Demonetization Seems Like Deflation for Many People in India; Danger Signal for PM Modi
Monday, November 14, 2016
Narendra Modi talked emotionally about his commitment to eliminating black money yesterday (13 November) and sought 50 days to fix the cash crisis created by the demonetisation of Rs 500 and Rs 1,000 notes. Actually, he has far less time than that as the ordinary citizen’s patience is wearing thin after hours of standing in the sun before bank branches or ATMs. Modi has a potential PR disaster and political setback to reckon with.
Granted, secrecy needs made it difficult to prepare the system for the cash demands now placed on it. But the fact remain that the government grossly underestimated two challenges: the extent of cash holdings in the demonetised denominations held by the poor and lower middle classes, and the scale of cash used in day-to-day transactions. It is these transactions that have been decimated by the move to root out black money.
For the first time in independent India’s history, we are getting a live demonstration of what deflation may look like. Deflation is more dangerous for governments in power than inflation.