closed off almost entirely from global trade. Over time, India grew more equal, if only in the limited sense that its elite remained poor by the standards of the industrialised west.

But no longer: the last three decades have seen an extraordinary explosion of wealth at the top of Indian society. In the mid-1990s, just two Indians featured in the annual Forbes billionaire list, racking up around $3bn between them. But against a backdrop of the gradual economic re-opening that began in 1991, this has quickly changed. By 2016, India had 84 entries on the Forbes billionaire list. Its economy was then worth around $2.3tn, according to the World Bank. China reached that level of GDP in 2006, but with just 10 billionaires to show for it. At the same stage of development, India had created eight times as many.

In part, this wealth is to be welcomed. This year India will be the world’s fastest-growing major economy. During the last two decades, it has grown more quickly than at any point its history, a record of economic expansion that helped to lift hundreds of millions out of poverty.

Nonetheless, India remains a poor country: in 2016, to be counted among its richest 1% required assets of just $32,892, according to research from Credit Suisse. Meanwhile, the top 10% of earners now take around 55% of all national income – the highest rate for any large country in the world.

Put another way, India has created a model of development in which the proceeds of growth flow unusually quickly to the very top. Yet perhaps because Indian society has long been deeply stratified, this dramatic increase in inequality has not received as much global attention as it deserves. For nearly a century prior to independence, India was governed by the British Raj – a term taken from the Sanskrit rājya, meaning “rule”. For half a century after 1947, a system dominated by pernickety industrial rules emerged, often known as the Licence-Permit-Quota Raj, or Licence Raj for short. Now a system has grown in their place once again: the billionaire Raj.

The rise of India’s super-rich – the first and most obvious manifestation of the billionaire Raj – was propelled by domestic economic reforms. Starting slowly in the 1980s, and then more dramatically against the backdrop of a wrenching financial crisis in 1991, India dismantled the dusty stockade of rules and tariffs that made up the Licence Raj. Companies that had been cosseted under the old regime were cleared out via a mix of deregulation, foreign investment and heightened competition. In sector after sector, from airlines and banks to steel and telecoms, the ranks of India’s tycoons began to swell.

Nothing symbolises the power of this billionaire class more starkly than Antilia, the residential skyscraper built in Mumbai by Mukesh Ambani, India’s richest man. Rising 173 metres above India’s financial capital, the steel-and-glass tower is rumoured to have cost more than $1bn to build, looming over a city in which half the population still live in slums.

 

The Antilia building, at right of photograph, in Mumbai. Photograph: Alamy
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Ambani owns Reliance Industries, an empire with interests stretching from petrochemicals to telecoms. (His father, Dhirubhai, from whom he inherited his company, was one of the main beneficiaries of the economic reforms of the 1980s.) At Antilia, Ambani entertains guests in a grand, chandeliered ballroom that takes up most of building’s ground floor. There are six storeys of parking for the family’s car collection, while the tower’s higher levels feature opulent apartments and hanging gardens. Further down, in sub-basement 2, the Ambanis keep a recreational floor, which includes an indoor football pitch. Antilia became an instant landmark upon its completion in 2010. The city had long been a place of stark divisions, yet the Ambani’s home almost seemed to magnify this segregation. (A spokesman for Reliance did not respond to a request for comment.)

The emergence of the Indian super-rich was bound up in larger global story. The early 2000s were the heyday of the so-called “great moderation”, when world interest rates stayed low and industrialised nations grew handsomely. This was also when the fortunes of India’s new tycoons began to change. Pumped up by foreign money, domestic bank loans and a surging sense of self-belief, industrialists went on a spending spree. Ambani dumped billions into oil refineries and petrochemical plants. Vijay Mallya spent heavily on new fleets of Airbus jets. Nirav Modi began building a global chain of jewellery stores. Stock markets boomed. From 2004 to 2014, India enjoyed the fastest expansion in its history, averaging growth of more than 8% a year.

The boom years brought benefits, most obviously by reintegrating India into the world economy. Yet this whirlwind growth also proved economically disruptive, socially bruising and environmentally destructive, leaving behind what the writer Rana Dasgupta describes as a sense of national trauma. India’s new wealth has been shared remarkably unevenly, too. Its richest 1% earned about 7% of national income in 1980; that figure rocketed to 22% by 2014, according to the World Inequality Report. Over the same period, the share held by the bottom 50% plunged from 23% to just 15%.

Unsurprisingly, some feel resentful. “You walk around the streets of this city, and the rage at Antilia has to be heard to be believed,” Meera Sanyal, a former international banker turned local anti-corruption campaigner, told me in 2014. Six years before that, in 2008, as the scale of India’s billionaire fortunes were becoming clear, Raghuram Rajan – an economist who would later become the head of India’s central bank – asked an even more pointed question about his country’s tycoon class: “If Russia is an oligarchy, how long can we resist calling India one?”

Back in London, Vijay Mallya feels unjustly targeted by India’s recent attempts to shed its reputation for crony capitalism, the second defining characteristic of the billionaire Raj. “I have been accused by politicians and the media alike of having stolen and run away with Rs 9,000 crores [90bn rupees, or $1.3bn] that was loaned to Kingfisher Airlines,” he wrote in his open letter last month. His case had become, he suggested, a “lightning rod for public anger” over the alleged misbehaviour of his fellow tycoons.

In spring 2017, I met Mallya at his London home, a Grade I-listed town house a short walk from Baker Street tube station. A variety of Rolls-Royces and Bentleys were parked along the mews at the rear, alongside a fat silver Maybach with the number plate VJM 1, which idled outside Mallya’s back door. Inside, he sheltered behind a grand wooden table, a gold lighter and two mobile phones lined up in front of him. At one point I asked to be excused to visit the toilet. A flunky ushered me into a golden bathroom, with a shiny gold seat to match its golden taps and loo-roll holder. The fluffy hand towels were white, but each one came embossed with the letters “VJM” in gold thread.

