Prime Minister Narendra Modi announced demonetization of Rs 500 and Rs 1000 notes of Indian currency on November 8, and backed it with assurance to stop terror funding, combating counterfeit currency and surgically striking corruption. However, opinion on this decision is very far from a consensus in both the expert and the non-expert domain and after one month of implementation reality is far from the assurance as all three major concerns raised by the Prime Minister are being quashed and similar cases reported across India regularly post-demonetization.

Economists have argued that this move has left the biggest chunk of black money untouched – the stacks that lie in undisclosed accounts in Swiss Banks whereas pulling out 86% currency notes has derailed Indian economy and affecting rural & agrarian sectors never before.

Paul Krugman, who won the Nobel in 2008 for his work on global trade, said while he could understand the motivation for demonetisation, the move was “highly disruptive”. It is difficult to see major gains from India’s decision to drain out high-value banknotes from the economy, and the move might only force the corrupt to become more careful in the future, economist Krugman said.

“This is by far the most sweeping change in currency policy that has occurred anywhere in the world in decades,” Lawrence ‘Larry’ Summers, a former chief economist of the World Bank and ex-economic advisor to the US President, said in a blog. In his blog written jointly with Natasha Sarin, Summers said most free societies would rather let several criminals go free than convict an innocent man. “In the same way, for the government to expropriate from even a few innocent victims who, for one reason or another, do not manage to convert their money, is highly problematic,” the blog said. Describing the Indian government’s demonetisation steps as the “most sweeping changes in currency policy in the world in decades”, a top global economist said without new measures, this is “unlikely to have lasting benefits” and that it has resulted in “chaos and loss of trust in the government”.

Former IMF chief economist Kenneth Rogoff, who is presently at Harvard University, wrote in a blog, “What is happening in India is an extremely ambitious step in that direction, of a staggering scale that is immediately affecting 1.2 billion people”.

In an interview to NDTV, Nobel Laureate and eminent economist Amartya Sen said, “The demonetisation of currency was a despotic act as the government broke the promise of compensation that comes with a promissory note.” “Demonetisation goes against trust. It undermines the trust of entire economy,” Sen further said. Earlier while speaking to The Indian Express, Professor Sen said, “Only an authoritarian government can calmly cause such misery to the people – with millions of innocent people being deprived of their money and being subjected to suffering, inconvenience and indignity in trying to get their own money back.”

Making high-denomination notes illegal is not a permanent solution for rooting out black money from the system unless sustainable processes are put in place, Nobel Peace Prize winner Muhammad Yunus told ET. “Demonetisation does not solve the problem of the process which created it. The system which created the black money will remain in place unless that becomes our next attention point. We may clean up once, but again it will come back unless the government pays attention to the processes and solves the problem permanently,” the world renowned microfinance pioneer and founder of Grameen Bank said.

Former Prime Minister Manmohan Singh slammed the demonetisation of Rs 500 and Rs 1,000 notes and called it a “monumental mismanagement” that might bring GDP down by 2 per cent. When Manmohan Singh, stood up in Parliament while debating this policy to say, “Those who say demonetization is good in the long run should recall the quote: ‘In the long run we are all dead’. In my opinion that the way the scheme has been implemented will hurt agricultural growth in our country, will hurt small industry, will hurt all those people who are in the informal sector of the economy. And my own feeling is that the national income, that is the GDP, can decline by about 2 per cent as a result of what has been done. This is an underestimate,” Dr Singh said. Former Prime Minister led the Opposition’s charge on the issue of demonetisation and called it a case of organised loot and legalised plunder of the country.

Former Finance Minister P Chidambaram said its after-effects will continue for a longer period than expected and wondered whether government had consulted its chief economic advisor before taking the decision. Chidambaram said the exercise will not completely remove the counterfeit notes from the system. “There is only Rs 400 crore of counterfeit currency, 0.028 per cent in a total circulation of Rs 16.24 lakh crore. If somebody can tell me in five seconds, how many zeros are there is 16.24 lakh crore, I am willing to give him Rs 100, very priced now,” Chidambaram said.

