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It's the morning of November 8, 2016.
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You are the Prime Minister of India for the rest of that day.
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And in that day, you have to enact exactly one policy, which without breaking the law
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or going against the constitution of India, hurts the people of India the most.
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To the maximum damage, to the maximum people, whose effects will linger for the longest
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This is a thought experiment I've been posing to my friends for the past couple of months
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and none of them, not one of them, has come up with a policy worse than what our Prime
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Minister Narendra Modi actually announced on the evening of November 8, demonetization.
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Welcome to the seen and the unseen.
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Our weekly podcast on economics, politics and behavioral science.
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Please welcome your host, Amit Bhatma.
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Welcome to the seen and the unseen, my weekly podcast on the seen and unseen effects of
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public policy and private action.
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On November 8, 2016, India's Prime Minister Narendra Modi announced that 500 and thousand
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rupee notes would cease to be legal tender from Bindai that day.
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These notes constituted 86% of the cash in circulation and essentially reached into every
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single pocket in the country.
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My first reaction when I heard of the move was that it was bound to be a disaster.
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I remembered Frederick Hayek's warning about the limits of knowledge.
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A move like this disrupted too much of the economy, reached into too many lives and the
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unknown unknowns, as it were, the unintended consequences were terrifying.
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It's been just two and a half months since demonetization or note bandi as it's also
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called and we are still coming to terms with the initially unseen effects.
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None of the news is good, but the interesting thing is that even at the level of initially
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seen effects, there is no good news.
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The government laid out a bunch of desirable objectives, but did those really materialize?
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To discuss the seen and the unseen effects of demonetization, I have with me today Suyash
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Rai, an economic analyst based in Delhi.
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Suyash, welcome to the show.
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Thank you for having me.
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Suyash, before I talk about the unintended consequences of demonetization, I want to
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talk a bit about the intended effects.
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A primary intention behind demonetization was to hit black money.
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How far do you think the government succeeded in this?
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So let's first understand what the decision was and what are the pathways through which
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it could impact black money and those holding black money.
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The decision was precisely to discontinue the legal tender status of 500,000 rupees
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notes from 8th November midnight.
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And these notes basically were 86% of the currency in circulation and lots of people
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held these notes and some of these notes must have been held by those who had made black
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money over a period of time.
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Now people make black money and then they accumulate it over a period of time, right?
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That's unaccounted wealth is the right term to use for that wealth that they hold.
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And that wealth is held in many forms.
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Some of it is probably held in cash form.
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Some of it is held in form of property, binami, in gold, in the form of shares, in the form
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of wealth stored in foreign accounts.
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So there are many ways in which it may be held.
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And this one pathway of impact on black money from demonetization is an attack on the cash
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form of unaccounted wealth.
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So, I mean, we don't have really good estimates of how much is that because we're not observing
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all the behavior across the country about how unaccounted wealth is stored.
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But one source of data that we have is from the rates that are conducted by the tax authorities
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So if you look at the data that was provided by the Ministry of Finance in its 2012 white
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paper on black money, it provides data from over 23,000 tax rates conducted over several
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years from 2006 onwards.
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And what it shows is that from the total undisturbed income that is found after these rates are
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conducted and investigations are conducted and you figure out how much is undisturbed
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income that a person was having less than 5% on an average is the cash that is caught
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in these investigations and reads.
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So it is not a totally precise estimate of the unaccounted wealth in cash form, but it's
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a reasonably good beginning point.
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Now based on some other considerations that you may have, you can adjust it.
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But if it's less than 5% from this data, I would not be keen to accept any estimate more
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than 6-7% of unaccounted wealth being in cash form.
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So that's what we're talking about here.
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That's the first pathway.
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And even if a person loses all of that 5-6%, the welfare loss for him or her is not very
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big because what can you buy with 100 crore that you can't buy with 93 crore or 94 crore.
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So when it's the inconvenience, it's a tough time for a few days, maybe weeks, but it's
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not going to disrupt your life entirely.
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There is another pathway which we'll know over a period of time how it played out.
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This is a pathway of enforcement opportunities.
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So what has happened is that lots of people must be trying to launder money, trying to
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hide money, trying to get money exchanged.
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So in that process, some of them will make mistakes and will get caught.
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We're hearing lots of news reports of tax authorities conducting raids on people with
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new money or old money trying to get it laundered.
