8th of November is a date that any Indian will hardly forget. This is the date that the whole Indian Economy and Monetary system got turned upside down. On this day at 8:00 PM sharp in the evening, the Indian Prime Minister appeared on national television and announced that from 12AM this night the denominations of ₹500 and ₹1000 of Indian Currency winn no longer be considered as legal tender. This whole stunt by the Indian PM is known as Demonetization or Notebandi.
When he announced the demonetization he said that the main aim behind this decision is to hamper the networks of Black Money, money launddering and all the funds to terrorism. The BJP led NDA government announced after some time that they have broken the backbone of terrorism.
Although all the opposition parties took it very alarmingly. Rahul Gandhi, the president of Indian National Congress said that it is a scam. Former Prime Minister and famous economist in himself Dr. Manmohan Singh said that this is ‘a case of organized plunder and legalized loot’. He said that this will shrink the economy by at least 2% and it will impact the informal sector of the economy very badly.
When we look at India 5 years after the Demonetization it can be described under following heads;
Black Money reduction — Although it was claimed by the government that the decision was taken to stop the black money and make it ineffective, the reality is that according to the RBI more than 99% of the currency that was out there in circulation returned to RBI within a few months of this decision. So if the claim about stopping the black money was right then how can nearly all the currency get exchanged with RBI?
Currency in Circulation — after the fact get established that demonetization is not going to help in black money control the government tried to shift the goal post by the claims that this decision to make the Indians understand the Importance of digital economy. They said that it will increase the digital economic presence of the Indian population. And to a certain extent it is right now the digital transactions are in billions ( from 0.29 million UPI transactions to 4.2 billion transactions). Though the reason for this change is debatable.
Limited cash Flow — another claim of the government was that this decision was taken to reduce the cash flow in the economy because higher cash flow represents higher corruption and lower transparency. In the beginning this goal was seeming to be achieved but then may be due to pandemic or some other reason the cash flow in the economy broke all the records.
Although certain positive changes are there after the demonetization like the increased no. transaction in the form of UPI ( 4.2 billion), and the total online transaction value got increased to more than 100 billion but it can never be said confidently enough that this is because of demonetisation only. Demonetization may have helped a little bit but it has caused us a lot more than that. If we run a cost and benefit analysis we will find out that thousands of crores as its cost and more than 100 lives are a lot to ask just to increase the digitization of the payments in the economy.