Demonetisation: A deliberate strategy of ‘shock therapy’

On its 6th anniversary, does hindsight help us understand the ‘masterstroke’ better

NT Correspondent

Bengaluru: On November 8th, 2016, two worldchanging events took place – Donald Trump was elected the President of the USA and India demonetised its Rs 500 and 1000 notes overnight – sending both countries into upheaval.

While Trump is still around making noise and hinting at running again in 2024, the ruling party is mum on the topic of demonetisation, not even commemorating the occasion of the ‘masterstroke’ that was going to root out black money.

At the time some couldn’t make sense of the move while others justified it by saying that it would work out ‘in the long run.’ Six years later, cash available is 72 percent higher, having gone from Rs 17.7 lakh cr to Rs 30.88 lakh cr. So why was this move carried out?

The answers might lie in Naomi Klein’s book, The Shock Doctrine: The Rise of Disaster Capitalism. In the book, Klein argues that neoliberal free market policies, as advocated by the economist Milton Friedman, have risen to prominence in some developed countries because of a deliberate strategy of “shock therapy”.

Where if you want to bring about drastic changes, you shock the system economically or politically and make the changes while people are trying to cope with the shock. Developed at the Chicago School of Economics, the policies were first tested in South America by deposing elected leaders and replacing them with military dictators, which saw inflation rise and millions of dissenters disappear.

After the ‘success’, these policies were brought to the West when Margaret Thatcher was PM of the UK and Ronald Regan was the American President. An example of this is when Thatcher used the war in the Falklands to distract from miner strikes in the UK and stir up Nationalistic Fervor.

In the 2000s, ‘Shock Doctrine’ was rebranded as ‘Shock and Awe’ when the US invaded Afghanistan and Iraq, the golden age of Disaster Capitalism, where Middle Eastern countries were bombed to rumble and American contracts were overpaid to reconstruct them. When one views things through this lens, the actions of demonetisation start to make more sense as they follow a similar template, as it completely handicapped the Opposition before the Uttar Pradesh elections.

Disaster Capitalism isn’t limited to just manmade disasters as was the case with the 2004 Tsunami when miles of coastline in Sri Lanka was taken over by big resorts in the aftermath. One might argue that the way Coronavirus was treated was ‘Shock Doctrine’ on a global scale, with lockdowns and economies shutting down.

The central government has in that sense stayed consistent with giving us many shocks like this annually with the CAA-NRC bill in 2019 and the Farm Laws in 2021 which saw nationwide protests, something that didn’t happen during the demonetisation since everyone was afraid and too disorganised when it happened.

One of the goals of demonetisation at the time was achieving a cashless economy and even though UPI payments have been on the rise with every street vendor having a QR code, cash is still very much in the picture. It is really hard to tell whether the move had any benefits in the long run, but the shock still remains in the minds of those who lost their savings and loved ones during the ‘futile exercise’ that followed