Seven years of demonetisation: Here is what you should know

On seventh anniversary of demonetisation of old ₹ 1,000 and ₹ 500 banknotes announced by Prime Minister Narendra Modi, ETV Bharat takes a look at how the measure has fared in terms of the stated objectives which include - promoting digital payments, curbing black money, eliminating terror funding and tackling FICN circulation. The government has claimed that the drive helped formalise the economy while critics slam the move of losing plot as it did not curb black money and reduce dependence on cash.

Hyderabad:Seven years before, Prime Minister Narendra Modi announced the demonetisation of old ₹ 1,000 and ₹ 500 banknotes, with the objectives of promoting digital payments, curbing black money, eliminating terror funding and tackling FICN circulation. Here is how it fared in India.

While it is still debatable whether these stated objectives were achieved after implementing the decision of demonetising high value currency notes on November 8, 2016, the government has been claiming that it has helped it formalise the economy and critics slam the move of losing plot as it did not curb black money and reduce dependence on cash.

Losses-The announcement from Modi sent the citizens into a tizzy. There were serpentine queues in front of banks and ATMs where people were allowed to transact the demonetised denominations of the Indian currency. Estimates suggest over 105 people could have died in the rush for cash across the country. It also wrought havoc hit small-scale businesses.

A study by Centre for Monitoring Indian Economy (CMIE) established a loss of 15 lakh jobs. The CMIE took the data for January-April 2017 with the figures for the September-December quarter of 2016, when demonetisation was implemented.

FICN menace-Circulation of Fake Indian Currency Notes (FICN) was among the key objectives was to eradicate counterfeiting of notes. According to a National Crime Control Bureau (NCRB) record, FICN having a face value of ₹245.33 cr has been seized by the law enforcement agencies across the country in the past seven years since demonetisation.

The seizure of FICN for 2020 accounted for ₹92.17 cr face value while that of 2016 was ₹15.92 cr. In 2021, FICN of ₹20.39 cr face value was seized in the country. The NCRB data showed the seizure was ₹34.79 cr in 2019, ₹26.35 cr in 2018 and ₹55.71 cr in 2017.

RBI annual report published in May 2022 said the number of ₹500 fake currency notes detected by the banking system more than doubled to 79,669 pieces in 2021-22 fiscal over the previous year. The number of ₹2,000 fake notes detected in the system was 13,604 pieces during 2021-22, up 54.6 per cent from the preceding financial year.

What government said?In a response to question in the Rajya Sabha, the government said it did achieve goals such as higher revenue collection, widening of tax net as well as curbing terror funding post demonetisation.

Minister of State for Finance Pankaj Chaudhary said the purpose accomplished by demonetisation on revenue collection and widening of tax base and the gains accrued include robust growth of 18 per cent in 2017-18 in net direct tax collections over 2016-17, which is the highest in the preceding seven financial years. He asserted it to be positive impact of demonetisation on the level of tax compliance in the country.

"In 2017-18, personal income tax (PIT) advance tax collections increased by 23.4 per cent and PIT self-assessment tax by 29.2 per cent over those for 2016-17, corroborating the premise that demonetisation and the subsequent use of bank deposit data by Income-Tax department had a major impact on voluntary tax payments by the non-corporate/individual taxpayers," his written response uploaded in Sansad Website read.

Chaudhary cited the 25 per cent growth in the number of income tax returns (ITRs) filed in FY18, and harped it to be the highest in the preceding five years. The number of ITR filings by individuals stood at about 1.07 crore compared to 85.51 lakh in 2016-17.

On tackling FICN, the government said it had a positive impact on most theatres of violence in the country as hordes of cash held by terrorists turned worthless. "Post demonetisation, the flow of high-quality FICN reduced considerably, the number of such pieces fell considerably during 2016-17 to 2020-21, from 7,62,072 to 2,08,625," the Minister said.

Opposition-Congress took a swipe at PM Modi on the seventh anniversary of demonetisation. "Respected PM Narendra Modi, today is the 7th anniversary of demonetisation touted as your visionary step for eradication of black money from India. Now, should we celebrate the occassion or mourn for its abysmal failure, Floor leader of the Congress party in Loksabha, Adhir Ranjan Chowdhury," said in a post in X.

According to the grand old party, "PM Modi's whimsical move to demonetise ₹500 and ₹1000 notes has not only broke the economy's back but proved to be an utter failure. It left the poor hapless while hundreds of lives were lost. We stand with the families of the victims and the survivors, who continue to suffer."

What Supreme Court said? Earlier in January, a five-judge constitutional bench of the Supreme Court upheld the controversial decision, in a 4:1 majority verdict, rejecting the petitions that challenged demonetisation while upholding its legality. The bench - comprising Justices B R Gavai, S Abdul Nazeer, A S Bopanna, and V Ramasubramanian - had concluded that there was no flaw in the decision-making process.

The dissenting verdict written by Justice B V Nagarathna held the entire exercise as "not in accordance with the law" while raising crucial questions over the RBI’s institutional independence. In her judgement, Nagarathna noted that the proposal for demonetisation “originated” from the central government and that the recommendation was “obtained” from the Reserve Bank of India (RBI) in the form of an opinion. The verdict laid bare the records which contained phrases such as — “as desired” by the central government, and that the government had “recommended” — establishing the fact that there was “no independent application of mind” by the RBI.

Holding cash in hand-As per an RBI statement on money supply, Cash in Circulation (CIC) has gone to ₹ 33 lakh crore in October 2023 from ₹ 17 lakh crore in November 2016, indicating a high cash usage even seven years after the demonetisation move.

A State Bank of India research report has stated that the share of Currency In Circulation (CIC) in payment systems as been declining from 88 per cent in fiscal 2015-16 to 20 per cent in 2021-22. Estimates from the report suggest that it would go down further to 11.15 per cent in 2026-27.

Digital shift-The report released last year also noted that the digital transactions' share is continuously increasing from 11.26 per cent in 2015-16 to 80.4 per cent in 2021-22. It is expected to touch 88 per cent in 2026-27, it said.

Cash preferred in big-ticket transactions-LocalCircles, an organisation conducting surveys, in a report said, the CIC has more than doubled when compared to the figure of November 2028.

"Cash is still being used heavily in big-ticket transactions, especially property transactions with the survey finding that 76 per cent of those who bought a property in the last 7 years had to pay a component of the price in cash," it said.

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