On 8th of November, 2016, India was in a turmoil when our PM, Mr. Modi announced that that the 500 and 1000 rupee notes would not be a legal tender anymore. 86% of the cash in circulation was suddenly of no value, so the chaos was unavoidable. Some call it a bold move, some call it a hasty one. Let’s see what the members of this group discussion conclude…

Demonetisation was a highly confidential move, which according to the PM, had 5 broad objectives, namely, to remove black money from our economy, to curb terror funding, digitization of finance, catch hold of counterfeit currency and formalisation of economy by getting more money on the records of the banks and thus expanding the tax base. In most of these objectives, Govt. of India has failed to bring in some noticeable changes.

Black Money

It was expected that around 30% of cash, being unaccounted, would not return to the banks. But as the data reveals, 98.96% of the total cash i.e. 15.28 lakh crores (out of 15.44) of cash was returned to the banks. People found out ways to manage their cash, be it by buying gold and other valuable items or by getting their money stored in accounts of poor people. It is also said that a few people got the information about this beforehand. Although RBI debt was lessened by 15,000 crores, that was not an amount that the Govt. was looking for.

Terror Funding and Fake Currency

It was believed that money with the terror organisations operating illegally in India, would run out of cash due to demonetisation. But within a month of Demonetisation, there were terrorist attacks in Kashmir, which makes us think, whether the terror funding had been stopped or not. Counterfeit currency was out of the market for a few months and it was said that the new notes are not easy to duplicate. But after a year or so, the counterfeit currency is back in the market and that too in large number. RBI reports suggest, 7.6 lakh fake notes were minted in the year 2016-17.

The digitisation of the Economy

There was a prevalent slogan popping up at those times that “India will become a cashless or at least a less-cash economy”. Since digital transactions are all recorded, so it is good for an economy to have more of these. The use of digital currency has increased significantly by 1,900 crores post demonetisation, but an anti-parallel criterion, namely Currency with Public (CwP) has also had a 7% increase. This shows that people still prefer cash as their mode of payment. If we really need to digitise the economy, technological advancements like internet speed and reach of technology to our villages should be expanded.  

Tax Base, Banking Systems and Growth

There is a significant expansion in the tax base and more of the cash in use is now accounted for by the banks and thus the economy has become more transparent. There is an increase in liquidity in the banks, which comes out as loans to the people. But the workers there had a hard time, working for long shifts and the credit must go to them. The GDP has increased after a few dips but the growth rate is higher which would surely benefit in the long run.

Foreign Relations

There was a lot of investment of Indian currency in Nepal in those days, which made it difficult for Nepal to get the “illegal tender” converted to “legal one”. India, before demonetisation, had promised Mongolia, an aid of 1 billion dollars, but could not give due to demonetisation which had upset Mongolia and made our ties sour.

Conclusion

Traders of Micro, Small, Medium Enterprises (MSME) and unskilled laborers were worst hit by this move. More than 15 lacs jobs lost, death tolls of around 200, cost of printing and transporting the notes, calibrating ATM machines, and most importantly, loss of time incurred by people due to chaos, shows that this could have been a more planned move. Although we could at least broaden our tax base and increase the growth rate and GDP, had it not been brought out hastily, it could have turned out to be a major success.