Sunday, January 29, 2017

On Europe, Donald Trump and the Indian Economy

Recently I was interviewed by an Italian magazine 'Economia Italiana'. My original Italian language special invitation interview can be read here. I am posting the English language version of the same interview below the following short introduction. This is the introduction of that interview: "Europe in the throes of a disastrous experiment in government centralisation". Today at first on Economia Italiana exclusive interview of professor Madhusudan Raj of Veer Narmad South Gujarat University. Interview conducted by Carmelo Fertilo and Giuseppe Marasti. It covers the topics of Europe, Donald Trump presidency in USA and the Indian economy.

The English language version of the interview:

Professor Raj, you are a member of the Austrian school of economics, and therefore highly oriented toward the free market. How is the general attitude, on this regard, of Indian politicians entrepreneurs and economists?

The general attitude in India regarding which economic system to use to organize the Indian economy has always been that of Socialism with its welfare state from the very beginning years since 1947 Independence from the British Raj. That same attitude continues even today. Most of the world renowned economists that India has produced are all mostly Socialist e.g., Nobel winner Amartya Sen. Barring few exceptions like Prof. B R Shenoy, who was an Austrian economist of his time, most of the economists in India are Socialist and big welfare statists. Those who walk under the banner of Capitalism are always in minority here.

Again, as with most of the economists, since the time of Independence and the first Prime Minister Jawaharlal Nehru most politicians in India are Socialist welfare state proponents. The present Prime Minister of India Mr. Narendra Modi was touted by many as a person who believes in minimum government, but after two years in power he has unleashed the big government clamp down on people and their property e.g., his recent shock move of demonetizing around 86% of the currency. Instead of fulfilling his famous promise of “minimum government and maximum governance” he is just busy making his government as big as possible. He is increasing controls of his government on people like no other past governments did. The idea of a minimum state is very foreign to the politicians of this country. The market reforms that were carried out in 1990s by the then Narasimha Rao government under finance minister Dr. Manmohan Singh were also carried out under pressure of market forces and not out of government’s wishes. Those reforms instead of creating a truly free market economy has only created fascist forces in India which brings me to the third answer of attitude of entrepreneurs.

Most big entrepreneurs in India like the Ambanis (richest family in India) or Tata, Birla, Bajaj, Adani etc., are all fascist. For years they have blocked the competition of other entrepreneurs by using the state machinery and its licence Raj system. Even today they can’t compete against Chinese cheap imports and so lobby the government to impose import duties on various Chinese products like Steel etc. Even smaller entrepreneurs are protectionists in nature e.g., the Chamber of Commerce of my home city Surat frequently lobbies the central government to ban cheap Chinese imported items in Surat city so that they can survive. They don’t like competing with foreign entrepreneurs. Most of them don’t know how to serve their consumers in the best possible way by providing highest quality services at the cheapest possible price. The Indian government has recently banned the sale of cheap Chinese thread that people use for flying kites during an upcoming festival of kite flying known in local Gujarati language as Utarayan!      

Recently, Modi government has been under fire for the laws on demonetization, withdrawing small notes from circulation; this is negatively affecting poor regions and people. Can you explain us the reasons behind this law, how it was implemented and the most evident effects?

The reason behind this legislation was purely political in nature. There is very little to no economic logic behind his policy of demonetization. To understand this we have to quickly go in history. When Mr. Modi was running for the position of Prime Minister of India in 2014 he promised to end the menace of black money and corruption by bringing all black money parked in Swiss banks by Indian nationals to India. He also promised that he will deposit 1.5 million rupees in every Indians’ bank account out of that Swiss money! He very cleverly crafted an image of a very strong leader (a leader with a 56 inch chest!) for himself in the election run-up. All these mean that people are having lots of expectations from him. After coming to power in 2014 he failed to fulfil any of those above mentioned promises so the political pressure on him and his BJP party was building up since long. His BJP party first lost Delhi elections very badly and then lost a big election in the state of Bihar. His government also flared up tensions in the troubled state of Jammu & Kashmir by killing a young popular militant Burhan Wani. When all these was going on militants attacked an Indian army camp in Uri sector of Kashmir, were a separatist movement is going on since last 20 years or more, and killed around 20 soldiers. Mr. Modi had to respond to this because public pressure on him was intense to take revenge. He saw his popularity dwindling and people questioning his abilities. 