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But it is not adding up to a large number, right?
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I read a report, the Centre for Monitoring of Indian Economy had done a summary of all
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these raids that have been conducted.
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And so far, after two months, this is as of 6th of January 2017, the total undisclosed
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income from all these raids added up to just over 5000 crore rupees.
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And just imagine you've cancelled 15.4 lakh crore rupees of notes in circulation.
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And this pathway has still not given you 5000 crore rupees, if this estimate is to be believed.
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The other pathway which I just talked about where a loss has been inflicted upon the person
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who is holding unaccounted wealth in cash form, we don't even know how much is that
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because we have not yet been told, we are recording this on the 12th of January 2017
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and we don't even know how much money does not come back into the system.
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So that's one estimate about how much may have been destroyed in the hands of people
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holding unaccounted wealth.
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And even the money that doesn't come back, part of it may be genuine people who had to
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Like I read an op-ed by someone who had a 50,000 rupees in crisp old but crisp notes
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of 500 rupees each and that person simply had lost trace of it and found it after the
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So we are in a situation where we can't truly tell, but even if you assume that all of the
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money that doesn't come back, all the old money that doesn't come back is basically
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black money that has been disrupted and destroyed, we have, it is not likely to be a big dent
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on those holding black money because we have some idea that their total unaccounted wealth
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only a small portion of it is in cash form.
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So essentially to sum it up, one, this move attacked the stock and not the flow of black
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Two, even as far as the stock of black money was concerned, the estimates by the finance
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ministry themselves based on these IT rates showed that around 5% of black money is actually
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kept in the form of cash.
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And even that from the anecdotal evidence I hear all around me has been laundered very,
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So the black money holders have at best suffered the kind of minor inconvenience that the Modi
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government promised they would, but the people would, but the poor have suffered far, far
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Moving on to sort of the next rationale given for demonetization, which was that this will
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attack fake currency, that there's a lot of counterfeit currency out there.
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There were whispers about how Pakistan is introducing fake currency into the market
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is used for terrorism and so on.
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How much credence does this explanation hold?
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So let me be very clear.
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This decision will wipe out all the fake currency in the economy.
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Because we know that most of the fake currency is in 500 and 1000 rupee notes.
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So it's an achievement and that's a good thing to have happened.
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However, let me just discuss the scale of this problem.
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So the problem is being solved through this decision, but the scale also matters about
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how big a problem it was and should such a disruptive decision have been taken to solve
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So National Investigation Agency along with the Indian Statistical Institute, Calcutta
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had in early 2016 done an estimate of total black money, total fake currency in circulation
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And that estimate pegged at around 400 crore rupees.
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So out of about 18 lakh crore rupees of currency circulation, only about 400 crore rupees was
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in fake Indian currency note FIC.
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So one out of 4000 notes is basically was estimated to be the fake currency.
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And this estimate is not done by some independent researcher sitting in his office, but by the
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four most statistical institutes in this country and the foremost investigation agency in the
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So that was the scale and this would have disrupted it.
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But it is not a permanent solution to the problem of fake currency because it's only
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a question for those who are trying to circulate fake currency in the Indian economy.
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They have to just adapt.
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They have to change their machines and bring out new fake currencies.
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There have already been reports of people trying to fake the new 2000 rupee notes through
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very kind of crude methods as of now, but even the more sophisticated methods will be
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used and they will come back.
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But at least from what I have read about it, this is not usually the method that countries
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employ for addressing fake currency.
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Usually what is done is that slowly you phase out the old notes so that the fake currency
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that was in those designs are removed, we did two years ago, we basically eliminated
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the two 500 rupee notes that were issued before 2005 and that helped address the problem.
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Secondly, you try to intercept when they are trying to infuse this currency into the economy.
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So for example, we in India are able to intercept about a third of the fake currency that they
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So that takes care of a part of the problem.
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So it's first of all, the scale is not as big.
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If you look at the scale of this problem for USD and all is much bigger.
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And secondly, there are other better methods, gradual, but better methods to address this
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The third rationale which is often given is connected to the fake currency to some extent
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is that terrorism and criminality thrive on, are a cash economy, they thrive on cash and
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that they would be affected by this.
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What's your take on this?
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I think that's a reasonable expectation.
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To a large extent, these activities are cash based.
