Once in a while, there comes an event which manages to shake the very foundation of people’s existence. The event usually takes almost everyone by surprise as the possibility of such an occurrence is so miniscule that it is virtually non-existent. Nassim Taleb, author and derivatives trader, described such low probability yet high impactful occurrences as “Black Swan” events. On November 8, India witnessed a Black Swan event in the form of demonetisation. A little more than 50 days later, the lives of ordinary Indians can be viewed through the prism of the time before demonetisation and after demonetisation. It has captured the zeitgeist in such a manner that people can talk and think of nothing else. People who have a pre-existing affinity towards the Centre and its policies project demonetisation as the best idea since sliced bread. On the other hand, those harbouring animosities against the government have the fodder they needed to pin the government on its incompetence and/or malice.

The Centre on its own part has been quick to take credit for the idea when it felt public opinion was largely supportive of the idea. But when people at the helm of affairs started to sense that there was disgruntlement on the ground, there’s been a change of course. At first, Minister of State with Independent Charge for Power, Coal, New and Renewable Energy and Mines Piyush Goyal claimed demonetisation was the Reserve Bank of India’s idea all along and the government was merely implementing the decision. When that did not gel well with either the critics or general public, the government claimed the idea was a push for Digital India. The flip-flops and the overall confusion amongst the policy-makers did little to assuage the situation. Conflicting reports from media and analysts only added to the general sense of confusion.

Be that as it may, we now know that the government’s assertion that RBI initiated the decision to implement demonetisation is technically incorrect. In a letter dated March 15, 2016, the RBI had clarified that “As per Section 24 of the RBI Act, 1934, all decisions regarding Denominations/Non-Issue/Discontinuance of bank-notes are taken on approval of Central Government”. Today, Indian Express reported that according to a note submitted by the RBI to a parliamentary panel, demonetisation was the Centre’s idea. “Government, on 7th November, 2016, advised the Reserve Bank that to mitigate the triple problems of counterfeiting, terrorist financing and black money, the Central Board of the Reserve Bank may consider withdrawal of the legal tender status of the notes in high denominations of Rs 500 and Rs 1,000,” is what IE has quoted from the RBI’s note.

It is also important to clarify on the difference of approach of RBI ever since Raghuram Rajan exited as Governor. Rajan was not afraid to speak his mind and maintain his independent viewpoints even in the face of opposition by Government. Since the autonomy of RBI only enhances the credibility and efficacy of the institution, Rajan’s approach boded well for the prospects of the economy. But ever since Rajan was replaced by Urjit Patel, the perception of RBI’s autonomy has taken a turn for the worse.

In the age of hyper-communication and social media, when every move and policy is watched closely by the general public, Patel’s communication was conspicuous by its absence. It does not help matters that Patel is taciturn by nature. The lack of communication from the Governor’s end fuels concerns that the RBI is just a B-Team for the Finance Ministry and incapable of making its own decisions. It is also well-known that Rajan was against demonetisation at a conceptual level. While addressing a gathering in August 2014, Rajan had said, “My sense is the clever find ways around it (demonetisation). They find ways to divide up their hoard into many smaller pieces.” Under the circumstances, it seems difficult to believe that Patel would have conceptualised such a monumental move within months of taking over as RBI Governor. In cricketing terms, it takes some time for a new batsman to get used to the pitch and conditions.

The problem with demonetisation as a policy is that while the short term pain is visible and felt by everyone, the much-touted long term gains are less apparent to the general public. It becomes that much more difficult to explain the benefits when there are reports of deaths, jobs terminated and losses in revenue. It is only due to the unusually high approval ratings enjoyed by Prime Minister Modi that most people are tolerating such large scale disruption in their lives. There would have been utter chaos if, for instance, Manmohan Singh had come up with such a move during the fag end of United Progressive Alliance’s second term. Only time will tell whether the move has squandered the popularity that Modi had garnered so far. The bigger question from the economic standpoint is whether such a short term shock was worth the potential long term benefits.

The inherent complexity of the move cannot be distilled in a single soundbyte or even a tweetstorm of analysis. The only thing that can be said with certainty is that the economy has suffered a major demand compression in the short term. The jury is still out on whether the economic pain gets alleviated or gets worse in the medium term. It may take up to 12 months for the consequences to play out in its entirety. For better or worse, demonetisation may even be a significant turning point in the economic fortunes of the country.

From the reactions of policymakers in government circles, it looks like the Centre has become a victim to the hype and expectations that it had created in the election campaign of 2014 general elections. The prospect of achieving the acche din promise may have tilted its hand in undertaking such a drastic and extreme decision. The basic steps that the government was taking in improving the economy were being criticised as insufficiently incremental by many policy analysts. Even the general public was not witnessing a significant improvement in their standard of living or income. This led to calls for “big bang reforms” by experts and public alike. What many people missed out was that in a highly inter-connected and integrated world, India’s economic performance is tied to global factors which are not under the control of the Centre. There is only so much a government can do to kickstart the economy in a lackadaisical global environment.

In such a scenario, it is important to continue sticking to the basics by building social and physical infrastructure like roads, power stations, railway lines, schools, hospitals, logistic warehouses, ports, sanitation and clean drinking water facilities. India is still a developing economy and there are many low hanging fruits to be plucked to develop the country. Demonetisation is no magic wand to Good Governance and Development. But it can still lead to a good outcome if the Government stays true to the course of development by sticking to time tested principles based on economic rationality.