A senior economist of influential US economics organization, HIS Global Insight, has termed the decision to demonetize Rs 500 and 1000 notes as reflecting "a vast disconnect between the ivory tower of Modi's government in Delhi run by urban middle class bureaucrats and the reality of life for the rural poor in India".
In a scathing critique of Modi's demonetization move, the top expert of the Massachusetts-based body, which serving over 3,800 clients in industry, finance and government, and offices in 13 countries, says, "Almost every other country allows a transition period for people to exchange their old banknotes for the newly issued notes."
In an interview with Deutsche Welle or DW, Germany's public international broadcaster, Rajiv Biswas, Asia-Pacific Chief Economist of HIS Global Insight, says, "This procedure effectively removes the old counterfeit notes from the system since banks will detect counterfeit notes at the point of exchange."
"However", he insists, "To just abolish 86 percent of banknotes overnight in a poverty-stricken nation where the poorest half of society depend on cash transactions seems completely silly."
Biswas says, "The overnight cancellation of 86 percent of India's banknotes in value terms has created a huge shock to Indian consumers since 50 percent of adults do not have bank accounts or digital money and a high share of ordinary transactions rely on cash, particularly for everyday food purchases such as vegetables, fruits, meat and fish."
According to him, "Much of this cash-based economy involving the poorest 50 percent of Indian consumers has slowed down sharply, and this will hit the fourth quarter (October-December) GDP figure assuming the statistics are properly calculated in the first place."
Pointing out that India is "essentially a very poor nation by international standards, with annual per capita GDP of only around $1,600 (1,500 euros) in 2015", Biswas says, "An estimated 50 percent of the adult population does not have bank accounts or digital money, particularly in rural India where villagers have little access to bank branch networks or ATMs."
"While much could be done to mitigate the burden of the poor, it seems that the Modi government is living in a parallel universe to the rural poor, and therefore is unable to grasp the problems that its demonetization edict has created for much of India's population", the senior economist says.
Pointing out that "India has been plunged into chaos by this Indian government brainwave of abolishing 86 percent of banknotes overnight", Biswas notes huge queues of ordinary people in desperation "is like a scene from Leninist Russia after the Bolshevik Revolution when the economy collapsed."
"It is hard to believe Modi's demonetization snake oil cure-all magic potion will resolve the issue of black money as those who are involved in illegal transactions can turn to alternative forms of money, such as foreign currency or gold", he says.
Biswas warns, "Other developing countries such as Myanmar or Cambodia, where there has been a lack of trust in their own domestic currency, sometimes become dollarized, with the local population using US dollars as their preferred currency."