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For example, there have been reports that child trafficking has slowed down or totally
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disrupted because it was a largely a cash based network.
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But we have to think about whether this is a permanent impact on these activities or
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even a medium term to long term impact, or is it something which is just in the transition?
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Because the entire economy is disrupted because if you cancel out 86% of the currency circulation,
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so all activities, a subset of those activities are criminal and terror activities.
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And we have to see whether some of these networks are permanently disrupted.
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That we will know over a period of time.
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For example, some of the networks could not withstand the pressure of not having any activity
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for two, three months or four months.
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If they are permanently disrupted, that's a benefit for society in the long run.
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But other than that, only short term, because you're already seeing reports of terrorist
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activities being conducted and you've catched or killed terrorists who have the new notes
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There was some encounter in Kashmir and there is no evidence at least from say, you look
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at Kashmir, the number of terror attacks has not really decreased in these.
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So there are so many other factors that come into play that it's very hard to assign causality
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or any kind of counterfactual.
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Maybe it would have been higher.
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The terror attacks frequency would have been higher if demonetization was not done.
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But I don't think there is any evidence to suggest or even a prior reasoning to suggest
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that there's going to be a permanent impact on these activities.
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But there will be a short term impact because as you rightly said, there's a considerable
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amount of cash intensity to do these activities and that will be disrupted.
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But I mean, demonetizing 86% of currency is not the argument.
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This argument always seemed a little specious to me because I would think that, look, if
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you disrupt all businesses, you will of course disrupt these kinds of businesses as well.
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Like if you disrupt your all mobile network in the country, okay, then all will talk to
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So I want to move on from this a bit.
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I mean, the remarkable thing about this demonetization and why it's unfair to compare it to say,
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you know, earlier demonetization is the last time when this happened in the late seventies,
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the notes in question were really high denomination and they constituted only 0.6% of the total
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These are 86% of the total cash supply.
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A 500 rupee note today will buy you less than a 50 rupee note would have bought you in 1978.
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So the common man uses these notes.
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These aren't just used for storing illicit money, but actually for everyday transactions.
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So tell me a little bit about the enormous impact this must have had on the economy.
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So let me begin by just drawing a track from what you said that these are not really high
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These are higher denomination notes than other notes that circulate in the Indian economy.
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So if you look at other countries, there is a 500 euro note, there is a thousand Swiss
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franc note, there's a 10,000 yen note.
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These are high denomination notes.
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So in fact, EU has studied the use of 500 euro note and they also are trying to phase
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out gradually, not in this overnight fashion, the 500 euro note, because the studies show
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that it's being disproportionately used for storing black money or for criminal activities
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and all, because not a practical medium of exchange note, right?
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So these notes have two core key functions.
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One is the store of value, store of white money value and black money value, right?
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And the other function, which is a very important function, probably the most important function
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is the medium exchange function.
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It is used to buy things, to transact in the economy, right?
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So these two are the uses.
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What you are trying to address is the store of value function for black money.
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That's the limited thing you want to address.
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But in the process, you've disrupted the store of value in white money, as well as the whole
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video exchange function in the economy.
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And as I said, the 500 and 1000 rupee notes are not very, very big notes.
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Everybody is using them.
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These are practical medium exchange notes.
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For example, if you want to go and buy grocery, you can easily get a thousand rupee change
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because it's not a very expensive note in purchasing power parity terms is just $30
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So now in the Indian economy, especially this is important to understand because the economy
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is still very cash intensive in terms of the volume of transaction and the value of transaction
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There's a lot of large value business to business transactions have moved online because it's
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not practical to give 100 rupees in a cash form to a company from which you're buying
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lots of auto parts, right?
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That's not how it works.
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But in retail, if you look at individual and retail behavior.
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So let's look at two points.
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One is how many people have used non-cash instruments.
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So in 2013, there was a survey done, which showed that more than 90% people had never
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used anything other than cash, never.
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So that's one fact for you.
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Second is that there are about 1.5 crore shops in this country, retail shops out of these
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1.5 crore, there are only 14.6 lakh devices to accept debit or credit cards.
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And some of these devices are actually such that in one shop, there are two or three devices.
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So you can say less than 10% well below 10% shops have the facility to accept card based
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This was the reality on November 8th.
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So of course these things should change and will change over a period of time.