So he carried out his now famous “surgical strikes” on militants along the Line of Control (LOC) in Jammu & Kashmir. His inability to bring back black money from Swiss banks or removing corruption was also building up pressure on him. Next year there are three big state, Punjab, Uttar Pradesh and Gujarat, elections coming up in India. Narendra Modi wants to win these elections so that he can tighten his grip on power further to push his own agendas. Right now his government lacks majority in the upper house so he is desperate to win the state elections so that his BJP party can have a majority in that upper house too. Under pressure to show people that he is fulfilling his promises he carried out this so-called financial surgical strike of demonetization on the people of India itself instead of bringing black money back from Swiss bank accounts.

The implementation part is a total disaster. In the words of former Prime Minister of India Dr. Manmohan Singh it is a monumental mismanagement. The whole policy was designed haphazardly by Mr. Modi and few of his inner circle confidants in the name of secrecy, which itself is doubtful because there are reports that his political party BJP members knew about it and they already disposed off their old currency notes secretly before Mr. Modi’s formal announcement on 8th November, 2016. The mismanagement was so horrible that even those people who were in favour of this policy immediately after its announcement started complaining about the hardships that they had to face because of lack of preparation by the government. Already the promised 50 days, after which Mr. Modi said that everything will be normal, of this policy has passed and still people are standing outside banks in long queues everyday to withdraw meager amount of their hard earned income. During this last 50 days the government and the central bank RBI changed their rules for, as per reports, some 126 times! They didn’t tell the RBI printers also about this policy so they were not ready to print and replace 86% of total currency supply of India. This total lack of foresight has resulted into a severe cash crunch in the Indian economy right now. Because RBI is not able to cope with the process of printing new notes, commercial banks are not allowing their customers to withdraw more than 4000 rupees, which is equivalent to around US$60, per day. The withdrawal limits by banks are still in place, and recently many banks asked the government to continue these limits for even longer periods of few more months until they get full cash in their vaults! There are not very many countries where banks have put withdrawal limits for such a long time. Also, if we look at the full capacity of RBI printers to print new currency notes, it will at least take 6 more months for them to replace all old notes! Not only this, more than 125 people have died either standing outside banks in long queues or committed suicide because they couldn’t withdraw money for their important life events like marriages or hospital stay. The human tragedy of this policy is immense and cannot be measured in terms of some monetary value.  The economy has almost grind to a halt right now because of the severe cash crunch. Farmers are in huge distress and they have stopped sowing crops. Manufacturing industries are closing production because they can’t pay cash salaries to their workers. Sells are falling because people have started saving for the tough time ahead. Many people have already lost their jobs, and they don’t know when they will be able to get another job. People have lost their trust in the government and the central bank RBI. The new RBI governor Dr. Urjit Patel, in fact, was physically assaulted recently on Kolkata airport!  Angry people have attacked commercial banks too. In nutshell, the situation is very grim in India right now.

And as far as the objectives of this policy are concerned, in just 50 days of this policy all three original goals of removing black money and corruption, tackling the menace of fake currency notes and removing terrorism have failed. The fake copies of new 2000 rupee notes are already circulating in the market and many people are caught with such fake currency notes. The terrorist attacks in Jammu & Kashmir are not stopping and already many more soldiers have died there. Many bureaucrats are already caught taking bribe in new 2000 rupee currency notes! Most of the old notes have come inside the banking system which means there never was any big amount of black money in the economy!

India is the second country in the world by population, with almost 1.3 billion people. Which are the most important industries for your economy?

The service sector, especially the IT industry, right now is the biggest part of the Indian economy. Agriculture still remains the main profession of around 50% of the workforce. Many multinational companies also have their manufacturing plants in India, but doing business in India still remains a very tough task because of government’s myriad of complex rules and regulations.

Interest rate is at 6.25%, while inflation at 5.48%. Is this ratio proportionated for the Indian economy?

It’s not. As with any government statistics this data is also not accurate. The inflation level in reality is much higher than the one cited above. It actually runs into double digits. Recently a report by RBI itself noted that the real interest rates in India are all negative! This divergence between the natural rate of interest and the monetary rate of interest has created many bubble activities in the Indian economy e.g., the real estate and the auto sector are in a huge bubble which is just waiting to go bust once the rates move in the positive territory. In my own home city Surat there are millions of empty apartments while at the same time thousands of poor people are forced to live in slums. Mr. Modi and his finance minister Mr. Jaitley are Keynesians and they think that by further lowering the interest rates artificially will generate growth in India! They are aggressively pressurizing RBI to lower interest rates. Mr. Modi’s government is also spending (and wasting) huge amounts of money on fiscal programs like the Clean India Mission (Swaccha Bharat Abhiyan), Make in India, Smart Cities, Bullet Trains, Space programs, and, above all, India remains the biggest importer of arms in the world. Narendra Modi government is aggressively buying military equipments from the foreign sellers. All these means the capital base of the Indian economy is rapidly eroding. This will hurt the future production activities. Poor Indians are going to become even poorer in future.

