January 15, 2026
“In a nation of 1.25 billion people, no one should have black money. From midnight tonight, the 500 and 1000 rupee notes in your pocket are worthless.” — Narendra Modi, November 8, 2016
“Goods and Services Tax is a game-changing reform that will integrate India into a single market.” — Arun Jaitley, Finance Minister, 2017
“The poor got poorer. The organized sector ate the informal sector. We called it reform.” — Indian economist (speaking privately), 2023
[2024: India is the world’s 5th largest economy. 45% of its workforce still farms.]
[Part 4 of 6]
New parts publish every Tuesday and Thursday at 9AM EST
On November 8, 2016, at 8:15 PM, the Prime Minister of India appeared on television with an announcement that would detonate the largest demonetization in human history.
With four hours’ notice, Narendra Modi declared that all 500-rupee and 1000-rupee notes would cease to be legal tender at midnight, eliminating denominations that represented 86% of the cash in circulation in a country where 95% of transactions happened in cash, where hundreds of millions of people had never seen a bank, and where daily wage laborers were paid in notes that would be worthless by morning.
The ATMs ran dry within hours as banks couldn’t physically exchange old notes fast enough, causing lines to stretch for blocks while over 100 people died in queues in the following weeks. Weddings were cancelled because families couldn’t access cash for ceremonies, farmers couldn’t buy seeds for planting season, truck drivers couldn’t pay for fuel, and the informal economy, which employed 80% of Indian workers, simply stopped.
The stated goal: eliminate “black money” (undeclared wealth held in cash) and destroy counterfeit currency funding terrorism. The means: economic shock therapy on a scale no nation had ever attempted.
This was Modi’s India: disruptive, centralized, willing to endure short-term pain for promised long-term gain. Over the next eight years, this pattern would repeat. GST integration. Digital payment mandates. Production incentive schemes. Each reform accompanied by chaos, followed by claims of transformation.
The question that haunts India a decade later: was it worth it?
The Man and the Mandate
Narendra Modi came to power in 2014 with a mandate no Indian leader had received in thirty years: an absolute majority in Parliament requiring no coalition partners and no compromises. The Congress party, which had governed India for most of its independent history, was decimated, its “Dynasty” (Nehru’s descendants had led Congress since 1947) rejected in favor of Modi, a tea-seller’s son who had risen through the Hindu nationalist RSS and governed Gujarat for over a decade, representing a leader from outside the Lutyens Delhi elite who promised development over entitlement.
His pitch was simple. Gujarat under his leadership had achieved 10% growth, attracted investment that other states couldn’t, and built infrastructure that worked. He would do for India what he had done for Gujarat.
“Minimum government, maximum governance.”
The business community loved him. After a decade of Congress “policy paralysis,” here was a leader who made decisions, cut through bureaucracy, and didn’t apologize for wanting economic growth. Foreign investors, burned by the UPA’s scandals and delays, saw a reformer who could deliver.
His first term delivered surprises. Some reforms moved faster than anyone expected. Others revealed that disruption and progress were not the same thing.
GST: One Nation, One Market (Finally)
The Goods and Services Tax, implemented in July 2017, was the reform India had needed for decades.
Before GST, India was not one market but twenty-nine (one for each state). Each state had different tax rates, different rules, different paperwork. Goods crossing state borders faced checkpoints, inspections, delays, bribes. A truck carrying freight from Chennai to Delhi spent 25% of its transit time at state borders, waiting for paperwork.
The absurdity was legendary. Octroi taxes in Maharashtra meant trucks queued for hours at city limits. Karnataka and Tamil Nadu had different VAT rates on identical products. A company operating nationally needed compliance systems for two dozen tax regimes. The friction wasn’t just inefficiency; it actively prevented the creation of national supply chains.
GST replaced this chaos with a single tax applied uniformly across India. For the first time since independence, India became an integrated market. One registration. One return. One rate (mostly).
