5 Years of Demonetisation - What has Changed?



Quick Summary
Five years after the demonetisation of INR 500 and 1000 notes, this article reviews its impact. While the aim was to curb black money and fake currency, and promote digital transactions, the results are mixed. Although digital payments have surged, the recovery of black money fell short of expectations, and counterfeit notes continue to circulate. The GDP growth rate also saw a decline in the years following the announcement.

This day 5 years back at 8 PM, our Prime Minister Shri Narendra Modi announced the ban of INR 500s and INR 1000s which then formed 86% of the circulation of currency notes.

The main aim of demonetisation was to bring in hidden money under tax by depositing in the bank, which was like a surgical strike on illegal cash.

The other aims included the stopping of fake notes and moving India towards Digital transactions by creating a cashless economy.

The sudden move affected the agricultural sector and small scale traders who were solely dependent on Cash transactions.

Demonetisation in India: 5 Years On - What Changed

What Really Happened?

1. Recovery of Black Money

According to RBI’s report people had returned Rs 15.28 lakh crore of the Rs 15.44 lakh crore banned currency, or 98.96 per cent of the scrapped Rs 500 and Rs 1,000 notes, to the banking system. The old notes came to the RBI either directly or from bank branches and post offices through the currency chest mechanism.

The Government had expected a recovery of around Rs. 3-4 lakh crores but could only recover Rs.1.3 lakh crore through the means of anti black money and money laundering measures, where demonetisation played a major measure.

2. Collection and Circulation of Counterfeit Currency

According to the Report of RBI a total of 18. 87 lakh pieces of fake notes have been seized across the country in various denominations from 2016 to 2020. Most fake notes were in 100 denominations. According to the RBI there has been a sharp increase in the counterfeit denomination of 10,50,200, and 500 even in the New series of Currency.

The Circulation of fake notes has not stopped according to the RBI.

3. GDP Growth Rate Analysis

GDP growth rate started declining sharply in the post-demonetisation years. India’s GDP growth rate increased consistently from 5.2% in 2011-12 to 8.3% in 2016-17.The trend started to fall downwards with the GDP rate being 4% in the year 2019-20.

 

4. Digitalised Transactions

Digitalised Transactions have seen fastest growth post demonetisation. UPI payment volume stood highest in FY 2020 at Rs. 1251.86 crore . The value of transactions through the Unified Payments Interface (UPI) crossed $100 billion in October 2021.

Research says that the Indian economy has seen great formalisation which is spectacular and has made history.

There is no place for transactions without UPI. This UPI has come into force post demonetisation.

 

This has brought formal banking schemes to various sectors of society to name the Jan-Dhan scheme.

Thus, the move had its pros and cons. What are your thoughts on the same? Let us know in the comments section below!

FAQ :

The main aims of demonetisation were to bring hidden money under tax by depositing it in banks, stop the circulation of fake notes, and encourage a move towards digital transactions to create a cashless economy.

Approximately 98.96 per cent of the scrapped Rs 500 and Rs 1,000 notes, amounting to Rs 15.28 lakh crore, were returned to the banking system.

No, the circulation of fake notes has not stopped. According to the RBI, a significant number of fake notes have been seized, and there has been an increase in counterfeit denominations, even in the new series of currency.

India's GDP growth rate started declining sharply in the post-demonetisation years, falling from 8.3% in 2016-17 to 4% in 2019-20.

Digitalised transactions have seen their fastest growth post-demonetisation, with UPI payment volumes reaching record highs and the value of UPI transactions crossing $100 billion.




About the Author

Practice

I simplify complex income tax, TDS, banking, and investment updates into practical insights for taxpayers, salaried professionals, pensioners, and senior citizens. I regularly write on ITR filing, tax compliance, savings schemes, and the latest financial rule changes in India.

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