On the surface, Mallya still seemed every bit the ebullient tycoon of old: a bulky man in a red polo shirt, with gold bracelets on each wrist and a chunky diamond ear stud. But by then he had been stuck in Britain for more than a year, and grew downbeat as the afternoon wound on and our conversation turned to his business troubles and the state of his homeland. “India has corruption running in its veins,” he said with a sigh. “And that’s not something one is going to change overnight.”

With his shoulder-length hair and taste for bling, Mallya had long honed an image as the most piratical of India’s generation of entrepreneurs. A specially kitted-out Boeing 727, its bar well-stocked with his own Kingfisher beer, whisked him between parties and business meetings – a distinction that was, in any case, often hazy. “It was all a bit ridiculous,” one ex-board member at a Mallya company told me.

 

Vijay Mallya, who fled India for London in 2016. Photograph: Mark Thompson/Getty Images

Now marooned in London, Mallya had plenty of time to ponder his missteps. Once a member of the Rajya Sabha, the Indian upper house of parliament, his diplomatic passport has been cancelled. As a long-time UK resident, he was permitted to stay in the country, but without travel documents he was unable to travel, curtailing his notorious jetsetting lifestyle almost entirely. Earlier this month, a UK court issued an order allowing authorities trying to recover debts to enter his various British properties.

In his pomp, Mallya seemed to represent a new India. In a country whose old commercial elite had been dominated by cautious, discreet industrialists, Mallya was different: rich, powerful and not inclined to hide it. Not all of India’s pioneers behaved in this way – its software and IT billionaires, for instance, were typically less flamboyant figures. But while Mallya continues to deny that he did anything wrong, he admits that he has become what he calls the “poster boy” for a moment of public anger against India’s rich, as many newly wealthy business figures found themselves mired in allegations of wrongdoing.

India’s old system created fertile ground for corruption, forcing citizens and businesses alike to pay myriad bribes for basic state services. But these humdrum problems were trivial compared with the grand scandals that emerged during the 2000s. Assets worth billions were gifted under the table to big tycoons by senior politicians and bureaucrats in what became known as the “season of scams”. Giant kickbacks helped businesses acquire land, bypass environmental rules and win infrastructure contracts. Headlines filled up with fresh outrages, from fraudulent public housing schemes to dodgy road-building projects.

Many of those who backed India’s economic reforms hoped that a more free-market economy would lead to more honest government. Instead, crony capitalism infiltrated almost every area of national life. Hundreds of billions of dollars were siphoned away, according to some estimates, by a shadowy alliance of colluding politicians and business tycoons. India’s old system of retail corruption went wholesale.

Many politicians also became astoundingly rich, and would have made the Forbes list had their holdings not been hidden carefully in shell companies and foreign banks. Rapid economic growth increased the value of political power, and what could be extracted from it. Political parties had to raise more money, to fight elections and fund the patronage that kept them in office. One estimate suggested that India’s 2014 election cost close to $5bn, a huge increase over the cheap and cheerful polls of the pre-liberalisation era. Election experts believe most of this money is brought in illegally from favoured tycoons, in exchange for unknown future favours.

Politicians spend the money to fund campaigns, but also on handing out favours, jobs and cash to constituents. “It’s sort of an unholy nexus,” as Raghuram Rajan put it to me during his tenure as head of India’s central bank. “Poor public services? Politician fills the gap; politician gets the resources from the businessman; politician gets re-elected by the electorate for whom he’s filling the gap.”

This nexus between business and politics lies at the heart of the third problem of India’s billionaire Raj, namely the boom-and-bust cycle of its industrial economy. In recent decades, China went on the largest infrastructure building spree in history, but almost all of it was delivered by state-backed companies. By contrast, India’s mid-2000s boom was dominated almost exclusively by its private-sector tycoons, giving the industrialists and the conglomerates they run a position of outsized importance in India’s economic development.
Bollygarchs borrowed huge sums from state-backed banks and invested with gleeful abandon, in one of the largest deployments of private capital since America built its railroad network 150 years earlier. But when India’s good times came to an end after the global financial crisis, the tycoons’ hubris was exposed, leaving their businesses over-stretched and struggling to repay their debts. In 2017, 10 years on from the crisis, India’s banks were still left holding at least $150bn of bad assets.

Since taking office, Narendra Modi has tried, often ineffectually, to fix this corporate- and bank-debt crisis, alongside the related problems of cronyism and the super-rich that contributed to it. Watching developments such as these, some argue that the power of India’s tycoon class is fading. Yet India’s ultra-wealthy are still thriving, while its ranks of billionaires keep swelling, and will continue to do so.

There is every reason to believe that on its current course, the country’s the gap between rich and poor will widen, too. Perversely, the closer India comes to its achieving its ambitions of Chinese-style double-digit levels of economic growth, the faster this will happen. On most measures, it should already be ranked alongside South Africa and Brazil as one of the world’s least-equal countries. Even more importantly, poor countries that start off with high levels of inequality often struggle to reverse that trend as they grow richer.
Many experts believe India needs to act. “The main danger with extreme inequality is that if you don’t solve this through peaceful and democratic institutions then it will be solved in other ways … and that’s extremely frightening,” as French economist Thomas Piketty has said of India’s future, pointing to likely rising future tensions between the wealthy and the rest.

 

Protesters burning an effigy of Nirav Modi in New Delhi in February. Photograph: Chandan Khanna/AFP/Getty Images

India is now entering a new phase of development, as it tries to follow Asian economies such as South Korea and Malaysia out of poverty and towards full “middle-income” status. There is no reason this cannot happen. But as we’ve seen in Latin America, the economies with the widest social divides have tended to be the ones that are most likely to get stuck in the “middle-income trap”, achieving moderate prosperity but failing to become rich. The more successful countries of east Asia, by contrast, grew prosperous while managing to stay egalitarian, partly by building basic social safety nets and ensuring that their wealthiest citizens paid their taxes. Of the two models, it seems clear which India should want to follow.