The implementation was messy. The initial system had five rate slabs (0%, 5%, 12%, 18%, 28%) instead of the single rate economists recommended. The classification of goods created absurdities that became national jokes.
Consider the paratha. The GST Council ruled that plain paratha (a flatbread) was taxed at 5%, while stuffed paratha was taxed at 18%. The reasoning: stuffed paratha was a “prepared food,” not a staple. Restaurants serving what was essentially the same bread with potato inside paid triple the tax rate. Lawyers debated whether specific regional breads qualified as “paratha” or “roti” (taxed differently). Bureaucrats who had never cooked a meal in their lives issued rulings on the tax treatment of various flatbread configurations.
The paratha wars captured GST’s implementation chaos perfectly: a genuinely good idea executed with such bureaucratic complexity that it became a symbol of government overreach.
Small businesses struggled with the technology required for monthly returns. The compliance burden initially increased.
But the long-term impact was transformative. Inter-state commerce became friction-free. Logistics costs fell as trucks stopped waiting at borders. Companies could finally build national distribution networks. The organized sector, which could handle GST compliance, gained competitive advantage over the informal sector, which couldn’t.
This was the pattern of Modi-era reforms: genuine structural improvement, implementation chaos, winners and losers. The winners were always the large, organized, digitally capable. The losers were always the small, informal, cash-dependent.
Demonetization: The Shock That Didn’t Work
GST was controversial but defensible. Demonetization was something else entirely.
The stated objectives:
* Eliminate black money hoarded in cash
* Destroy counterfeit currency funding terrorism
* Transition India to a cashless economy
* Increase tax compliance
The outcomes told a different story:
* 99.3% of the banned currency was returned to banks, meaning the “black money” simply got deposited and survived.
* Counterfeit currency represented a trivial 0.025% of notes in circulation.
* Cash-in-circulation returned to pre-demonetization levels within 18 months.
* Tax compliance increased, but merely continued the pre-demonetization trend.
By the Reserve Bank of India’s own accounting, demonetization failed its primary objective. The black money didn’t vanish. It got laundered, converted, deposited through the very banking system that was supposed to catch it. Money launderers, experienced at moving undeclared wealth, adapted faster than regulators.
The costs were immediate and devastating.
Economic growth fell from 8.2% in the quarter before demonetization to 5.7% the quarter after. The informal sector, operating entirely in cash, collapsed. Street vendors, small manufacturers, construction laborers, agricultural workers: anyone paid in cash found themselves without income.
The formal GDP figures understated the damage because the informal sector is poorly measured. Economists estimated that informal sector output fell 10-20% in the months following demonetization. Employment in small enterprises cratered. The effects persisted for years.
Digital payment platforms exploded as beneficiaries, with Paytm, PhonePe, and Google Pay seeing transaction volumes multiply while banks gained deposits (temporarily) and the formal sector, which transacted electronically, remained unaffected. The poor, daily wage workers, and street vendors. The exact people Modi’s base depended on. They bore the costs.
Demonetization was sold as anti-corruption but functioned as a transfer of market share from informal to formal economy, where the rich survived, the poor scrambled, and the black money stayed black.
The K-Shaped Recovery
If demonetization was the first blow to India’s informal economy, Covid-19 was the second. By 2022, India’s recovery revealed a pattern economists called “K-shaped.”
The top of the K: organized sector, large corporations, urban professionals, anyone connected to the digital economy. Profits soaring. Stock markets at all-time highs. Corporate India emerged from the pandemic stronger than ever.
The bottom of the K: small businesses, informal workers, migrant laborers, rural India. Incomes stagnant or falling. Jobs vanished. Savings depleted. The pandemic’s lockdowns had forced millions of migrant workers to walk hundreds of kilometers back to villages because they couldn’t afford transport. Many never returned to the cities.
The numbers told the story: the top 10% of Indians owned 77% of national wealth while the top 1% owned 40%, with inequality having increased dramatically since 2000 as the Modi years accelerated the trend.
