It was on November 8, that the government of India announced the demonetization of all ₹500 and ₹1000 banknotes of the Mahatma Gandhi series. November 8, 2021 marks five years of demonetization in India. Prime Minister Narendra Modi in a televised address at 8 pm, declared that the 500 and 1000 denominations would cease to be legal tender. These notes were 86% of the currency in circulation at the time in terms of value.
At the time in 2016, many in the country would have thought it would be a life-changing moment. Despite the talks about the sudden move in 2016 night, today we recall the day and discuss the post-demonetization days and the agenda behind the government to cull the black money in the country.
The announcement of demonetization was followed by prolonged cash shortages in the weeks that followed, which created significant disruption throughout the economy. People seeking to exchange their banknotes had to stand in lengthy queues, and several deaths were linked to the rush to exchange cash.
However, the move received support from several bankers as well as from some international commentators. The move has been criticized as poorly planned and unjust and has led to protests, lawsuits, and strikes against the government in many parts of India. Debates also took place concerning the move in both houses of Parliament.
The biggest promise of demonetization was that it would purge unaccounted cash in the system, with those hoarding forced to deposit it in the banks. Moreover, it was described as a policy boost to promoting digital payments.
According to data released by the Reserve Bank of India (RBI), notes in circulation (NIC) in terms of value, went up from ₹ 17.74 lakh crore on November 4, 2016, to ₹ 29.17 lakh crore on October 29, 2021, an increase of 64 percent. Soon after the demonetization, the currency with the public, which stood at Rs 17.97 trillion at the time, declined sharply to Rs 7.8 trillion in January 2017.
Prior to Covid-19, even in November 2019, the people had Rs 21.78 lakh crore in their hands, according to RBI figures. The prevalence of banknotes, which has been steadily increasing since the cancellation of the note, is now 50% higher than in 2016, even in proportion to the national income.
Making the financial sector more formal is one of the key policies of the Modi government. The Jan Dhan Yojana’s grand opening of bank accounts before the ban, the subsequent introduction of the Goods and Services Tax (GST) system, was based on the corresponding decision.
Here the status after five years is discussed:
1. Cash still rules: Circulation touched an all-time high of Rs 28.3 trillion on October 8
2. Digital transactions: These, including UPI, have also touched an all-time high
3. No. of UPI transactions: Up from just 0.29 million in Nov 2016 to 4.2 billion now
4. Value of UPI transactions: A record high of $103 billion last month
5. Currency in circulation: Growing in line with nominal GDP growth