Planet Money: On Why India Made Most Of Its Money Worthless

May 22, 2017
Originally published on May 22, 2017 7:50 am
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DAVID GREENE, HOST:

Drama and economics are two words that do not always go together, but last year in India, a surprise announcement caught Indians totally off guard. On November 8 at 10 p.m., the prime minister, Narendra Modi, got on TV and out of nowhere said all of the money in your wallet, it is now not worth anything, starting right now.

Now, 90 percent of all business transactions in India happen in cash. Modi said you have a month to take your cash to the bank and exchange it for new bills that we have just minted. Modi said this was meant to stop corruption. Stacey Vanek Smith from our Planet Money team has a look at why a country would take such a drastic step.

STACEY VANEK SMITH, BYLINE: When Prime Minister Modi declared most of the cash in India worthless, the entire country went into chaos.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED JOURNALIST #1: Tempers are beginning to flare. These people have already been in queue for more than three hours now, carrying currency notes the government suddenly banned on Tuesday night.

UNIDENTIFIED JOURNALIST #2: The bold move has provoked a frenzy, as hundreds of millions of Indians don't have bank accounts.

UNIDENTIFIED JOURNALIST #3: These scenes are the new norm in India - long, snaking queues at every bank and ATM.

UNIDENTIFIED JOURNALIST #4: Some reportedly died of shock, while others committed suicide.

SMITH: Watching all of this, I just kept thinking, where did Modi get this idea? I started looking around, and I kept seeing one name.

ANIL BOKIL: My name is Anil Bokil.

SMITH: Anil Bokil. He is not a famous academic or government official. He never even studied economics. But he invited me to Pune, India. He said he would show me the same presentation that had convinced the prime minister to try this drastic plan.

Is it a PowerPoint?

BOKIL: It's a PowerPoint.

SMITH: I met Anil Bokil in a hotel conference room. And Anil has presence. He's tall and lean and kind of luminous, looks like somebody turned a flashlight on inside of his head. Anil used to work as a mechanical engineer. He left that job to devote himself entirely to changing India's economy. And for the last 25 years, he has been giving this talk to anyone who would listen - professors, CEOs, politicians.

How many times have you given it, like a hundred times?

BOKIL: Far more than this. Far more than this.

SMITH: A thousand times?

BOKIL: Again, more than that.

SMITH: More than a thousand times?

BOKIL: Yeah.

SMITH: Back in 2013, Modi was the governor of a province in India. Anil heard he was going places, so he arranged a meeting. He went to Modi's office with a laptop and an assistant. Because Anil does not work his own PowerPoint, the assistant does it for him when he says this.

BOKIL: Click.

SMITH: So we're looking at an apartment building with a bunch of pipes and like...

BOKIL: Yeah. The height of apartments shows the responsibility of governments.

SMITH: It is a cartoon drawing of a high-rise apartment building with all these pipes bringing water into it. The building is India, and the pipes are resources. But the pipes are all twisted and cracked, and water is spraying out into a big pool on the ground.

BOKIL: The gushing out resources are called black money. A separate pool is forming there. That's a parallel economy. Click.

SMITH: Black money is money outside the tax system. Anil says the pipes should provide the entire building with water, but the system is broken because of tax evasion and corruption. In the next slide, a giant head appears next to the apartment building. It is sucking water out of the pond of black money with a giant straw.

BOKIL: And you see the face, the size of face.

SMITH: Yeah. It's like a huge head.

BOKIL: Huge head is there. That's the corruption.

SMITH: He's like smiling and wearing sunglasses.

BOKIL: Yeah. It's like a mafia.

SMITH: Corruption - this is what's keeping India so poor.

BOKIL: Now, who is so suffering now? Click.

SMITH: A new character appears - a little hunched over man with his hands cupped under a spigot.

BOKIL: It is around 50 percent of our population. He's our poor farmer.

SMITH: Anil says India has to make money trackable so it can start collecting more in taxes. Only about 1 percent of Indians pay taxes now. And once India has more tax revenue, he says, it will have the resources to help the poor farmer. Cash is not trackable, it's anonymous. So in order to fix the pipes, you have to move people away from cash and push them into the banking system. Only then will India have enough water for the whole building. Anil says Modi listened to all of this with full attention.

So you showed the slide to Modi of the...

BOKIL: Yes, yes. This is the simplest way we can explain it in the form of some kind of confidence. Yes, if I get the chance, I will do it.

SMITH: He said that? He said that?

BOKIL: Yeah, yeah, yeah.

SMITH: Then Modi was elected prime minister of India. And then in November, he actually did what Anil had called for, he got rid of almost all of the country's cash. To get their money, people had to go to a bank, get into the system.

Is it exciting to watch it play out in real life?

BOKIL: We don't rate our joy in excitement. We call it enlightened. I'm enlightened.

SMITH: You're enlightened.

BOKIL: I'm enlightened.

SMITH: I took all of this to Bhaskar Chakravorti. He's originally from India, and now he teaches economics at Tufts. He told me the enlightenment thing is not as strange as it might seem.

BHASKAR CHAKRAVORTI: In many ways, people in India are actually quite comfortable, you know, going back and forth between science and spirituality. The lines are sometimes quite blurred.

SMITH: They get blurred here, too. We have Christian Capitalists and religious organizations that work with politicians all the time, but what about the economic plan?

CHAKRAVORTI: It is very much of an engineering approach.

SMITH: Bhaskar says engineers are all about simple connections and tidy conclusions. They make machines. But economists like him, they have to take people into account.

CHAKRAVORTI: The real world is a messy place. And simply putting these system diagrams on a page is not a sufficiently strong argument for policy.

SMITH: Bhaskar says and Anil Bokil's tidy logic had caused real harm to people in India.

BOKIL: It's inconvenience. It's not harm.

SMITH: There was some harm. Some people lost their businesses, there were people who died standing in line. I mean...

BOKIL: We are not that emotional.

SMITH: You're not emotional about it?

BOKIL: No. It was necessary. It was a must 'cause these are my country fellows. These are my family members. But we need to have it. The treatment may feel like some kind of a pain before, but it is for the correction of your disease.

SMITH: Do this, Anil said to Modi, and it will hurt. People will suffer, but then things will start to heal, and India will become the great economic powerhouse it was always meant to be.

BOKIL: And India will be totally different, totally different, a very graceful India. We are looking forward now.

SMITH: Stacey Vanek Smith, NPR News.

(SOUNDBITE OF JOSH VIETTI'S "GOT MONEY") Transcript provided by NPR, Copyright NPR.