Which are the opportunities, for Italian and European entrepreneurs, in investing in India? Are there fiscal incentives for foreigner investors? Or general incentives?

As I said above, doing business in India in general remains very difficult even after government announcing some minor perks. There is no concept of ‘property rights’ in India so the regime uncertainty for the entrepreneurs is huge e.g., the Indian government just announced that they will tax the capital gains of the Singaporean investors! Many foreign companies, for example Vodafone, are being routinely harassed by the Income tax department. Under such uncertainty it is very difficult to make and retain profit in India. There are not many avenues where one can get positive returns. The Indian stock market is in a typical bubble which will bust in future. This is the reason why most of the Indians park their money in safe alternatives like Gold and Silver. Unless and until one is well connected with the Indian politicians and ready to pay kickbacks and bribes to very corrupt bureaucrats, doing business and making profit in India will be very hard for anyone.

How is the taxation system in India? Taxation is a serious problem in many countries; do Indians consider it ‘just’?

Taxes remain at a high level in India. Apart from the income tax, with a highest tax rate of 30%, there are myriad of other taxes that the Indian will have to pay e.g., service tax, education cess, Krushi Kalyan cess (farmer welfare cess), Clean Ganga cess, Clean environment cess etc., etc. Most of the Indians don’t consider the taxation system as ‘just’ and that is the reason why they avoid paying taxes. The reason why Prime Minister Narendra Modi decided to unleash his financial weapon of demonetization on Indians is because people don’t pay taxes, and this undeclared income is what the government calls black-money! After coming to power Mr. Modi’s government has imposed many more new taxes some of which I mentioned above.  

You deal with currencies. How do you see the relationship Euro/Usd? And INR against Euro?

Since 1971 when the Nixon administration ended the Bretton Woods system, and with it the last vestige of the Gold standard, the world is on fiat paper currency standard. Most of the governments today are mercantalist in nature so they try to boost their economies by boosting exports via competitive currency devaluation. All of these fiat paper currencies like Euro or Dollar or Rupee are right now in a race to the bottom. It doens’t really matter who reaches the bottom first. It is just a matter of time they all will become history. The US dollar is strengthening against the basket of other currencies like Euro only temporarily. Euro’s existence itself is doubtful. The dollar is being propped up by the US government since long by using the system of Petro-Dollar, which is now slowly ending.

And as far as the Indian rupee is concerned it is the worst performing currency in the South-East Asia region for many years now. It is devaluing against Euro since long. Going in future I see rupee to perform even worst against most other currencies including Euro.    

Europe. Which are the problems that European countries will have to face in the short and medium run in order to come back to be competitive in the world?

Europeans countries, more importantly the voting people, will have to abandon the EU project and everything connected with it. The European Union project has been a disastrous project of heavy government centralization with its complex rules and regulations which is strangulating the individual member country markets. To become competitive in the world these countries will have to finally get out of EU and frame their own laissez-faire policies. The heavy handed Socialism of EU is not going to help the European countries. History and theory both are clear about the disastrous effects of government centralization. As Prof. Ludwig von Mises explained some 100 years ago the process of economic calculation, which is fundamental for remaining competitive, is impossible for a socialized economy. Capitalism was the economic system which allowed the Western societies to break the historical barrier of the Malthusian trap. That is the route that these countries must take in short, medium and long run for progress. When there will be many more nations to compete with each other in Europe, Europe will become competitive again.    

Do you think that the politics of Donald Trump could help to relaunch the global economy and to make the world more stable?

I am not expecting any big miracles from the presidency of Donald Trump so I don’t think so. Donald Trump is very new on the political stage of the world. He has no past in politics so he remains unpredictable. So far his economic policy announcements like protectionism are not very encouraging. Overall expecting too many good things from the political leaders is going to mostly result into disappointment.  

Before the world economy can relaunch itself it will have to go through a very painful stage of depression to liquidate all the past malinvestments. The debt overhang in the world is worst today than in 2007 financial crisis time. Governments, corporate houses, and individuals, especially in the Western countries, remain heavily indebted. The recession that started in 2007 isn’t really over. Governments and central bankers around the world never allowed that bubble to burst properly. Instead of taking a short term pain of recession they have blown more bubbles via their easy money policies. Unless and until these bubbles burst, there will be no relaunching. Donald Trump, at the most, can only delay this inevitable process, but not stop or reverse it. I am not expecting him to do any such things.

