Theory and Practice of Demonetization

Abstract

Demonetization, or D-M, is the National Democratic Alliance government's most divisive policy move. A few months prior to the state assembly elections in Uttar Pradesh in 2017, the D-M surprise revelation worked in favor of the BJP, enabling them to win a stunning 325 seats. In this background, it is imperative to revisit the impact of D-M on Indian economy from the view point of theory and practice both. This article is intended to examine two important issues. First, is there any theoretical ground behind this move and what do theories say about impact of D-M on macroeconomic variables? Does this move guaranteed a more equitable society than hitherto, will redistribution of wealth and resources take place in favor of common man? This article concludes that the unprecedented move have neither been any well being effect on common man nor for the economy as a whole. Mainstream economists and traditional policy makers will remember this move as fundamentally flawed and mistaken.