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But what does this means is there is a certain disruption that sets in on the decision is
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taken in such a sudden way.
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So what you're seeing is that, yes, some people have in terms of the number of transactions
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moved to the cashless instruments and using it.
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But even there, the values of transaction are actually not increasing.
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They're actually dropping on average because they're trying to adapt and figure out whether
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to spend, how much to spend and all of that.
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We have to figure that out what is happening there.
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But this is a massive monetary shock.
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Now let me just come to contextualize the monetary shock a little bit.
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When the decision was taken, they were about 18 lakh crore rupees of currency in circulation
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out of which 15.4 lakh crore rupees were in 500,000 rupee notes, which was disrupted.
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There are about 10.5 lakh crore rupees in demand deposits in banks and more than 96
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lakh crore rupees in time deposit in banks.
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So this is a part of that overall money supply that is available to you and me for transacting
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and for storing the value.
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Now out of this currency circulation, 86% was destroyed, not the 86% of total money
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So people who are only using cash for them, almost 100% of the practical medium exchange
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So those are where the impacts are likely to be.
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So there's likely to be a lot of impact on the informal sector.
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So if the Federation of Small and Medium Enterprises has said that 80% of their members have been
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severely affected by this decision, we know the impact when better measurements are done,
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So in the formal economy where the GDP measurement will show a certain impact, we'll know in
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a few quarters what is the impact because the recent estimate that was put out by CSO
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does not take into account the data in November onwards, but we will know and the estimates
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about what is that impact range from 0.5% to 3.5%.
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I've not done any forecasting, but it is likely to be a significant impact.
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And just remember that 1% of GDP is about 1.5 lakh crore rupees of cost and much more
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important to understand and this cost will incurred by people who didn't do anything
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So the nature of this cost is very different from the nature of the benefit.
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So you can't say that one rupee of benefit in the form of a loss inflicted on someone
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who was holding black money is the same as one rupee of wage loss for a laborer who's
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So the nature of costs and dimensions are very different and you have to take that into
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account while you're comparing by cost and benefits.
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So even if suppose we figure out that two lakh crore rupees of loss was inflicted on
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people with black money, you better have much smaller cost to justify that.
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You cannot say that as long as one lakh, 99,999 crore rupees worth of costs have been incurred,
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it's okay because the benefit out of the cost, no, that's not how it should work because
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if you truly take the welfare implications into account, the welfare implication for
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someone holding the black money and getting a 5% haircut is almost negligible while welfare
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implication of a person not able to get wage for 10, 15, 20 days is much more significant.
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So that you have to take into account.
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That's good applied economics that in fact is a part of policy making when you do cost
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benefit analysis in many countries, you'd have to take equity considerations into account
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and once you take into account my hypothesis right now is that costs are going to outweigh
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I mean the humanitarian costs are massive and one reason for this is that despite the
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government's energetic PR on this matter, the fact is that a lot of people weren't
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equipped to even begin moving towards a cashless economy.
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The fact remains that around 600 million people or 60 crore people don't have bank accounts
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and 300 million people don't have any form of ID whatsoever.
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So this means all the people who store their life savings in cash, a significant number
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of them aren't even able to go to the bank to exchange it for new notes or to move seamlessly
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into what you call the digital economy and what's your take on the sort of the impact
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on the informal sector and the impact on the poorest of the poor?
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So data will come in right over a period of time we learn more about what's the impact
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on different sectors and different I mean wage employment creation, the association
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of manufacturers in India have put a very drastic numbers out of the job loss because
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of this, revenue loss because of this, 30-40% job loss, 50% drop in revenues, they put
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out a large survey just a few days ago about the impact on their members, these are the
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manufacturers, this is the making India crowd.
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So you've got these bits and pieces of data that are coming out, some of them are pretty
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significant and we have to look further into what is going on and some others we will know
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But even if you don't have this data, you're sitting on 8th of November, you should be
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able to say with some level of confidence with certain range, what is the likely impact
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on these because these are businesses which have supply chains, which are very cash intensive,
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you know, they may be a case to be made for pushing, I mean slowly nudging them towards
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a less cash behavior, you know, but to do this in this manner is a little, you know,
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So and what is the environment in which this is happening?
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If you look at the corporate data from 2016, about a third of the firms in India, which
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do regular reporting, were in financial stress.