As far as a stable world is concerned Trump’s, so far, good relations with Russia’s Vladimir Putin shows some promise. But the real question is will he and his administration bring back American troops home from foreign occupation adventures? As long as the American imperialist government is interfering in other country’s affairs world cannot be a stable or safer place. To bring stability to world Trump must abandon US government’s long running imperialistic policies. Will he do it? We still have to see. I doubt he will. Even if he will try will the entrenched deep state interests in America allow him? Anyone challenging the status-quo is surely going to find lots of obstacles in his path.      

How do you see the role of your country on the international scenario, both from the economic perspective and from the geopolitical one? Do Western economies have seriously to be scared by Indian competition?

No the Western economies don’t have to be scared of the Indian competition. Whatever competitive nature that the Indian economy had in past is quickly eroding under the Prime Ministership of Mr. Narendra Modi. India is becoming more of a fascist totalitarian police state now. The trend now is towards more centralization than decentralization. The Indian government never fully supported the young labour force with right laissez faire policies, and so there is no big demographic dividend. The liberal policies of the past Prime Minister Dr. Manmohan Singh is now reversing under Narendra Modi. More than India the Western economies have a serious threat of their own wrong socialist policies.

From the geopolitical perspective India today is being used by the American government as a tool to keep China under control in this region. The cozy relationship that the US government is developing with Indian Prime Minister Mr. Modi is a move in this direction. India’s traditional ally of many years Russia is now going away from India. Russia and China are becoming closer allies in most international affairs whereas India is nowhere in picture standing with them. The Indian nation state is being the biggest bully in the South Asia region and smaller nation state neighbours feel threat from it and so they don’t have good relationships with it. Right now the biggest worry in terms of geopolitical tension is the on-going proxy war between the Indian and Pakistani nation states. Since Narendra Modi, who self identifies himself as a Hindu nationalist leader, came to power two years ago the violence in the disputed region of Jammu & Kashmir has gone up by many fold. The situation is very tense between both these nuclear armed nation states. The possibility of a nuclear holocaust in this region can also not be ruled out easily at this moment. International community is not taking a serious note of this issue.    

Let’s talk about religion: in your country 80.5$ of the population is Hindu, 13.5 muslim, 2.5 christian. Is it e peaceful cohabitation?

Historically India is a country of non-violence where preachers of Peace like Buddha, Mahavira and Gandhi were born and worked. Most people mind their own business and live peacefully under the social system of Caste and Religion. Whatever violence and hatred that we have here is all caused by the politicians belonging to various parties, especially the ruling BJP (Bhartiya Janata Party) and its ideological backer Hindu fundamentalist groups like the RSS (Rashtriya Swayamsevak Sangh) or VHP (Vishwa Hindu Parisad) e.g., in my home state of Gujarat all the past Hindu-Muslim religious riots were a making of BJP and its leaders like Lal Krishna Advani or Narendra Modi. The level of radicalization of Hindus in Gujarat is extreme because they are systematically brainwashed against Muslims by the long ruling BJP government. After Narendra Modi and his BJP party came to power in 2014 the number of cases of attacks on minority groups like the Muslims and Christians in various parts of India have gone up rapidly. Many liberal Hindu thinkers were assassinated by the fundamentalist Hindu groups. Many states, which are now ruled by the BJP, have imposed a ban on eating beef! One of the biggest dreams of RSS and BJP is to make India a Hindu nation and so they are systematically spreading hatred against these minority communities. This policy of polarization is a modus operandi of BJP since long. Narendra Modi is using the old Roman technique of ‘dīvide et īmpera (divide and rule)’ to keep people fighting in-between while he quietly rules over them.  
According to you, why is Europe so badly affected by terrorist attacks, all related with the muslim world? Is it because there is no integration but hate toward the host countries?