Much the same is true of corruption. India’s old system of cronyism, with its political favours and risk-free bank loans, has came under intense scrutiny, but the battle against corruption is at best half-won. Kickbacks still dominate swathes of public life, from land purchase to municipal contracts. State and city governments are just as venal as ever. Surveys report that India remains Asia’s most bribe-ridden nation. “For any society to lift itself out of absolute poverty, it needs to build three critical state institutions: taxation, law and security,” according to the economist Paul Collier. All three in India – the revenue service, the lower levels of the judiciary and the police – still suffer endemic corruption. Perhaps most importantly, the country’s under-the-table political funding system remains largely untouched.
Progress in fixing India’s problems of corporate and bank debt has also been frustratingly slow. Modi has introduced some important measures, including a new bankruptcy law and a series of bank recapitalisations. But more radical options have been ignored, notably the privatisation of struggling public-sector lenders.

If these struggles sound familiar, that is because they are. India is far from the first country to enjoy a period of rampant cronyism and wild growth, and then grapple with how to respond. In Britain, the onset of the industrial revolution in the mid-19th century kicked off such a moment, as captured in the novels of Charles Dickens and Anthony Trollope. But the more obvious parallel is with America, and the era between the end of the civil war in 1865 and the turn of the 20th century: the Gilded Age, or the era of “the great corporation, the crass plutocrat [and] the calculating political boss”, as one historian put it.

India’s own Gilded Age is different in many ways, but it shares at least one characteristic – namely, that such a period of early industrialisation is also a time of rapid political and economic change, in which it should be possible to invoke what the philosopher Richard Rorty once called the “romance of a national future”, the sense of hope that infuses powers on the rise.

India is set to grow in economic might throughout this century, as America did during the 19th. By some accounts, it has already overtaken China as the world’s most populous nation; in others, the baton will pass during the next decade or two. Whatever the case, the fate of a large slice of humanity depends on India getting its economic model right. Meanwhile, as democracy falters in the west, so its future in India has never been more critical. To make this transition, India’s billionaire Raj must become a passing phase, not a permanent condition. India’s ambition to lead the second half of the “Asian century” – and the world’s hopes for a fairer and more democratic future – depend on getting this transition right.

The Billionaire Raj: A chronicle of economic India

Meghnad Desai in The FT 

India is now one of the world’s economic hotspots. Stock images of starving children, miserable peasants and cheating shop owners have been augmented with those of high-tech development and booming cities. India is now the world’s fastest-growing economy. It is about to become the third-largest economy — at least in terms of purchasing power dollars if not yet real ones. Foreign investors are rushing in. In The Billionaire Raj, James Crabtree has written a compelling guide to what awaits them. 

To make India more accessible to the western investor, Crabtree draws an analogy between America’s Gilded Age at the end of the 19th century — that plutocratic moment of the Vanderbilts, Goulds, Rockefellers — and the newest of India’s billionaires. Did you know that India now has more billionaires than Russia? 

This sudden enrichment was the result of the long boom of globalisation from 1991-2008. India had initiated reforms to escape from four decades of conservative socialism, initiated by Jawaharlal Nehru, which did not trust private business and put the state in command. The Indian state is inefficient as it is, but disastrous in running business. Its airline Air India has racked up billions in losses; its banks are mired in non-performing loans. 

In 1991, Manmohan Singh, then finance minister, bit the bullet and began to liberalise the economy. Tariffs were cut, import licensing was removed, and the rupee was devalued twice within a week. He had little choice because India had run out of foreign exchange reserves and had to pawn its gold to secure a loan from the International Monetary Fund. 

The reforms took time to work but, from 1998 onwards, the economy secured high single-digit growth rates, triple the so-called “Hindu growth rate” of 3 per cent per year that prevailed during the first 30 years of independence. With a decade-long growth spurt from 1998 to 2008 came the vast fortunes generated in a crony-capitalist relationship between the ruling Congress party and its private sector clients and financiers. Crabtree, a former FT Mumbai correspondent, gives us a detailed treatment of the links between the politicians needing money to finance elections that were both costly and cheap. (The 2014 elections cost $5bn — or $6 per voter.) 

Crabtree gives entertaining portraits of some billionaires. The opening chapters cover Mukesh Ambani and his towering residential extravaganza Antilla, the most expensive house ever built in India, which now dominates the Mumbai skyline; the fugitive Vijay Mallya, a drinks tycoon who was once known as the King of Good Times; the reticent Gautam Adani, an infrastructure entrepreneur who owns ports, mines and refineries. Dhirubhai Ambani, the patriarch of the Reliance group, figured out how to negotiate government regulations and expand his business while keeping the ruling party on his side. Mallya went so far as to be voted into a seat in the Rajya Sabha, the upper house of parliament, after a reported donation of 550m rupees ($10m in those days). Adani prospered in Gujarat with the reported blessings of Narendra Modi while he was chief minister of the state in India’s north-west, where the politician enjoyed both a clean reputation and business-friendly credentials. 

Crabtree shows both how deep corruption reaches into electoral politics — but also how functional it is 

Beyond the personalities lies another part of the puzzle. Corruption has gone deep in the system. Elections cannot be financed with just legally declared donations. The donors want to escape attention of the tax man, as do the party leaders. It is a symbiotic relationship. Not even Prime Minister Modi, as he has been since 2014, is about to change it, though he has moved against crony capitalism. Armed with an electoral majority, he has set about breaking the political mould, ending the near 70-year hegemony of Congress. He has sundered the crony ties that the top echelon of government enjoyed with the “promoters” of infrastructure projects during the Congress years. Back then the nationalised banks had to lend money to a favoured few and it was understood that the money would not be repaid. No more. Insolvency procedures have been toughened. Debtors can no longer shield their assets from creditors. It was this that sent Mallya abroad. 