Corporate profits as a share of GDP reached record levels. Wages as a share declined. The stock market, fueled by domestic and foreign investment, tripled between 2020 and 2024. Meanwhile, real wages in the informal sector barely recovered to pre-pandemic levels.
This wasn’t just Covid. The pattern began with demonetization and continued through GST. Each “reform” enhanced the competitive position of organized players who could handle compliance burdens, while crushing informal enterprises that operated on thin margins and couldn’t absorb disruption.
Critics called it “formalization by destruction.” Rather than helping informal businesses become formal, policy made it impossible for them to survive. The informal sector shrank not because workers moved up, but because their enterprises died.
Make in India vs. Assembly in India
In 2014, Modi launched “Make in India” with an iconic logo of a lion made of gears. The pitch: transform India into a global manufacturing hub, create 100 million new factory jobs, raise manufacturing from 16% to 25% of GDP.
A decade later, manufacturing is 17% of GDP. The same as when Modi took office. The same as in 1991.
What happened? India did attract manufacturing investment, with Foxconn, Samsung, and other electronics giants building factories while Apple began assembling iPhones in India and smartphone production exploded, making India the world’s second-largest mobile phone manufacturer.
But “manufacturing” overstates what’s actually happening. Most of India’s electronics production is assembly work: importing components made elsewhere, combining them in India, and shipping finished products with minimal value-added while supply chains remain in China.
The iPhone assembled in Bangalore uses a processor from Taiwan, a screen from South Korea, memory from Japan, camera modules from China. Indian workers put them together. When supply chains break (as during Covid), the Indian factories stop because the components don’t arrive.
This is “Assemble in India,” not “Make in India.”
The contrast with China is stark. China doesn’t just assemble products; it manufactures the components. The supply chains are domestic. When Apple asked suppliers to diversify out of China, they discovered there was nowhere else with the manufacturing ecosystem to actually make the parts.
India tried to create domestic supply chains through Production Linked Incentive (PLI) schemes, offering subsidies to companies that manufactured locally. Electronics, pharmaceuticals, textiles, auto components: each sector got its PLI scheme. Billions in subsidies were committed.
The results are mixed. Some domestic production emerged. Samsung built a phone factory. Tata began semiconductor discussions. But the deeper problem remains: India lacks the infrastructure, the skills base, the logistics network, and the regulatory environment to compete with East Asian manufacturing.
A factory in India still faces:
* Electricity costs 40% higher than China
* Logistics costs that add 14% to product cost (vs. 8% in China)
* Labor laws that prevent scaling workforce up or down
* Inspectors who treat every factory as a revenue source
* Land acquisition that takes years
* Environmental clearances that can be revoked capriciously
PLI schemes subsidize companies to overcome these obstacles. But subsidies can’t fix the underlying problems. They can only compensate for them, temporarily, at taxpayer expense.
The Adani Question
No discussion of Modi-era India is complete without Adani.
Gautam Adani, a first-generation entrepreneur from Gujarat, has built a conglomerate spanning ports, airports, power, mining, cement, media, and data centers. His rise parallels Modi’s: from Gujarat business to national dominance. His proximity to power is undeniable: Adani companies won contracts for airports, ports, power transmission. When Modi traveled abroad, Adani often accompanied him.
By 2022, Adani was the world’s third-richest person. His net worth had grown from $8 billion in 2014 to over $120 billion in 2022. The valuations of his companies defied conventional metrics, trading at price-to-earnings ratios that assumed perpetual hyper-growth.
Then Hindenburg Research published its report.
The American short-seller alleged that Adani Group used offshore shell companies to manipulate stock prices, violated Indian securities laws, and engaged in accounting fraud. The report wiped $100 billion from Adani Group’s market value in weeks. Indian courts ordered investigations. The Supreme Court appointed a committee.
The investigations found no “proof” of market manipulation, a phrasing that satisfied no one. The stock prices partially recovered. Adani remained close to power.