While former RBI governor Raghuram Rajan has not made an official statement regarding this move, he has expressed reservations in the past about the effectiveness of demonetization as a means of tackling money laundering, possibly indicating that he too might be in this camp of skeptics. “I am not quite sure if what you meant is demonetise the old notes and introduce new notes instead. In the past demonetisation has been thought off as a way of getting black money out of circulation. Because people then have to come and say “how do I have this ten crores in cash sitting in my safe” and they have to explain where they got the money from. It is often cited as a solution. Unfortunately, my sense is the clever find ways around it. They find ways to divide up their hoard in to many smaller pieces. You do find that people, who haven’t thought of a way to convert black to white, throw it into the Hundi in some temples. I think there are ways around demonetization. It is not that easy to flush out the black money. Of course, a fair amount may be in the form of gold, therefore even harder to catch. I would focus more on the incentives to generate and retain black money. A lot of the incentives are on taxes,” said Rajan in 2014.

“Demonetization was ostensibly implemented to combat corruption, terrorism financing and inflation. But it was poorly designed, with scant attention paid to the laws of the market, and it is likely to fail. So far its effects have been disastrous for the middle- and lower-middle classes, as well as the poor. And the worst may be yet to come,” leading economist Kaushik Basu wrote in The New York Times. “Both these justifications are flawed. Catching fake notes already in circulation neither helps trap the terrorists who minted them nor prevent more such money from being injected into the economy. It simply inconveniences the people who use it as legal tender, the vast majority of whom had no hand in its creation,” Basu wrote.

Former Union Minister Arun Shourie mocked the claim of demonetisation of high-value currencies being a radical measure, stating that jumping into well or committing suicide is also radical.

Arun Kumar, a revered economist said, The Rs 1,000 and Rs 500 denomination currency notes constituted 86 percent of the currency and it has been sucked out of the system. It’s like taking out 86 percent of blood from a person’s body. Imagine, what will be the effect! He will die. Same is with the economy.

Professor Prabhat Patnaik, a reputed economist and scholar said, “What the Modi government has done is unprecedented in the history of modern India. Even the colonial government had shown greater sensitivity to the convenience of the people than the Modi government has done by demonetizing only those notes which were possessed by the super-rich and not those possessed by the people at large. This “emergency measure”, however, is in line with the numerous other measures being currently pursued by the Modi government which has embarked on an undeclared “Emergency”: it is as fatuous as it is against the people. This move betrays a lack of understanding of capitalism in the government. Typically, what happens in capitalism in a situation like this is that there would be a new business opening up about how to change old currency notes into new ones. This is what Schumpeter called innovation – and in capitalism that is forever happening. A whole range of people would come up who will say you give us Rs 1000 and we will give you Rs 800 or 700 or whatever. Consequently, instead of curbing black business it will actually give rise to the proliferation of black business. Likewise, for instance, since there is no distinction between black money held as part of business and white money held as part of business, many of those engaged in black business would like to get others engaged in white business to change money for them. And they would, therefore, backdate bills and apparently purchase from them, etc. Millions of such transactions would be happening and if they do, no tax authority will be able to catch these transactions. This way of unearthing black money is something which inconveniences people enormously, without really being successful in stopping the flow of black money”, said Prof. Patnaik.

Pulapre Balakrishnan, Director of Centre for Development Studies and Professor at Indian Institute of Management Kozhikode said, “We have no idea really how much unaccounted money will be driven over ground due to this measure, and can say with certainty that there is nothing in it to ensure that financial transactions of the future will all be accounted for. What, for instance, will ensure that unaccounted income to be generated will not be held in the form of the new Rs.500 and Rs.2,000 notes to be issued by the RBI?” asks Balakrishnan.

HSBC’s chief India economist, Pranjul Bhandari, said in a note that about 60 percent to 80 percent of India’s consumption basket is cash-intensive, including food, transport, real estate and restaurants. “We assume that growth for these components halve on the back of the monetary shock,” Bhandari wrote. She expected India’s full fiscal year gross domestic product (GDP) growth to be 0.7 to 1 percentage point lower.