This book was written before these drastic changes. But whether he wins or loses the next elections, Modi has made revival of crony capitalism difficult. 

There are also other concerns. Crabtree worries over Modi’s dual persona as a development enthusiast as well as a Hindu nationalist. The fear is that this may increase intolerance towards minorities — Muslims and Christians — and disrupt peaceful economic progress. 

Crabtree’s vivid portrayal of the corruption of politics is very informative, and thought-provoking. He travels the country to show both how deep corruption reaches into electoral politics — but also how functional it is. When an economy is regulated, riddled with permits needed to do business, a few palms may need to be greased. A payment — or rent, as economists call it — may be required. But the rewards are considerable. The corruption market works. It may be immoral but it is not inefficient. 

It would be better if India became less corrupt. Crabtree thinks so. That would require a lot of courage and an ability to pursue radical reform. The leader who embarks upon it risks unpopularity — as Modi is now finding out. 

These are matters that cannot be settled in a single book. Crabtree has given us the most comprehensive and eminently readable tour of economic India, which, as he shows, cannot be understood without a knowledge of how political India works.

My predictions for 2018

1. Britain will do well in the negotiations this year. The final agreement will be a soft Brexit which the Remainers desire. There will be some restrictions on the free movement of people, something which the EU could have given to David Cameron to avoid all these complications.

2. Vijay Mallya will be extradited to India, he will remain unconvicted,  yet he will have to cool his heels at Tihar Hotel for some time to show that the government will take action against powerful businessmen.

3. Like Anil Ambani, the A listers with huge Non Performing Assets will carry out some debt restructuring. However they will not be named and shamed nor will they be rid of their business ownership.

4. England will win the Football World Cup.

5. Corbyn will not become Prime Minister as the Tory Party will do enough to stay together.

6. China's CPEC will run into bigger problems.

7. The Pakistan military will initiate peace proceedings with India.

Modi Songs

The East India Comedy

Shashi Tharoor on India's Demonetisation Disaster

Change comes in many forms to different countries. Some embrace change, some resist change, and some have change thrust upon them. Take India, which was plunged into chaos on the night of November 8th, 2016, when Prime Minister Narendra Modi, in a 48-minute address, announced that some ₹14 trillion worth of ₹500 and ₹1000 notes (roughly $7.50 and $15.00)—amounting to 86 percent of all the currency in circulation in
India—would become illegal as of midnight. People would have until the end of the year to deposit them in bank accounts (and pay whatever taxes and fines the authorities decided to impose on them), but they were no longer legal tender.

This unexpected shock-and-awe announcement, Modi said, fulfilled a declared campaign objective to fight “black money” or, put another way, cash made from tax evasion, crime, and corruption. The prime minister declared that his announcement would not only rid the nation of black money, it would render worthless the counterfeit notes that were reportedly printed by Pakistan to fuel terrorism against India.

The initial stunned reaction was followed by a panicky scramble to unload the expiring notes: the very night of the announcement, people rushed to petrol pumps to fill up their tanks, jewelers tripled their sales, and loans were hastily returned. There were unexpected consequences too: housewives who had salted away their savings in biscuit tins for a rainy day found their years of thrift would soon be worthless. In most cases, even their husbands had not known how much their wives had saved.

But within days the real result of the Modi announcement became apparent—the severe disruption of normal economic activity. Inept implementation made a mockery of the initial shock-and-awe. Not nearly enough new currency had been printed before the announcement (some estimates were that only 4 percent of replacement currency was printed), so banks did not even have a fraction of the money needed to meet consumer demand for new notes. Long queues snaked in, outside and around banks, foreign exchange counters (including at the international airport), and ATMs to change the old notes and withdraw new ones.

But the ATMs were largely empty, since the new notes had been made in a different size from the old ones and did not fit the existing ATMs. These needed re-calibration, a process that took tens of thousands of engineers several months to complete. The Government had not thought of making the new notes the same size as the old to avoid this obvious problem.

An additional complication was the fact that there are not enough ATMs in India: the country disposes ofonly 20 ATMs per 100,000 people, as compared to 77 in China, 114 in Brazil, and 279 in South Korea. Even South Africa has 70 ATMs per 100,000 people.

In the meantime, thanks to the slow speed of the Mint’s presses, cash was in short supply. Banks did not have enough money and so restricted withdrawals to small amounts of cash that most customers found insufficient. Though the permissible withdrawal limits kept changing, being raised and lowered confusingly, they went up with time—provided the bank had the cash available when one asked for it.

Such restrictions are arguably illegal—under which provision of law can an Indian citizen be denied access to the money in his or her own account? When, in Parliament, I asked the Finance Minister to name one country in the world that disallows people from withdrawing their own money from a bank, he could give me no reply.

Thirty days after the prime minister’s speech (in which he had asked the public to bear with inconvenience for just 50 days), only 30 percent of the currency in circulation had been restored. The Reserve Bank of India (RBI) told the Public Accounts Committee of Parliament on January 18th that it was up to 60 percent. The State Bank of India estimated that it would go up to 70 percent by the end of February.The Government’s own annual Economic Survey 2016–2017, released on February 1st, then claimed that replenishing the cash supply will be complete by March 2017—but that target too slipped. Cash shortages remained for months more; the rate of printing new ₹500 notes fell below target. It took another three months to remonetize the banking system.

The initial replacement notes all came in the form of an unusually high denomination (₹2,000 or $30) that most people did not find useful—especially since the government’s failure to print additional quantities of smaller notes meant that for weeks no one was able to make change for a ₹2000 note. Since over 90 percent of all financial transactions in India are made in cash, and over 85 percent of workers are paid their incomes in cash, the everyday economy was brought to a standstill in the last two months of the year. The recovery in the new year was slow, and official figures showed a marked slowdown in the country’s growth rate in the first quarter of 2017.

