Book Review The Indian Economic Journal

68(2) 296–300, 2020

© 2020 Indian Economic Association
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DOI: 10.1177/0019466220976679
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Arun Kumar. Demonetization and the Black Economy. Penguin Random House India,
2017, pp. 300, `499, Hard Cover. ISBN: 9780670090075

I. Introduction

Background
Demonetization—this single buzzword dazed the entire Indian subcontinent at the beginning of the
second week of November 2016 following the honourable Prime Minister’s announcement of the
denotification of `500 and `1000 currency notes from the midnight of 8th November of that year. These
high denomination notes, which constituted almost 86% of the notes in circulation that time, were ceased
to be a legal tender with a view to serve several high flown objectives like curbing the spread of black
economy, to put a check on corruption, stop the supply of counterfeit notes and to prevent terrorism. The
countrymen were meant to be engulfed by patriotic sentiments and led to take an oath to bear the hardship
for a few months for the sake of the ultimate benefit of their motherland. But in actuality this hardship
prolonged and those high-sounded objectives of demonetization hardly materialized. The parallel
economy is still on its reign, corruption continues and sources of funds for the terrorist activities have not
fully dried.
As against this backdrop, professor Kumar’s book attempts certain economic insights in the processes
of demonetization and its efficacy after a year in meeting the avowed objectives of the November
declaration. The author analyses the necessity of this exercise in curing the curse of black money and its
consequences on the health of Indian economy with the aid of macroeconomic theories, post-
demonetization data and obviously his vast research experience on the so-called parallel economy. This
book was published three years ago, but the questions it raises and the loophole of the policy-making it
pinpoints are very much relevant not only for today but also in the years ahead. Besides, the fact that
since the publication of this significant work in 2017, there has been very little published review of this
book that lures the present reviewer to get into the heart of issues considered here.

Objectives
This book is an attempt to examine the impact of demonetization in healing the ailment of the black
economy and meeting other sacrosanct objectives solely from a policy analyst’s lens. Professor Kumar
extends his horizon to include the short- and long-term influence of this event on different aspects of the
Indian economy, including the parameters of growth, socio-economic inequality and the miseries of the
commoners who had to bear the maximum brunt of this denotification, and, thereby, invites to create a
widespread debate on demonetization.
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Intended Beneficiaries
Demonetization and the Black Economy is a good read for researchers on social science, economists, policy
makers and finally for the students fraternity at large. The concept of demonetization, history of its adoption
in India and in other countries, the macro-theoretic examination of black money, the broader social perspective
of the cancellation of high denomination notes, the aim of achieving a digital divine and cashless economy
have been explained by the author in a very lucid and simplified manner, which leads the reader to progressively
move from introductory section to the main discussions culminating in the concluding part of the book.

II. Structure and Content of the Book

This book is divided into nine chapters including an introduction and a conclusion. It begins with
introducing the concept of demonetization and the questions that logically derive from this unexpected
move of the government. The author has acquainted the reader with the demonetization that took place in
different parts of the world since the Second World War with a description of the scenario of the Indian
economy preceding the winter 2016. The author seems to consider his pen a tool enabling him to introspect
the logic behind this state move and scans each and every part of the prime minister’s speech. The opening
chapter of the book makes a comparative evaluation of the demonetization in 2016 with earlier
demonetizations in 1946 and 1978 and highlights the difference between November 2016 announcement
and the earlier ones. The author invites the readers to look into the genesis of demonetization, the frequent
changes in the official announcement in the days following it, and the reluctance rather discontinuing the
supply of information regarding the deposit of old notes and pinpoints the miseries the common people
have been suffering owing to shortage of the currency notes in circulation.
The role money plays in a modern economy, different forms of money, money supply components,
the concept of velocity of circulation, the inevitability of money in facilitating transactions in a money
using economy, the constraints imposed by the shortage of liquidity, role of Reserve Bank of India (RBI)
and the need for its autonomy have been analysed in detail in Chapter 2. The author describes these
concepts in a manner that is easily comprehensible even for readers having no primary knowledge in
economics. The end of Chapter 2 tempts the readers to know about the concept and analytics of the black
money, popular misapprehension about the generation and the impact of black income, whether and how
demonetization might influence the black money, fake currency and terrorist activities and the probable
steps, which could have halted the generation of black money, in the third chapter of the book.
Analysing the cash holding pattern of households and business, Professor Kumar goes on to establish,
in Chapter 4, the strong view that demonetization cannot control the black money rather it hampers
production. Besides, this move had far-reaching consequences on RBI and commercial banks as they had
to stomach the whole hazards of this process. The central bank as well as other banks had to bear extra
cost without any perceptible gain. The misuse of zero balance accounts, uncertainty of production and
prices leading to unsettle government budget, and finally the indescribable pain of almost half of the
Indian population engaged in farming characterizing the 2016 demonetization are the areas Kumar
explains in Chapter 5. He further reiterates that decline in the rate of growth and the consequent recession
is the fate of the Indian economy in the post-demonetization era. The author goes on to conclude that
demonetization fails to meet the declared objectives, and it has compelled the government to shift the
goal to rely more on achieving a cashless economy and expanding digitalization. The author attracts the
attention of the readers to this recurrent change in the state stated objectives associated with demonetization
in Chapter 6 and elaborates the impossibility of achieving cashless and subsequently less-cash economy
in Indian soil and situation.
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Demonetization puts huge impact on economy and society and also on the democratic setup of this
country that the author elaborates in Chapter 7. The decision to ban all the `500 and `1000 currency
notes from the midnight of 8th November had not been discussed with the RBI and even in the cabinet
meeting, as was reported later. The announcement came as a surprise and was presented in a manner to
induce the majority to understand that a decision like this which aims at cleaning major evils of the
system should be implemented in this way. This hype of nationalism as created by the government made
their task easy to label the oppositional voices, including the voices of the intellectual class, as either
anti-national or even as the holders of the black money. The ruling party managed to bypass a discussion
in parliament on this issue, and the oppositions too feared to raise their resentment to a high pitch due to
fear of being castigated as anti-national. But in actuality this decision has increased the marginalisation
of a great section of people specially those belonging to the unorganized sector, the deprivation of the
poorer section, the loss of their job and income due to the shortage of cash in the economy. Agricultural
sector, unorganized manufacturing and construction segments were worse hit by this decision. Besides,
it has paved the way to alienate these sectors from a gradually exclusive digital India, said to be
characterised by the cashless economy and revolution in communication technology. The sorrows and
sufferings of the rank and file fail to form a strong voice against this move because of confused opposition
and extra-ordinary skill of the ruling power to bring a good section of the countrymen under its confidence.
People have continued to suffer, the democratic institutions have weakened, but it has been nicely
imprinted into the common minds to start believing that in some situations the dictatorial form of
decision-making could win over democratic proceedings. This decision has also provided political
dividend to the ruling party in several state assembly elections. Writing against the grain, Professor
Kumar shows how the harsh impacts of the government policy deepen the already existing social divides
and lead to the expansion of social and political instability in the country.
In the concluding chapter, the author wraps up the entire findings explained throughout the book. The
writer describes this event as an unexpected blow to the life and living strategies of the common people
especially the poor and the marginalized section of the society and opines that the shortage of cash,
created through this demonetization process, actually results an acute economic crisis. He recognizes
that the fight against the black money and the effort to curb its spread is essential, but demonetization
could never be a solution for this. He describes how demonetization and drive towards digitalization as
policies leave vast majority of people outside its domain. Such type of exclusionary policies, he
concludes, should not be exercised if the country aims to improve and transform the living standard of
its citizens with specially a focus on the poor and the underprivileged.