What the Adani episode revealed was India’s comfort with a development model where certain “national champions” receive preferential treatment. Favorable contract awards. Regulatory forbearance. Access to capital that smaller competitors couldn’t match.
The debate isn’t whether this is happening. It obviously is. The debate is whether it matters.
Defenders argue that India needs large companies to compete globally. Building infrastructure requires massive capital and long time horizons. Only companies like Adani and Reliance can execute projects at national scale. If these companies benefit from government relationships, so do the ports they build and the power they generate.
Critics counter that crony capitalism crowds out competition. Smaller firms that can’t access preferential treatment can’t compete. Innovation suffers. Capital flows to the connected rather than the capable. India becomes an oligarchy masquerading as a market economy.
The truth is probably somewhere between. India’s infrastructure has improved under Modi. Private investment in ports, airports, and highways has delivered facilities the government couldn’t build. At the same time, the concentration of wealth and contracts in a few hands raises legitimate concerns about market competition and political capture.
The Democratic Question
Behind every economic debate about Modi’s India lurks a political one.
The same centralized decision-making that enabled demonetization and GST has been applied to institutions. The Reserve Bank of India’s governor resigned after conflicts with the government. The Election Commission has been accused of partiality. Press freedom rankings have India near all-time lows. Opposition leaders face investigations that critics call politically motivated.
Modi’s defenders argue that India was always corrupt and dysfunctional; he’s simply using power effectively. His critics argue that democratic institutions are being hollowed out, that the independence of regulators, courts, and media is being systematically compromised.
This matters economically because investor confidence depends on institutional integrity. If property rights can be selectively enforced, if contracts mean what the government says they mean, if success depends more on political relationships than market performance, then long-term investment becomes a gamble on political continuity.
The question haunting India’s economic future: can a democratic country achieve transformative development through centralized power? China’s economic miracle was built on authoritarian control. Singapore’s on technocratic competence without full democracy. South Korea’s on military governments that only later democratized.
India is trying something different: illiberal democracy that maintains electoral competition while concentrating executive power. Whether this model can deliver sustained development without the legitimacy that genuine democratic accountability provides remains an open question.
What the Numbers Say
Ten years into the Modi era, what does India’s economic scorecard look like?
GDP: India is now the world’s fifth-largest economy, having passed the UK. If current trends continue, it will pass Germany and Japan within a decade. In absolute size, India is a success.
Per Capita Income: India ranks 140th in the world, below Bolivia and Egypt. The 5th largest economy is also home to the world’s largest number of poor people. In individual prosperity, India remains desperately poor.
Manufacturing: 17% of GDP. The same as 2014. The same as 1991. Make in India has not moved this needle.
Agriculture: 42% of the workforce produces 15% of GDP. The fundamental imbalance remains. Factory jobs have not materialized to absorb excess agricultural labor.
Inequality: Rising sharply. The Gini coefficient has increased. The share of income and wealth going to the top 1% and 10% has grown dramatically.
Growth Rate: Average 6% during Modi’s tenure. Respectable but below the 8-9% needed to provide jobs for 12 million new workers entering the labor force annually.
Job Creation: The most contested number in Indian economics. Official surveys show unemployment near 8%. But labor force participation, especially for women, has collapsed. The workforce is shrinking not because everyone has jobs, but because people have stopped looking.
The Modi era has not resolved India’s core contradiction: impressive aggregate growth that doesn’t translate into broad prosperity. The elephant is larger than ever. It still has only one functioning leg.
What Comes Next
India’s digital revolution offers a different path forward. While manufacturing stalled, digital infrastructure leaped ahead. Aadhaar identity, UPI payments, JAM trinity (accounts, identity, mobile): India built infrastructure for a digital economy that the West is still debating.
In Part 5, we’ll examine India’s most ambitious experiment: building the world’s largest digital public infrastructure. Biometric identity for 1.4 billion people. Instant payments between any two phones. Direct benefit transfers that cut out corruption. And the privacy questions that remain unanswered.
The elephant may not have learned to manufacture. But it has learned to compute.