If this points to an appalling lack of elementary planning on the part of the government, the broader consequences have been far worse. The economy has plunged into chaos, and the decision looks more like a miscalculation than a masterstroke.

The lack of cash reduced both consumption and demand across the board. A booming economy that boasted the highest growth rate in the world suddenly became a cash-scarce economy. Production went down in all sectors. Small producers could not get working capital to keep their businesses going, and many had to shutdown. Daily-wage workers (a large majority of India’s labor force) lost their jobs because firms did not have the cash to pay them.

 All indicators—sales, traders’ incomes, production, and employment—were down in November/December 2016; India’s GDP, as estimated by former Prime Minister Manmohan Singh, will shrink by around a full percentage point for the fiscal year. At the end of January, former Finance Minister P. Chidambaram went further, saying that he expected the rate to be no more than 6 percent in 2017–2018 and 6.5 percent in 2018–2019, extending the bad news by another two years.

The Economic Survey 2016–2017 released on January 31st by the Chief Economic Advisor to the government itself states that demonetization is an aggregate demand shock, an aggregate supply shock, an uncertainty shock, and a liquidity shock. It says that the cash crunch “must have” affected the informal economy, which accounts for nearly half of the overall GDP and about 80 percent of the employment economy—one which runs on cash.

India’s unemployment rate has shot up to a five-year high of 5 percent in 2015–2016. According to the All-India Manufacturers’ Organization (AIMO), macro- and small-scale industries and traders have incurred 60 percent job losses and a 47 percent revenue loss because of demonetization. Not only are small-and medium-sized enterprises shutting down; medium and large infrastructure companies surveyed by AIMO have reported a 35 percent drop in employment and a 45 percent drop in revenue. AIMO estimated even higher losses of jobs and revenue by the end of March.

Current estimates tell us that real estate, construction, and infrastructure, which provide the most employment after agriculture, are set to lose over 100,000 jobs in 2017. The eight lakh crore (₹8 trillion) construction industry, which employs 45 million people, has virtually ground to a halt, with a drop of 80-90 percent in income.

There has been an inventory pile-up due to low consumer demand. Local industries—footwear in Agra, garments in Tirupur—suspended work due to a lack of money. Several enterprises are now struggling to their feet, whereas many have not been able to resume at all.

The informal financial sector—rural moneylenders who provide loans that amount to 40 percent of India’s total lending—has all but collapsed.

R ural India is in bad shape. The fishing industry, dependent entirely on cash sales of freshly-caught fish, has been deeply affected. This is even affecting coastal security, as I pointed out during Question Hour in Parliament, because the cash shortage has dramatically reduced the number of boats going out to sea to about 10 percent of previous levels, thereby reducing the number of eyes and ears available to our intelligence agencies monitoring suspicious activities in our waters.

Traders are losing perishable stocks and farmers have been unloading produce below cost—since no one has the money to purchase their freshly harvested crops. Peas that Punjabi farmers sold at ₹30 a kilo only a year ago were brought down to seven rupees a kilo two months after demonetization.

The liquidity crisis has deeply affected farm production, farm prices, and agricultural credit repayments.A study by two economists at Delhi’s Indira Gandhi Institute of Development Research found that in mid-November 2016, deliveries of rice to rural wholesale markets were 61 percent below usual levels, soybeans were down 77 percent, and maize nearly 30 percent. The winter crop could not be sown in time, because no one had cash for seeds, and the resultant harvest was lower than projected.

 All this has been hugely destabilizing in the short term. The prime minister asked people to be patient for 50 days, but those 50 days are long gone and it is clear that the process will take much longer before normal money supply is restored. As for the long term, as former Prime Minister Manmohan Singh trenchantly observed, quoting Keynes, “in the long run, we are all dead.”

The story of demonetization was of unnecessary suffering throughout the country. As ordinary people clutching their savings wasted hours standing patiently in queues that offered no assurance of money at the other end, fatalism battled with exasperation. Stories of individual tragedies were reported daily—of hospitals turning away patients who only had old notes, children not being fed, middle-class wage-earners unable to buy medicines for the sick, and as many as 135 people reportedly dying after collapsing in bank queues or committing suicide. Ironically, the rich—more likely to hold credit cards and be “cashless”—have been relatively unaffected; the main victims have been the poor and the lower middle-classes, who rely on cash for their daily activities.

Thus, those at the bottom of the economic pyramid are the principal victims of this supposedly “pro-poor” policy. Yet they have reacted with stoicism, swayed by the government’s assiduous public relations messaging that portrays their difficulties as a small sacrifice for the nation. “If our soldiers can stand for hours every day guarding our borders,” one popular, and hugely effective, social media meme asked, “why can’t we stand for a few hours in bank queues?”

The impact of the demonetization in terms of the cash deficit and its consequences has been particularly severe in Kerala, the state I repre­sent in Parliament, because of the distinct character of its banking sector, in which the cooperative sector and Primary Cooperative Societies play a central role.

Overall, the cooperative banking sector is much more active and vibrant in Kerala than elsewhere in India. As a result, over 70 percent of the deposits in cooperatives in India come from Kerala; over 70 percent of the non-agricultural loans and advances made in India are made in Kerala; and over 15 percent of agricultural loans and advances disbursed in India are disbursed in Kerala. But the Reserve Bank of India prevented all 370 central district cooperative banks and 93,000 primary agricultural credit societies in the country from depositing or converting old notes after November 8th, 2016.

Keeping the cooperative banks and societies out of the note exchange process was particularly damaging for Kerala. Dairy, agriculture, and the market for fish have all been severely affected.

Tourism, vital for India’s economy, was hit hard, albeit briefly. Foreigners have been spared tragedy but not inconvenience, for they were only allowed to cash a hundred dollars a day and often had to go from bank to bank to get the money. In November 2016, for instance, tourists returned without seeing the Taj Mahal because their notes were not accepted at the ticket window, and travel plans were curtailed by lack of new money.

