Issue No. 329, December 2016
Demonetization and Auroville
On the evening of 8th November, the Government of India announced that Rs 500 and Rs 1,000 banknotes would no longer be legal tender from midnight. New Rs 500 and Rs 2,000 banknotes would be issued to replace them. It has been described as one of the most radical economic experiments ever made because India is overwhelmingly a cash economy and, at only four hours’ notice, the Government made 86% of the cash in the world’s seventh largest economy virtually worthless. The stated rationale was to stop the counterfeiting of banknotes and to stop tax evasion by exposing “black money”, money on which no income tax is paid. According to figures published by the government earlier this year, in 2013 only 1% of the population paid any income tax at all. Huge amounts of untaxed cash are stored away or used in India’s shadow economy. The size of this shadow economy is reckoned to be as much as 20% of India’s entire GDP. The Government also hopes that the present situation w...