This is Part 4 of a 6-part investigative series on India’s economic transformation. Part 5 will examine Digital India and the world’s largest experiment in digital public infrastructure.
Disclaimer: This article presents historical and economic analysis. The author has no financial interests in Indian markets or companies mentioned.
Footnotes
* Demonetization Announcement - Prime Minister Modi announced demonetization at 8:15 PM on November 8, 2016, giving four hours before the notes became invalid. The 500 and 1000 rupee denominations represented approximately 86% of currency in circulation, creating immediate chaos in India’s cash-dependent economy. Reserve Bank of India Annual Report 2016-17. https://www.rbi.org.in/Scripts/AnnualReportPublications.aspx
* Currency Return Rate - According to the RBI’s Annual Report 2017-18, 99.3% of the demonetized currency (₹15.31 trillion of ₹15.44 trillion) was returned to the banking system, undermining claims that black money would be permanently destroyed since nearly all banned notes found their way back. Reserve Bank of India Annual Report 2017-18. https://www.rbi.org.in/Scripts/AnnualReportPublications.aspx
* Demonetization Deaths - News reports documented over 100 deaths attributed to demonetization, including people dying in bank queues, suicides by those who couldn’t access funds, and deaths from lack of medical treatment when hospitals couldn’t process cash transactions. Widely documented in Indian media including The Hindu, Indian Express, and Times of India throughout November-December 2016.
* GST Implementation - The Goods and Services Tax was implemented on July 1, 2017, replacing a complex web of central and state taxes. The initial system included five rate slabs (0%, 5%, 12%, 18%, 28%) with numerous exemptions and complications, though it succeeded in creating a single national market. GST Council documentation. https://gstcouncil.gov.in/
* Truck Transit Times - Studies by the World Bank and Indian transport ministry found that trucks spent 25-30% of transit time at state border checkpoints before GST. The “one nation, one market” reform dramatically reduced this friction, improving logistics efficiency significantly. World Bank India Development Updates 2018-2019.
* K-Shaped Recovery - The term gained prominence after Covid-19, describing divergent recovery paths for organized vs. informal sector. Data from the Centre for Monitoring Indian Economy (CMIE) documented the disparity, with organized sector profits reaching record levels while informal sector incomes stagnated. CMIE Economic Outlook reports 2021-2023. https://www.cmie.com/
* Wealth Inequality - According to the World Inequality Lab’s “World Inequality Report 2022,” India’s top 10% held 77% of national wealth, and the top 1% held 40%. Inequality increased significantly between 2000 and 2020, with the Modi era accelerating this trend. World Inequality Lab. https://wir2022.wid.world/
* Make in India Goals - The program was launched in September 2014 with targets to increase manufacturing to 25% of GDP and create 100 million jobs by 2022. Manufacturing remains at approximately 17% of GDP as of 2024, essentially unchanged from launch. Ministry of Commerce and Industry data.
* PLI Schemes - Production Linked Incentive schemes were announced for 14 sectors beginning in 2020, with total outlay exceeding ₹2 trillion ($24 billion). Results have been mixed, with significant uptake in electronics and pharma but limited success in creating deep domestic supply chains rather than assembly operations. Government of India PLI portal. https://www.pli.gov.in/
* Adani-Hindenburg - Hindenburg Research published its report on January 24, 2023, alleging stock manipulation and accounting fraud. Adani Group lost approximately $100 billion in market value over the following weeks. A Supreme Court-appointed expert committee found “no conclusive evidence” of regulatory failure but recommended regulatory reforms. Hindenburg Research. https://hindenburgresearch.com/adani/
* Per Capita Income Ranking - As of 2023, India’s GDP per capita was approximately $2,500, ranking around 140th globally. World Bank data shows India below countries like Bolivia, Egypt, and the Philippines in per-capita terms despite being 5th largest in absolute GDP, illustrating the contradiction of aggregate size versus individual prosperity. World Bank Development Indicators. https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?most_recent_value_desc=false