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It means this precisely that their operating profit was less than their interest obligation
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So that means that they're not even able to earn enough to be able to service their debt,
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which means they're very close to failure, right?
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So a third of them were there before this event happened.
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Now suppose some of them fail because of this.
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So those that organizational capital that was created by some bunch of entrepreneurs
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and people working together over years and decades to create that will be lost forever.
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That's a permanent loss for the economy, that's a productivity loss.
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People who are working there for them, it's a job loss and given the fact that generally
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their economic condition is not good.
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You look at the investment data, the gross fixed capital formation, data on new investment
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announcements, data on fixed assets of firms, all across there's been a drop in the last
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before the unification also, there was a significant drop, for example, GFCF is this year expected
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to even the CSO's own projections drop, which is a very rare thing because GFCF is a measure
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of investment in the economy and in a developing country, it usually just grows.
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But if you look at the last decade, in most years it has grown by double digit numbers.
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This year it's going to shrink.
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So that's the context in which this is happening.
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So if it was a very good situation and we were in a real boom situation, then the impact
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would have been a little less because many less firms would have been on the border of
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failure between failure and survival.
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But now there's so many firms on that border that's more likely to be pushed down to failure.
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And that's a discontinuity.
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That's not just, you know, a step down, that's a throw into the abyss.
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You fall into the abyss.
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It's like a quantum leap backwards.
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So those firms and they fail, I mean, it's not a reduction in profit, it's a destruction
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of organizational capital.
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It's a direction of certain jobs, certain productivity in the economy, which is lost
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forever and it will take years to recreate it because you know, I mean, how difficult
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it is to create a firm and make it survive, create some jobs.
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And this was a particularly bad time because firms are already hurting.
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One interesting statistic I saw, which illustrates how different strata of society have been
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affected by demonetization is automobile sales, which have dipped sharply.
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Most of all in the two wheeler and three wheeler segments, but SUVs haven't really seen a dip,
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which indicates that those who are relatively well healed and traditionally the holders
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of black money have done their jogar, they've laundered whatever they had to launder and
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it's really just a poor who are suffering.
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All of the economic disruption that is happening now, these firms going through welfare shocks
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and shutting down all the people losing their jobs, the migrant labor shifting back and
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asking for NREGA, how does it play out in the long run?
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Is it like a sort of a temporary disruption and all the migrant labor will be back in
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the cities next quarter or is it something that has ripple effects that go much beyond
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this and keep hurting the economy over a period of time?
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So let's set aside economic theory and just talk in terms of what we observe in the world.
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So yes, I'm expecting that by end of March, cash shortage will be mostly eased, right?
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ETMs will have cash, branches will not decline you money beyond 24,000 and all of that.
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So let's assume that is going to happen and things likely to happen.
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So at that point, some people are saying the disruption is the shock is going to end.
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Yes, the shock in terms of the monetary shock will end that day, but there are knock on
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How does the world work?
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Like why do companies produce, why do business factories produce?
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Because you and I can go and buy.
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Why are we, you and I able to buy because we are earning from somewhere, right?
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Why are we being paid because there is some demand for our labor, you know, by in those
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companies that we work or wherever we work and on and on it goes, right?
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When you disrupt this, like for example, you talked about auto sales, there's been a huge
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shock on two and three wheeler sale, right?
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Which will show up in the production numbers later.
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The production should be realigned to produce fewer two and three wheelers.
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You don't want to just produce the stock, right?
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That's extremely inefficient.
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So that has an impact on the employment in these sectors and their ancillary industries,
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So those people will earn a little less.
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If they earn a little less, they will be spending a little less.
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And that will have a knock on effect on the demand and in various sectors in the economy.
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Second is that banks whose NPAs are at 9.1% of their total advances is, are going to probably,
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I mean, they have to see how it goes, is probably going to be in a much worse shape.
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First of all, the immediate impact because it's two, three months, they're not doing
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anything other than this dispensing of cash.
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So they haven't had the time to really figure out collection and all of that.
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But some of the firms that were basically indebted by the banks will go into stress
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because of this event and there will be more bad debt created because of that.
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Some more NPAs might be created in some countries which was about to come back into a situation
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where they can repay the bank loan would now probably again go back.
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So if the banking sector gets into another crisis, a bigger crisis, it's already in a
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crisis and it gets worse, then the credit supply can get choked, right?
