Demonetisation report card for India still mixed but shows promise

SPEAKING at the World Economic Forum in Davos, Switzerland, Columbia University professor and Nobel laureate Joseph Stiglitz made the radical suggestion that the United States should follow India's example and go through the process of demonetisation to rein in tax evasion and corruption.

Indian Prime Minister Narendra Modi's decision to demonetise high-value currency notes of 500 rupees (S$10.40) and 1,000 rupees almost overnight on Nov 8 last year has sparked a global debate among economists on the merits or otherwise of the move. These two notes represented 86 per cent of the total currency in circulation in the country, which translated to roughly US$250 billion.

On hindsight, one could argue that several steps were taken by Mr Modi's government in preparation for this move. Tax evaders - India has the dubious distinction of only 2-3 per cent of its population paying income tax - were given the choice of several schemes to declare black money and pay taxes. Simultaneously, there was a massive drive to reach out to the unbanked and provide them with basic bank accounts. Reports estimate that whereas in 2014, when Mr Modi's party came to power, only 45 per cent of Indians had bank accounts, now 94 per cent of households have them.