III. Strength and Weakness of the Work

Strength
The major strength of Professor Kumar’s writings is the bare description of harsh realities in a lucid and
simple way. The entire facts about demonetization, its genesis, impact on economy and society, the social
and economic costs, its effectiveness to give a halt to the problem of black economy and preventing fake
currency, and achieving a less-cash economy have been discussed by the author in a storytelling fashion.
The theoretical and conceptual framework has been presented with an eloquence, which appears interesting
to the readers even not belonging to the discipline. The mode of presentation is so dynamic, which keeps
the reader glued to the book from introduction to conclusion. The facts stated about the Indian economy
have been well supported by the relevant data mostly taken from authentic sources. The author’s vast
Book Review 299

experience and mastery on black economy adds some extra vigour in analysing the causalities between
demonetization and the black economy. In a nutshell, it is indeed an interesting and informative read.

Weakness
The issues and challenges of demonetization have been elaborated by the author all through the book. It
has been established that the concerns sought to be addressed though demonetization has not been
materialized at all. But the way it has been presented in the book seems to be too harsh and sometimes
blurs the objectivity of the author in the matters of criticizing the government. In some instances, political
logic overdetermines the economic logic. The author is an authority on the research on the black economy.
The reader might expect him to spend much efforts in building alternative narratives to achieve the
avowed objectives for which demonetization sought by the government rather giving relentless efforts to
disparage this move. It is indeed true, as Professor Kumar declares, that demonetization cannot be a way
to tackle the problem of the black economy. But the reader of the book may also fail to arrive at any
fruitful alternative to fight against black money from Kumar’s exposition.

IV. Contribution to the World of Knowledge

This book is from a personality who has devoted his time and energy to unearth the analytics of the black
economy. The issues of demonetization and how it may dismantle the normal functioning of an economy
like India have been elegantly elaborated by the author. Mentioning adequate theoretical logic, the author
shows why cancellation of high denomination currency notes may not thwart the generation of black
income and why it is too hard for this country to successfully embark on digitalization. The intensification
of social divides and problems of exclusiveness that might emerge from demonetization has been
eloquently narrated in this book. Demonetization and the Black Economy unearths many intricate areas
of demonetization and creates the curiosity of the reader to build up counter narratives, if any, to defy the
outcomes stated in the book or to defend the authors views with the aid of empirical tools. This volume
thus may be considered as an important read for the commoners as well as for the researchers.

V. Conclusion
Almost four years have elapsed since the announcement of demonetization in 2016. Indian economy has
faced many policy changes since that announcement, the most notable of which is the implementation of
GST since July 2017. But the questions raised in this book are still alive. The exclusion of people from
development trajectory, intensification of divides between haves and have-nots, and increasing
marginalization are still very pertinent issues to be addressed by the policy makers. Thus, even after three
years of publications, this volume has not lost its vigour to attract the interest of the academicians and
researchers in developing a critical view of our socio-economic situation.

Sreemanta Sarkar
Associate Professor of Economics
Bidhan Chandra College,
Asansol, West Bengal, India
sreemanta.sarkar@gmail.com