Tourism works by word of mouth: how will one regain the trust of foreigners that have already spread the word of their harrowing ordeals in demonetizing India?

While it is clear that the government had not done its homework before launching the scheme—and in a manner typical of the Modi Administration, had consulted very few officials within it—it is not the prime minister’s style to be on the defensive. His propagandists boasted of a “surgical strike” on black money, corruption, terrorism, and counterfeiting. Over time, it became painfully clear that those objectives had not been met. A “surgical strike” is supposed to be precisely targeted, but it is clear that the collateral damage is so extensive that the pain it has inflicted outweighed any tangible gain, at least in the short term.

In the beginning of December 2016, new victims surfaced, ranging from salary earners trying to get money out of their bank accounts and pensioners unable to receive their monthly allowances, to fathers and brides unable to finance long-planned weddings at the peak of the Hindu marriage season. As late as the end of January 2017, Indians were surviving on less than half the cash that had been in circulation at the beginning of November 2016. Shockingly, this was all happening in a country where cash represented 98 percent of all transactions by volume and 68 percent by value. While the cash is now largely back in circulation, memories of demonetization have shaken many people’s faith in the currency.

Indeed, the Modi government itself has effectively conceded that demonetization has failed and has had a severe adverse economic impact on India. In its list of achievements touted in the Economic Survey 2016–2017, the list takes note of assorted schemes continued from the previous regime, but fails to mention demonetization. The Survey also accepts that demonetization resulted in “growth slow[ing], as demonetization reduced demand (cash, private wealth) [and] supply (reduced liquidity and working capital and disrupted supply chains), and increased uncertainty” and “job losses, decline in farm incomes, social disruption, especially in cash intensive sectors.” To this must be added the economic cost of printing and replacing notes, estimated at ₹1.25 trillion.

Unfortunately, there is no evidence that any of the declared objectives of the scheme will be attained. In a largely cash-fueled economy, all cash is not “black money” and all black money is not cash. In fact most of India’s black money has been invested in real estate and other forms of property, gold and jewelry, investments in property abroad, and “round-tripping” that has seen the money return to India’s stock market as “foreign investment” via countries like Mauritius. The Modi move, therefore, touches only a small proportion of black money assets.

Worse, the government had hoped that the sudden move would eliminate a large portion of the black money holdings altogether from the government’s liabilities, since it was assumed that many hoarders would destroy their money rather than attract the attention of the taxman by declaring it. Various agencies of the government had initially estimated that around 25 to 35 percent of the demonetized banknotes would not be deposited by the stipulated dates. On November 23rd, 2016, the Attorney General of India told the Supreme Court of India that the government expected that notes worth four to five lakh crores (some $800 billion) would be rendered worthless by not being deposited.

But those who held large quantities of black money seem to have been more resourceful than the government and have found creative ways to launder their money, with the result that most of the estimated black money in circulation has flooded into the banks. Some well-placed friends of the ruling party were allegedly tipped off before Modi’s announcement, leading to suspicions that the well-connected may have had time to dump their black money stocks. Though the Reserve Bank of India has so far refused to release official figures, claiming to a parliamentary panel that they are still counting the old notes received, experts agree that the amount of black money that will eventually be wiped out will fall significantly short of the initial estimates. Indeed, there may be no liability write-off at all.

It has been widely reported that, by the end of December 2016, around 95 to 97 percent of the demonetized notes in circulation had reached the banking system. Indians abroad and the Central banks of Nepal and Bhutan, which keep some of their foreign exchange reserves in Indian currency, hold a part of the remaining notes. The actual value of notes rendered worthless will be known only after June 30th, 2017, which is the deadline for Non-Resident Indians to exchange any demonetized cash that they may hold at specified offices of the RBI. 

However, it already appears to be clear that a maximum of only two to 3 percent of the demonetized notes will remain undeposited, unequivocally indicating that the demonetization exercise has failed to achieve its primary objective of cleansing the economy. The RBI Governor has conceded that there is no impact at all of demonetization on the RBI’s balance sheet.

And since corruption seems to be a way of life in India, it will not be long before the old habits of under-invoicing, fake purchase orders and bills, reporting non-existent transactions,and straightforward bribery all generate new black money all over again. The government’s plan is therefore likely to be ineffective beyond the short term, since it does nothing to control the source of black money.

Indeed, in the first six weeks after demonetization, the Income Tax Department announced it had seized ₹5 billion in unaccounted cash from people hoarding currency they could not explain.Strikingly, ₹920 million of their seizure happened to be in brand new ₹2000 notes! Cases of corrupt officials, including bank managers, being caught red-handed in illegal transactions have been reported, all of which involved the new currency. Some bank managers worked from 9 am to 5 pm telling people they had no money, and then from 5 pm to 9 pm gave money through the back door to money launderers for a fee.

Though I am by no means tarnishing all bank mangers for the sins of a few, the fact is that in its drive against corruption the government has created new forms of corruption. Black money clearly continues to be generated—it has merely changed its color and shape. Black money has become white by way of pink! And, of course, ₹2000 notes will take up less space in the briefcases of the corrupt than ₹1000 notes did.

The Prime Minister’s other declared objectives have not been met, either. Demonetization is not a necessary exercise to achieve the objective of thwarting counterfeiting, and the government’s citing of such an aim displays considerable overreach. Media reports confirm that counterfeit bills of our freshly designed currency notes are already in circulation. This could, however, have been prevented by enmeshing strong security features with the design. It seems that the government has missed the opportunity of ensuring the adoption of such security features in the new ₹500 and ₹2000 currency notes that it launched post-demonetization. This indicates a lack of foresight and inadequate planning on the government’s part. There appears to be no special new watermark, no security thread or fiber, no new latent image, and certainly no nano chip, as BJP supporters were boasting on social media!

