A very good summary of the demonetisation crisis of India
Thanks for writing the best summary and commentary on the demonetisation crisis in India, Raja-da. Considering you wrote it in the second week of the demonetisation drive makes it even more reading worthy. Since the demonetisation drive, a lot has happened, including the constant shifting of the goalposts by the Indian government. I was in India between 20th November and 20th December for a month and had a first hand experience of the misery of the common people. Nowhere I could get a lower denomination currency notes in any of the ATMs in the first couple of weeks of my arrival, and I had to take out exactly a 2000-rupee bill at each single attempt (not that I could make more than one attempts at ATMs, as many of them were closed, quite ridiculously). The sheer ineptness & lack of planning before implementation of a policy without caring for how people would cope with the crisis was bizarre, to say the least. As Esther Duplo has argued elsewhere, much of that occurred perhaps because there are no data on the common people’s use of currency notes are captured in the routine data collection system of the country.
We do not know that yet and we might never know. This is because there is no effective mechanism to measure GDP creation in the informal economy. I was told that informal economy GDP is calculated by indexing it to the formal economy GDP. If that is the case, we might never know the exact magnitude of loss. And the government might use these figures to argue that there was no significant setback. People are claiming workers are returning from construction sites to their villages. But there isn’t much high-frequency data on these kinds of things, which would capture the short-run pain
(Esther Duflo, We might never know the real pain of note ban:)
That ordeal is still not over at the time of writing this. A lot may still happen in the two days remaining before the expiry of December 30th happens when people will have the chance to exchange their old currencies and deopsit the money to their accounts.