These terrorist attacks are just blowbacks of the meddling of the European powers in the Middle East. One of the major underlying causes of suicide terrorism is foreign occupation. As long as European governments are interfering in Middle Eastern affairs these terrorist attacks will continue. Terrorists are in Europe because the European armies are occupying and destroying homes of those terrorists and their fellow countrymen in the Middle East. Multiculturalism and open border policies of the European governments are just making things easier for these suicide terrorists to pick their targets, but they are not the underlying causes of these attacks. And the issue is also not about the Muslim world. This is a typical case of property rights violation. We have Hindu terrorist group LTTE (Liberation Tigers of Tamil Eelam) fighting a Hindu government in Sri Lanka for many years because they wanted their separate home land (a property) in Sri Lanka and the Sri Lankan government was against it. In Spain the local terrorist outfit ETA carried out many attacks because they wanted a separate country (a property) for themselves. Another example of such property conflict is IRA’s attacks against Britain. These all are non-muslim conflicts.   

From your perspective, how do you see the future of Europe and Euro?

I don’t see a very long future for both Euro and EU. Sooner or later they both will end and become history because these institutions are imposed on people by the EU politicians. Something that is not voluntary and natural can’t survive for long. And it is better that they end. It is much better to have many smaller nation states competing with each other than everyone is forced to kowtow in front of few central rulers.

Sunday, December 25, 2016

Demonetization Update

It's been 48 days of Modi's demonetization policy and it is a time for a further update. Since the day of announcement of this policy on the evening of 8th November the prime minister of India Narendra Modi is shifting the time scale of his promises about when the pain of people, due to demonetization, will end. In his original speech he promised that in 2-3 days everything will be normal. Then he said give me 50 days and all your woes will end, and if not then he said punish me in public! Later he realized even this 50 day limit is not going to be enough so he said after 50 days slowly slowly the situation will start getting normal! Bankers are now saying that after the 50 day limit it will be impossible to give full cash money to depositors because the cash crunch is still as it was in the beginning and it will continue for many more months!

I was recently interviewed by the globe trotting investment advisor Mr. Jayant Bhandari on the demonetization issue. Below is our talk as a further update.

Sunday, December 4, 2016

On Modi's Demonetization

On the eve of 8th November, 2016 the prime minister of India Mr. Narendra Modi came out on the national television and started announcing a rather unexpected policy decision of his. He said:

To break the grip of corruption and black money, we have decided that the 500 rupee and 1,000 rupee currency notes presently in use will no longer be legal tender from midnight tonight, that is 8th November 2016. This means that these notes will not be acceptable for transactions from midnight onwards. The 500 and 1,000 rupee notes hoarded by anti-national and anti-social elements will become just worthless pieces of paper.
This is how the demonetization, or as the former finance minister P Chidambaram termed the demonization of cash, policy of Narendra Modi government started. This announcement surprised the whole country. It shocked people.

Objectives of this policy 
So, why did Prime Minister Mr. Narendra Modi took this drastic step? What prompted him to plunge India into mayhem? Immediately after the announcement by the prime minister, the department of economic affairs published a communiqué in which they stated the goals of this policy. They are: 
  1. With a view to curbing financing of terrorism through the proceeds of Fake Indian Currency Notes (FICN) and use of such funds for subversive activities such as espionage, smuggling of arms, drugs and other contrabands into India; and
  2. For eliminating Black Money which casts a long shadow of parallel economy on our real economy.

Will it achieve its objective? 
The real question now is will this policy achieve its stated objectives?

The immediate evidences that have started coming in after 25 days of implementation of this policy point a finger at a failure of this policy to achieve the first goal. Already in Kashmir the state police have found two new 2000 rupee notes with the Kashmiri separatist militants that they killed in an encounter (‘Jammu and Kashmir’, 2016). Not only this, within few days of demonetization move fake notes of new 2000 rupees have surfaced at multiple places in India (‘Fake 2,000 rupee note found in Chikkamagaluru - Times of India’, n.d., ‘First fake Rs 2,000 note surfaces in Gujarat - Times of India’, n.d., ‘Rs 4 Lakh In Fake 2,000 Rupee Notes Seized In Odisha, 1 Arrested’, n.d.). Keeping aside the surfacing of the fake new 2000 rupee notes, in a hurry to print new 500 rupee notes RBI itself has printed and distributed defective notes in the economy (‘Defects in new Rs 500 notes, RBI blames it on rush’, 2016)! These all means all the efforts to curb the fake currency notes in the Indian economy have started failing even before the demonetization policy completes its first round! RBI itself is adding in this problem by printing different versions of its new notes in a rush!

