THE Indian central bank’s final tally of Prime Minister Narendra Modi’s 2016 demonetisation drive, intended to take money derived from tax evasion out of circulation, showed that 99.3% of outlawed high-value banknotes had been returned. That’s a severe loss of face for officials, who had argued that holders of the cash would rather destroy it than return it to banks, providing a windfall for the government.
The authorities managed to produce several other defences of the initiative, however. One in particular was appealing to financial markets: The notion that, in Finance Minister Arun Jaitley’s words, “Demonetisation appears to have led to an acceleration in the financialisation of savings.” Households that traditionally kept their savings in cash would now prefer to put the money into other instruments, perhaps even the stock market. This would increase the amount of capital available for companies to deploy and banks to lend, spurring economic growth.
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