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Demonetisation debate: Why note ban was no failure but a mistake regardless

Ever since November 9, 2016, a debate has been in progress over Prime Minister Narendra Modi’s decision to demonetise high-value Indian currency. Some criticised it and some supported it.

But it was only last week, when the Reserve Bank of India (RBI) finally came out with its report on how much of the demonetised old currency had been extinguished that we got something concrete to judge the decision by.

The RBI said only a fraction, around Rs 120 billion of the over Rs 17 trillion worth of demonetised currency, had not come back. This has been taken to mean that demonetisation has failed. Former finance minister P Chidambaram is on record on this.

But Surjit Bhalla of the Prime Minister’s Economic Advisory Council is also on record now saying that it has not failed.

So how do we judge the decision?

Mistakes and failures

My own view is that until we learn to distinguish between a mistake and a failure, we can never understand what has really happened. That is because a mistake can lead to success, and a failure is not always because of a mistake. Let me give some examples.

Take, for instance, a cricket match. A is asked to bowl in the hope he will take a wicket or two. But he doesn’t. However, he doesn’t give away many runs. How will you judge the decision? Mistake by the captain or failure of the bowler/fielders/umpires?

Or take Nehru’s decision in the Second Five-Year Plan to invest heavily in the capital good sector. Was it a mistake or a failure? We can argue till the cows come home and will never reach agreement because although it was a mistake, it was not a failure, not a total one anyway.

Likewise, bank nationalisation: mistake or failure? There simply isn’t a straightforward answer. 

Likewise, there are decisions that are not mistakes but end up in failure. The US President’s 1978 decision to deregulate the civil aviation industry was not a mistake but it has ended up as a failure for everyone now – airlines, airports, passengers, banks, aircraft manufacturers and of course governments.

In India, the insertion of Article 370 into the Constitution was not a mistake. Yet it has failed. 

In the USSR, glasnost was not a mistake, but it failed. In Europe, liberal immigration policies were not a mistake but they have failed.

I can go on giving examples, but the point is clear: mistakes don’t always lead to failures and failures are not always because a mistake has been made.


I have no doubts in my mind that demonetisation was a mistake and a massive one at that. But equally I have no doubts in my mind that it has not been a failure. In any case, judging it only by the cash that came back into the banks is a politically attractive way of simplifying things but just as in the case of bank nationalisation, there are dimensions to it that will become apparent only with time.

When in November 2016 people used to ask what I thought of demonetisation, my answer was always that it was like a ball that the batsman had lifted towards the boundary. We would not know until it came down.

If it crossed the boundary rope, it was not a mistake; if it came down on this side of it and rolled across, it still was not a mistake. If it was caught by the fielder, it was a failure but not a mistake. If the fielder dropped, it was a mistake but not a failure. 

But, and this was a big but, if the batsman while hitting the ball got his bails dislodged, it was a disaster.

What we have to wait and see is if this is what has happened to Mr Modi. Has he hit a sixer and while doing so trod on his wicket? 

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