ISAS Insights

On November 8, in one of the most radical monetary policy initiatives in recent decades in a growing economy, India demonetised Rs 500 (S$10.50) and Rs 1000 (S$21) currency bills accounting for over 86% of the currency in circulation. The main objective was to curb the parallel economy. As the objectives of demonetisation were further clarified, it was evident that the government sought to create an environment in which the informal sector, where nearly all transactions are carried out with cash, was induced to 'formalise' and brought under the scrutiny of tax and regulatory authorities, thereby shrinking a large inefficient segment of the economy.