On the evening on November 8th, 2016, Prime Minister Narendra Modi announced the demonetisation after which old currency notes of ₹500 and ₹1000 were scrapped from circulation w.e.f. the same midnight. As soon as the citizens were informed about the new development, lakhs of people rushed towards the petrol pumps and banks to exchange their old currency notes. The Prime Minister said that demonetisation is an effective step that will check black money, terror funding, tax evasions and will promote digital transactions.
On Wednesday, August 29th, 2018, nearly after two years, the counting of the old scrapped currencies returned to the banks during demonetisation has been completed, and Reserve Bank of India (RBI) in its annual reports disclosed that almost 99.3% of the old currency had been returned to the banks. Before demonetisation, 15.41 lakh crore of the old currency of ₹500 and ₹1000 were in circulation, and after demonetisation, a total of 15.31 lakh crore has been submitted to banks, the report said. The Specified Bank Notes (SBN) received were verified and counted in a high-speed currency verification and processing system (CVPS) for accuracy and genuineness.
The objectives behind demonetisation were to check black money, terror funding and promotion of digital transactions but are these objectives achieved? Was demonetisation a successful attempt to crack down black money or did India paid a greater price because of a step failed to achieve its purpose at the end?
Lakhs of people gathered in queues outside the banks and formed lines that went on for several metres long to exchange their money with the newly introduced notes. During this process, a few people lost their lives. Many people did not even get new notes in exchange for the old ones as by the time their turn came; the banks were out of cash and they had to return the next day. The banks worked overtime during demonetisation. Before demonetisation, the GDP was 7.9% which showed a significant drop to 5.7% April-June quarter 2017. The terror activities have also increased despite demonetisation claiming otherwise.
The sectors which underwent major setback are- manufacturing, mining and quarrying and construction. The ATMs were getting drained quickly and a significant number major banks’ ATMs remained empty or closed. Many people supported the demonetisation, and many said that its a step taken in a hurry and without premeditation. The chaos and problems and deaths that the country witnessed during demonetisation made it a questionable step.
The SBI said that banks should have been given more time to get prepared for the demonetisation. Former Prime Minister, Manmohan Singh said that demonetisation would decelerate the economic growth. Having said all this, the question of the success of demonetisation needs a practical and factual answer.
1. It was believed that demonetisation would check black money and more than 80% of the black money disappeared from the system but, according to the annual report of the RBI, this was only an assumption which has been proved wrong by the report.
2. Demonetisation was thought to be an effective measure to crack down terrorism, but terrorism is still on the rise.
3. Substantial economic growth was expected with demonetisation but the GDP plunge from 7.9% to 5.7%, proves that demonetisation did not help in the economic growth.
One thing needs to be understood here that no one sits on black money in their homes. Black money is not entirely in cash. Money trade and money lending are the most frequent use of black money, which is used to finance these two activities. The country has seen numerous debates on the effectiveness of demonetisation since 2016. For many, it was a major step for economic reform and for many, it was just a wrong step. The objectives of demonetisation have not been achieved.
Was demonetisation a success or a failure? This needs to be asked to those who have lost their loved ones while standing in the long queues. This needs to be asked to the people from sectors that faced a major setback post demonetisation especially the people from the manufacturing sector.