It’s hard to overstate how central cash is to Gujarat, and India in general. Most laborers, whether they operate looms, drive trucks, wash clothes or haul bricks, are paid in stacks of soft rupee notes, Mahatma Gandhi’s face on each one.
Even large real estate deals, say for a home that costs the equivalent of $500,000 or $600,000, will be done partly in blocks of rupees, to keep profits off the books.
This was what motivated Mr. Modi, who has made fighting corruption a big plank in his platform. He said that by making people turn in old bank notes, he would capture billions of rupees of so-called black money.
It has never been made clear how much black money he actually captured, and perhaps he thought he could get away with the enormous disruption because India’s economy had been doing so well. It expanded at more than 8 percent annually between 2005 and 2009 and more than 7 percent between 2010 and 2014.
But his timing seems to have been bad.
Unlike many of the other big economies that turn on exports — such as China’s, Japan’s or Germany’s — India is not nearly as industrialized.
Mr. Modi has vowed to change this, launching a Make in India campaign to attract foreign investors. But analysts say that India’s labor laws are still too restrictive, imposing all kinds of red tape on factories of more than 100 workers, which discourages businesses from thinking big. “A manufacturing revolution is nowhere in sight,” one commentator recently said.
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India’s economy remains substantially influenced by domestic rural demand. And back-to-back droughts in 2014 and 2015 ruined millions of farmers, slowing down overall growth.
Then in July 2017, before people had a chance to recover from the currency chaos — which had also hampered consumption, because many Indians simply didn’t have any spare cash in their pockets — Mr. Modi moved ahead on another front: the new goods and services tax, or G.S.T.
It was the most sweeping tax overhaul India had ever tried, and probably overdue. But many economists and business people questioned Mr. Modi’s timing on this as well.
Suddenly, with the economy softening, all but the smallest businesses had to file dozens of returns each year, online, paying taxes on everything from yarn to mixed nuts, often at confusing rates.