If demonetization is not successful in curbing the problem of fake currency notes then how is it doing when it comes to curbing the so-called menace of black money[1] and corruption? Again, as in the case of fake currency objective, the evidence is already coming in that this objective is also not been achieved by this policy e.g., already two port officers at Kandla port in Gujarat are caught taking bribes of 3 lakh rupees in newly printed 2000 rupee notes (‘In Gujarat, Bribe Of Nearly 3 Lakhs Paid Entirely In New Rs 2,000 Notes’, n.d.), and the IT department in Bangalore seized 4.7 crore rupees in new 2000 rupee notes from two government bureaucrats (‘Biggest haul in new currency’, n.d.). The actual issue here is that, the proportion of cash in the black money is of negligible amount of 6% (‘Why govt’s demonetisation move may fail to win the war against black money’, 2016). To recover this 6% government has waged a war on every honest citizen of this country.

Also, now after 25 days of demonetization government’s claim of around 10% of total money supply of around 14 lakh crore not coming back into the banking system is falling apart. They thought if this money doesn’t come back in the system, because it is black money, then RBI can lessen its liabilities by that amount and transfer that money as a windfall in the account of the central government!  But according to latest estimates already over 11 lakh crore of that money has come back in the banking system (‘Over Rs 11 lakh crore back into banking system’, n.d.)! This means there is no windfall for the government or RBI and their liabilities still stand. In fact, the money that is going to remain unaccounted for is just few thousand crores of rupees only (‘How PM Modi’s note recall narrative has fallen apart’, 2016), which is nothing compared to the total cost of this whole exercise.

Sensing that there is no black money to be unearthed by this scheme surprisingly the government itself has become an official money launderer now by changing the IT Act in parliament. Initially the government announced that anyone depositing anything more than 2.5 lakh rupees will face a penalty of 200%. But now they have declared that that penalty will be only 50% and the rest of the black money people can keep it as white money! So the demonetization scheme, which started with a big fanfare as scheme to eliminate black money from the economy, has now become a scheme of government to convert black money legally in white money after giving government its commission of 50%!

Seeing that the black money and corruption story is falling apart against the capacity of Indians to launder money at a gigantic scale, again government has changed its tune and saying that the real objective of demonetization is to make India a “cashless” economy (‘India’s prime minister is planning to make the country completely cashless’, 2016)! In this regard Prime Minister Narendra Modi in his recent Parivartan Rally in UP said, hinting to a satirical joke circulating on social media, that even beggar are now using a swipe machine in India (‘PM Narendra Modi Urges People To Go Digital, Says Even Beggar Using Swipe Machine’, n.d.)!

Also, in a recent rally in Moradabad, Prime Minister Narendra Modi has again changed the objective of his demonetization move and he is now promising the poor people of this country that he will do something so that the money that rich people deposited in their Jan Dhan account will remain with poor (‘Will find way to give black money in Jan Dhan accounts to poor, says PM Modi - Times of India’, n.d.)! Many are terming this statement as a Marxian dream of outright confiscating rich to enrich poor!   

The claims of the government that demonetization has completely stopped the violence on borders of Kashmir and the borders of India are completely secured are also turning out be an illusion. Within few days of this move, 3 Army soldiers were killed by separatist fighters in Assam (‘Army convoy ambushed in Assam, 3 soldiers killed - Times of India’, n.d.), and in a recent attack on an Army camp in Nagrota, Kashmir militants killed 7 Indian soldiers (The Associated Press, 2016)! So neither the surgical strike along the LoC (line of control) nor the financial surgical strikes in India have achieved their stated goals.  
Effects on Society and Economy

When I am writing this article it has been 25 days of this policy announcement and the chaos that started on the day of announcement is still everywhere. Instead of subsiding the mayhem is just increasing in the country.
First, the biggest effect of the demonetization policy is the lives lost of those people who died standing in bank’s long lines. If we believe the figures being quoted by member of parliaments in the debate and various other independent news outlets then already more than 80 people have lost their lives in this mayhem (‘Demonetisation death toll’, n.d.). These lives lost were precious, and no amount of quantitative figure can measure or justify its loss.

On the economic front CMIE (Center for Monitoring the Indian Economy) estimates the total transaction cost of demonetization exercise to be Rs. 1.28 trillion (‘CMIE’, n.d.)! And as the former Prime Minister Dr. Manmohan Singh said in the parliament recently, this exercise will likely cost the Indian economy equivalent to 3% of its annual GDP! 

Apart from the above estimates there are myriad of other opportunity costs that can’t calculated in numbers e.g., the man hours lost due to this exercise or the amount of mental and physical harassment that people are suffering. The wealth generating class of the Indian society is busy standing in long queues outside banks for 25 days now (look pictures below) instead of generating wealth. This is a huge loss.