Will a mere change of color and size render the notes safe? Shockingly, RBI has admitted that three different versions of the ₹500 note have been printed in haste. If all three versions are authentic, one can reasonably assume that this is going to confuse the public and make it easier for counterfeiters to get away with their own fake versions.

B ut still, how big of a problem is this? A study conducted by the Indian Statistical Institute in Kolkata, under the supervision of the National Investigation Agency, estimated that the value of fake Indian currency notes in circulation was about ₹400 crores, which amounted to only roughly 0.03 percent of the withdrawn currency.

It also indicated that the ability of banks to prevent counterfeit notes being deposited was limited, since their machines often fail to identify fake notes and bank tellers—overwhelmed by the pressure of the astronomically high level of deposit activity in the 50-day window period—could not make the manual effort to identify fake notes.

As a result, every indication suggests that several fake currency notes have slipped through into the banking system and become legitimized. Thus, far from hurting counterfeiters, demonetization may have helped legitimize fake currency by having it exchanged, amid the chaos, for new notes.

Prime Minister Modi also cited among his objectives the undermining of terrorist and subversive activities. He even went so far as to say, on December 27th, that “through the note ban, in one stroke, we destroyed the world of terrorism, drug mafia, human trafficking and the underworld.”

But empirical evidence collated from data on terrorist strikes and fatalities from the Global Terrorism database and the South Asian Terrorism portal shows that it is very difficult to establish a causal relationship between the number of terrorist strikes on Indian soil and the absolute levels of currency in circulation. In any case, we are seeing reports of terrorists being caught or killed in Kashmir in possession of large quantities of new notes. So where is the claimed effect on terror financing?

Meanwhile, the goalposts kept shifting: the Reserve Bank of India issued no fewer than a hundred notifications on demonetization—some 138 in 70 days until I stopped counting! Each of these was intended to tweak an earlier announcement. Many are referring to this once-respected institution as the “Reverse Bank of India” for its frequent reversals of stance on such matters as the amounts of money permissible to withdraw, the last legal date for withdrawals, and even whether depositors would have their fingers marked with indelible ink so they could not withdraw their money too often.

Demonetization has caused serious and seemingly lasting damage to India’s fledgling financial institutions, most notably the RBI, which conspicuously failed to exercise its autonomy, to anticipate the problems of Modi’s scheme, prepare its implementation better, and to alleviate its impact. The United Forum of Reserve Bank Officers and Employees wrote to the Government on January 13th, 2017, pointing to “operational mismanagement,” which has “dented RBI’s autonomy and reputation beyond repair.” The inexplicable silence of its governor, Urjit Patel, has reduced him to a lamb. But this “silence of the lamb” is eating India’s citizenry alive.

In one recent change of declared objective, the prime minister and finance minister are now talking about moving India to a “cashless society”—an idea and a phrase that was not mentioned even once in Prime Minister Modi’s original November 8th, 2016, speech. (This was hastily amended to a “less cash” society when the absurdity of the proposition was widely pointed out.) But they seem blissfully unaware of the fact that over 90 percent of retail outlets do not even have a card reader at the point of sale, that half of India’s population is unbanked—India is home to 21 percent of the world’s unbanked adults—and that the overwhelming majority of their nationals still function in a cash economy. In fact, 97 percent of retail transactions in India are conducted in cash or check. Few consumers use digital payments: only 11 percent used debit cards for payments last year. Only 6 percent of Indian merchants accept digital payments. And fewer than 2 percent of Indians have used a mobile phone to receive a payment, compared to over 60 percent of Kenyans and 11 percent of Nigerians.

As columnist T.J.S. George asked: “Are we to assume that daily wage earners, small-time farmers and sundry hawkers who don’t even know what is a bank will be happy to see the country getting rid of cash, rather than vague things like illiteracy and poverty?”

The plain fact is that the digital infrastructure for “cashlessness” simply does not exist in India.The aforementioned Economic Survey acknowledges that digital transactions face significant impediments.

Though the government hopes many will use their mobile phones for cashless payments, the Survey enumerates approximately 350 million people without cellphones (the “digitally excluded”); 350 million with regular “feature” phones, and 250 million with smartphones. A mere 34.8 percent of the country has internet access, and there are around 200 million users of digital payment services. A 2015 World Bank study of bank-account usage and dormancy rates across different regions found that only 15 percent of Indian adults reported using an account to make or receive payments.

In such an environment, a cash scarcity is economically crippling. Moreover, most mobile applications and internet banking websites are largely available in English, a language not understood by a majority of the people.

There are also appalling deficiencies in cyber-security. Ours is a country where cyber-crime flourishes; the government’s drive for cashlessness may be creating new vulnerabilities and new victims. Expecting India to become a “less cash” economy at this point is like removing 86 percent of a person’s blood circulation and then asking him to dance.

Studies confirm that most Indians who use cards use them just to withdraw cash from ATMs; making payments by plastic is still something of a novelty. Multiple stories—which might have been hilarious, if they were not so pathetic—have been told of people patriotically trying to use plastic at the few outlets that do accept cards and being told “the server is down”; of salesmen frantically rushing out onto the street from their shops with card-readers in hand hoping to catch a better signal; and of single transactions taking a dozen minutes because the card-reader keeps breaking down in mid-execution.

India offers some of the slowest broadband speeds in the world, and at least a third of the population has no reliable electricity supplies. It is all reminiscent of Marie Antoinette: “if they do not have cash, let them use plastic!”

The Government seems to be engaged in an exercise to furnish the penthouse of a building whose foundations it has not yet dug. As the Harvard Business Review noted, “India’s digital state (it ranked 42nd out of the 50 countries we studied in our Digital Evolution Index), does not engender the threshold of trust needed for cashlessness to take hold in a meaningful way.”