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We are at a credit growth, which is lowest in about two decades, right?
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It's like six, it's hovering over six, seven percent.
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And I mean, if you account for inflation, it's almost flat, which is very, very rare.
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We have seen two digit credit growth for the most part.
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So in the last few decades.
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So the question is that these are different pathways which are going to play out.
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I'm not going to give a specific prediction about how it's going to play out, but I'm
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just describing to you generally how we observe the world and how this how the general equilibrium
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response happens, right?
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These different demand shocks will play out into production.
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Production will again affect demand and there is a knock on effect.
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The banking sector crisis, if it becomes further worse, is going to then play out into the
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ability of firms to borrow and then borrow to invest or borrow even to just keep survive.
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So these all impacts will play out and then that will determine how long the crisis lasts.
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So it's not going to end in March 2017.
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I mean, I'm assuming about a year more of difficulties of this type will be there.
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And then depending on how the government responds and what reforms are done and how people's
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own ingenuity, you know, rises to respond to these challenges, we will see how long
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So I want to end with a slightly deeper and more fundamental question.
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One way of the one way the government spins a demonetization is saying that, yes, is disrupting
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the informal sector, the cash sector in a really big way, but that's a good thing because
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we need to get rid of the informal sector and, you know, have just a formal economy
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where everyone's paying their taxes and so on and so forth.
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And I've the way I've always looked at it is that the existence of an informal sector
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is not a reflection of the moral failing of the people, but of an institutional failure
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on the part of the state.
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Is that something you'd agree with?
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And I mean, how would one unpack this?
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Why is an informal sector necessarily a bad thing?
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Why does it exist in the first place?
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So let me take it point by point.
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First let's take an example of a brick manufacturing setup in say my village.
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It's set up by some person who has never even told the state that he or she exists or his
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or her enterprise exists.
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There's no registered company, never paid tax, but you say implies 20 people directly
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and indirectly produces some brick useful for a society cells and make them.
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I mean, the very fact that they exist means that they're providing a value to society
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because people are buying bricks, bricks are useful.
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People build houses, etc, etc.
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So what is wrong with this person?
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The most important wrong that this person is doing is the fact that he or she is not
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Other than this, he's not registered a company and all of that, employing people without
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reporting to the labor department, all of that is there, but the main thing.
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So what is the outcome we want from this?
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I mean, what is socially optimal?
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Socially optimal is this person starts paying taxes, you know, maybe pay some back penalty
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for the taxes he or she has avoided for a few years and start paying taxes and then
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comes into the formal sector and starts, you know, being a part of this formal economy,
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official economy that will be good because I'm assuming the taxes are fair and all of
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Let's abstract that away.
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There will be concerns about taxation and all of that.
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So that's one, but if this you do demonetization and this business is highly cash intensive
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and it dies, then the society is not really better off because those 20 jobs are gone.
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This organizational capital, of course informal is gone forever.
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So how is this more optimal than having a, I mean, this semi-legal enterprise producing
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I mean, making bricks is not illegal, he's doing it in a illegal way.
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So that, that, that is, I mean, I'm not approving of that, but that's one way of looking at
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Just take an example of such enterprises and see what would be better for society that
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you go after these guys, catch them and make them pay taxes and then continue, let them
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continue with their businesses, right?
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Or you just take the risk of destroying some of them because of demonetization.
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Second is that you have to think about why people do informalization.
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Like let's talk about say labor force, right?
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A lot of informalization have been induced by our own labor laws.
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I mean, it's a cliche to say it.
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Everybody knows the issues there, why more than 90% employed informally into the economy
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because to employ someone formally comes with such huge obligations that it is better for
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you to tempt and essentially compliance is either impossible or the cost of compliance
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So competitiveness purposes.
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So if in the same sector, there are some people who are doing a lot of contracting and temping
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and some people who are mostly taking on roles, formalizing labor, then the latter are going
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to be in a disadvantage because the former don't have to incur those compliance costs
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and are not bound by the restrictions on hiring and firing and all those kinds of issues.
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So there are those reasons also, which the state very much has its control, you know,
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like state in a broad sense, central government as well as state government, they have certain
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powers which they can use to ease those burdens, which will then encourage formalization.
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There will still be people who will always want to stay under the radar for them.
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Enforcement is a strategy.
