Demonetization and India’s Money Politics

There have been countless op-eds written in the last three weeks in reaction to India’s dramatic “demonetization,” in which the government invalidated high-denomination currency overnight in an attempt to curb the scourge of black money.

One important angle worth thinking about is how the move impacts India’s murky system of election finance. I have a piece on the Financial Times’ “Alphaville” blog looking at this issue. Here’s the upshot:

Will this demonetisation move sound the death knell for dirty money? On its own, not a chance…If Modi is serious about addressing India’s unseemly money politics, he must take at least three reinforcing actions.

What are those reinforcing actions? In short, closing political finance loopholes; tying tax breaks to political parties with new transparency standards; and directly attacking the underlying drivers of India’s black economy.

You can read the full piece here.