Meera Sanyal, an ex-banker said, “I think what we really need to do is to figure out how do we go forward from here? And, if you were to ask me I would say that what is really critical – cashless can wait, you can tackle the counterfeit story, you can do different types of notes – but what can’t wait is the economy. I would like to say one thing; I think it’s a basic principle of business – no business goes bankrupt because they don’t have money or they don’t have profits. They go bankrupt when they go out of cash; when you can’t pay your employees, when you can’t pay your creditors. You may have cash somewhere sitting as an aero plane or as a house or whatever it might be. But if you can’t pay that month, you go bankrupt. And, the problem is that millions of small and medium businesses are being pushed towards bankruptcy”, Sanyal said.

Union agriculture minister recently said in a meeting in Delhi that, agricultural sowing between November 8 and November 18, 2016 in India is higher in comparison to the same period in 2015. But he has not mentioned the mechanism to figure out these numbers as the period is unusual to keep records and if it is true, then why the import duty on wheat has been removed. It will further benefit intermediaries & hoarders and left farmers with few takers.

Statistical studies establish 5-6 per cent black money stashed as cash currency notes and there are other safer options available and categorically mention that 1 per cent Indians own 53 per cent Indian assets and 10 per cent Indians own 75 per cent Indian assets. Now, instead of targeting fountain heads of corruption and black money generation points, government has disrupted economy run by 86 per cent of currency notes and derailed the whole nation and even after one month queues outside banks are not getting reduced.

The demonetized Rs 500 and Rs 1,000 notes accounted for over 86 per cent of the total Rs 16.24 lakh crore value of banknotes in circulation as on March 31, 2016, according to Reserve Bank of India’s latest annual report. It is reported on December 7, 2016 that Indian banks have received 11.55 lakh crore value of banknotes and in another report on December 9, 2016 figure increased to 13.40 lakh crore value of bank note. Seeing the trends and considering that 22 days are still left, it can’t be ruled out that banks get all currency notes deposited and it may disturb government’s planning of reprinting the shortfall of currency notes and become its owner which could accelerate economic growth. Though government is eyeing shortfall of 3-4 lakh crore of old currency notes but now it looks bleak to meet the numbers. There is another speculation that deposits may cross the actual currency notes in circulation and if it happens, further re-establishes anomalies in the system and rampant embezzlement going on between banks officials and middle-men converting black money with new currency notes and old currency notes are repeatedly coming out through back channels. Scary & alarming it is.

Economic expert’s views are further questioning the abrupt policy announcement and its short & long term woes without time frames. There is an urgent need to define black money, as we have banking economy & non-banking economy, former is an organized sector whereas latter has more cash transactions but employs 80 per cent of Indian work-force and can’t be termed black money generating market, catering those who have no access to banking facilities in rural areas instead.

The whole nation is under severe shortage of cash and it is directly affecting farmers, small & mid-size businesses, vendors, daily wagers and labourers, and more or less every Indian citizen depending upon their economic capacity & buffer. And most pertinent question is who to be held responsible for 90 reported deaths caused due to demonetization, unreported casualties may increase figures.

Post- demonetization large migration, industrial closures, unemployment, price rise seen across India and such disruption to rural economy without replacements and proper framework show severe dearth of economic wisdom. There is an atmosphere of confusion and it is unsettling the business sentiments and certainly increased the trust deficit among people. And it grows when people queued outside banks for Rs 2000 get to know about Income Tax sleuth seizing black-money in new currency notes worth in crores, it is really suspicious how these large amounts are possessed in new currency notes whereas withdrawal limits are already framed by the central bank. It endorses that demonetization can never work until the sources generating black money are checked.

Prime Minister Narendra Modi, sooner the better, must admit that demonetization has proved to be a disaster India faced in many decades. It has disturbed Indian economic growth and almost affected every sector of $2.5 trillion economy. He must activate the disaster management to control the damages already done.

Always remember that the crowd that applauds your coronation is the same crowd that will applaud your beheading. People like a show. And demonetization is a showdown.

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