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You go after them, you cash them and you bring them to the law, right?
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Like, okay, you've been avoiding taxes for 10 years, you pay taxes, your penalties, all
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So that's the way to go.
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But to use this kind of a blend instrument and some people have said this is an experiment
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and it's an experiment for society, but there are experiments that are worth running and
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the experiments that are maybe not so good running.
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Like some writers said that there's an invisible hiding hand, you know, the benevolent hiding
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hand, but that's Hirschman's characterization.
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He took 11 cases and wrote that there's a benevolent hiding hand.
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It's a very interesting concept.
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It says this, that when the policymaker is announcing a new project, he usually underestimates
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the risk of risks in the project, the obstacles you're going to face.
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And that's good because later human ingenuity ensures that the benefits outweigh the costs.
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That's his hypothesis based on 11 cases.
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But in 2015, there was a paper that Cass and Steyn and his co-author did who looked at
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more than 300 cases put together.
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And they found that in about 80% cases, it's a malevolent hiding hand, not the benevolent.
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In about 80% cases, what you see is that the costs are higher than what you had initially
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The benefits are slower because it's the opposite that happens.
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It's not that human ingenuity works to increase the benefits and reduce the cost for society.
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In fact, the opposite happens because many people are able to take advantage and all
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So the pathways are not very clear, but there are empirically compared to the initial expected
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benefits and expected costs.
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The final costs are higher and benefits are smaller than about 80% of these 300 odd cases.
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So empirically Hirschman's benevolent hiding hand is more of an exception out of five,
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in case you will find where the benevolent hiding hand is working and the experiment
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is going to succeed and make the society better.
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Even if you don't know the outcome in the beginning, right?
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You underestimate the costs and overestimate the benefit at the beginning.
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But when it actually plays out, you may realize that you actually overestimated the benefits
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and underestimate the costs.
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So we have to look at it that way.
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And this particular experiment, I suspect is going to be more of a malevolent hiding
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Because the way it's playing out, everybody is guilty unless poor and innocent.
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Everybody is a little suspicious.
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So people are going to respond to basically not look at what is the larger problem that
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has been solved and how we can contribute to it.
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They're going to just save themselves or take the opportunity to do whatever they can
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for themselves about it.
#
So although lately we have been hearing the narrative that you're all in it together,
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we are all fighting this together for about a month, month and a half, it was like a lot
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There was a state and there were people on the other side and everybody who was depositing
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or exchanging was suspect and now a taxman could come after you and all of that.
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So we should not be very confident that this is going to necessarily become a benevolent
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hiding hand and we're going to have a successful experiment.
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Even if the planning was wrong, people's ingenuity will bring it up and make it a good decision
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because the nature of the decision does not lend itself to those kinds of responses from
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Suresh, thanks a lot for talking to us about the malevolent unseen effects of demonetization.
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It was a pleasure having you on the show.
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It was fun talking to you, Amit.
#
The day demonetization was announced, I wrote to my editor at the Times of India for whom
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I write occasional guest columns that this was a defining political event of the decade.
#
I think I might have understated it.
#
Since this podcast was recorded, the IMF has released their estimate of GDP growth for the
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According to their forecast, our growth forecast has dropped by a full percentage point to
#
This is not a mere statistic.
#
As my friend Nitin Pai of the Takshashila Institution has pointed out, a 1% increase
#
in GDP means that around 2 million people come out of poverty.
#
Demonetization, therefore, is a humanitarian disaster with real human costs, and most of
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its unseen effects will remain unseen as private tragedy, barely reflected in public data.
#
As it happens, both Suresh and I have written extensively on this subject, and you can read
#
our pieces on this episode's page on sceneunseen.in.
#
On that note, I bid you goodbye until next week when Devangshu Datta will join me to
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discuss GST, the goods and services tax.
#
If you enjoyed listening to the scene in the unseen, check out this exciting new podcast
#
from IndusVox Media called Keeping it Queer.
#
Keeping it Queer is hosted by my friend Navin Narona, and he profiles LGBT people from all
#
across the country, and some of the stories are really poignant.
#
Check it out on Audioboom or iTunes.
#
Our podcasts bring all the boys to the yard, and damn right, they're better than yours.
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But you don't need to stand outside in the yard.
#
Just follow IVM Podcasts on Facebook, Twitter, and Instagram.
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