The great disruption of 2016

GS-III: The great disruption of 2016

Context

India’s overnight ban on high-value currency notes in 2016 was a shock.

Studies

According to a study published recently by the US National Bureau of Economic Research, demonetization reduced jobs by up to 3%.
It also hurt economic activity by a similar magnitude in the first two months after it took effect.
Research has also found that the exercise aimed at spiking black money, curbing corruption and depriving terrorists of funds led to a 2% decline in bank lending in that period.
The research paper examines the impact of demonetization across the country at the district level to make national-effect estimates.

Research

The research method employed reveals that the note ban’s shock was felt unevenly across the country.
Some regions were hit harder than others because they had a higher proportion of high-value notes in circulation.
The study’s period of analysis has not captured the secondary effects of the ban which are still being felt.
Late 2016 disrupted a recovery of India’s economy and sent it into a prolonged slump from which it is yet to emerge.

Source: Indian Express

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