Worse still, there is a transaction cost involved in each digital payment that is absent in any cash exchange—so using “less cash” actually involves more expenditure for the payer. This obviously affects ordinary citizens who are used to cash, which involves no transaction costs for them. It is also expensive for merchants to adopt digital payments, which affects them adversely. Merchants highlight the high cost of even trying out these machines as a factor that is driving down interest in acceptance of digital payments. “I was thinking of installing a card machine at my store. But the banks asked for a ₹5,000 deposit,” said one merchant in a recent study.

The government is doing nothing to ensure point-of-sale machines are made available to traders, small retail outlets, and small and micro enterprises, free of cost, as I suggested in Parliament, or to remove charges for all cashless transactions.

The financial implications of moving to a “less cash” economy have raised related concerns. Dark suggestions have been made that the real beneficiaries of demonetization are the handful of companies that specialize in digital payments, especially by mobile phone. (Only 2 percent of India’s nearly one billion mobile phone users have ever used their phones to make digital payments; although this figure began shooting up after demonetization.) In addition, digital transactions, by leaving a traceable record, add to the state’s ability to monitor individuals’ expenditures. As former Finance Minister P. Chidambaram asked,

why should a young adult be forced to disclose that she bought lingerie or shoes or he bought liquor or tobacco? Why should a couple be forced to leave a trail of a private holiday? Why should an elderly person leave a record that he bought adult diapers or medicines for his ailments? Why should the government or its numerous agencies have access to our lives through access to Big Data?

These are serious questions that call into account the Government’s insouciant announcement of objectives that were never presented to Parliament for approval until three months later, when the policy was irreversible and the damage had already been done.

Equally serious is the continuing concern about the legality of the government’s action. The entire demonetization exercise had been conducted by the issuance of gazette notification no. 2652 by the Joint Secretary, Finance, under Section 26(2) of the Reserve Bank of India Act of 1934. This provision gives the Union government the limited power to demonetize certain series of the country’s currency through a notification. This provision does not, however, give the government the power to freeze bank accounts through limits on cash withdrawals, disrupt normal banking operations, and impose mandatory disclosure requirements (such as identity cards) while depositing cash into bank accounts or exchanging old notes.

The relevant provision of the aforementioned Act unambiguously states:”(1) Subject to the provisions of sub-section (2), every banknote shall be legal tender at any place in India in payment or on account for the amount expressed therein, and shall be guaranteed by the Central Government.”

This means that the money every Indian holds in her hand or in the bank is a debt guaranteed by the government to her. Currency thus represents a ‘public debt’ owed by the government to the holders of banknotes. “I promise to pay the bearer of this note ...” vows the RBI Governor on every Indian currency note. Every currency note is a contract between the bearer and the state, something that has been signed in good faith and ratified by the prevailing law of the land. The questions that then arise—and have still been left unanswered by the government and the courts—include: Can this contract be repudiated unilaterally by the state? On what legal grounds can the RBI write off notes that it had promised to honor?

And while we are considering the issue of legality, why has the RBI not placed in the public domain the Minutes of the RBI meeting of November 8th, 2016, that was supposed to have requested the prime minister to make the announcement he did? Is it for fear of revealing the real nature of the meeting would only confirm the Bank’s surrender of its autonomy to the government? Only eight out of 21 Directors attended, and four of them were officials. Only four independent Directors were present.

This entire decision-making process was a Government exercise trampling on the autonomy of the RBI, rather than a decision of the institution meant to be in charge of India’s monetary policy.

Among the longer-term effects of this monetary disruption have been unemployment and severe dislocation of India’s informal economy; the collapse of many marginal businesses unable to survive the ongoing loss of income; severe reductions in crop yields and problems pertaining to agricultural credit; and the accelerated flight of investment out of India.

Even more worrying is the prospect of a long-lasting decline in India’s so-far robust economic growth, and the danger that it will push more Indians who were in the process of escaping poverty right back into it.

The burden of demonetization has undoubtedly been regressive, as it has most negatively affected the poor and the unbanked, which have had to lose their daily wages to stand in queues or have lost their jobs because of non-functioning markets; and they are the ones who are expected to transform their financial habits. The truly cashless are the poorest Indians, who depend on cash for their daily survival: as the Harvard Business Review puts it, “this unfortunate crisis is a case study in poor policy and even poorer execution. Unfortunately, it is also the poor that bear the greatest burden.”

While many Modi fans are blaming the implementation rather than his intent, the fiasco was inherent in the design of the policy.

It is clearly a “symbolic” policy—high ambiguity, high conflict, top-down, centralized, and authoritarian. There was no “policy skeleton,” and, worst of all, no cost-benefit analysis, no evidence that alternative policy options were considered. It is clear no impact study was done, judging by the blizzard of new official notifications every day, tweaking and fixing the regulations.

The government has presided over a non-transparent policy environment that seems entirely unconducive to the creation of a cashless society.

This is a manufactured crisis. The government, for no public benefit anyone can understand, has thrown a spanner into the works of the Indian economy. It is an ill-conceived scheme, ill-planned, poorly thought through, badly implemented, and disastrously executed. Demonetization failed in its stated objectives. Deep rooted problems, like corruption or terrorism, are not amenable to blunt, one-off policy instruments. Demonetization was the equivalent of an “anti-stimulus” policy intervention, and the consequent drag on demand has been significant. The government liked to boast of being the world’s fastest-growing major economy; it is a boast it can no longer make, since, thanks to demonetization, it slipped behind China again.

Modi came to power in 2014 promising to boost growth, create jobs for India’s youthful population, and encourage investment.These objectives lie in tatters with his ill-considered demonetization. He abolished the central government’s Planning Commission to signal that the days of top-down statist control of the economy were over, but his demonetization decision has brought back the worst days of government control. His reputation for being an efficient and competent manager is irremediably stained by the implementation disaster. How long it will take for India to recover is anyone’s guess.