Demonetization Failed ?

The most widely discussed topic breaking the internet on Nov 8, 2017 has been labeled as the Ist major scam of NDA Govt. Flagged as the disaster in terms of policy execution by those in opposition groups has claimed nearly 100 lives (unofficial data) and caused losses to the tune of 5k crore. Touted as the ambition of the fascist ideology, which aims to protect a few industrialist and businesses, demonetization failed to achieve its principal objective to curb the black money menace. Nevertheless it was a bold move by the government but failure at the highest level of executive is a matter of discussion.

Demonetization Data by RBI

As of Nov 8, 2016 15.44 trillion rupee worth currency notes (500 and 1000 denominations) were in circulation in the country, constituting about 87% of the total cash in circulation. Government anticipated black money to the tune of 50,000-3 lakh crore constituting about 20% of the total cash in circulation. But things didn’t go as expected and nearly 99% of the total cash currency (500 and 1000 denominations) found their way back into the banks. 15.28 out of 15.44 trillion returned  back. as of June 30. 2017, subject to further validation of the legitimacy of the SBNs (specific bank notes), reported RBI. Hence, demonetization failed to achieve its objective.

Full report of RBI on demonetization excluding the report on SBNs is HERE.

RBIs take on the Demonetization Data

The former Governor of RBI Raghuran Rajan has given his statement post RBI data revelation. According to him, the RBI under his Governorship never recommended demonetization. The functioning of a Government institute has to be carried according to the principle and rules formulated under the guidance of the Union government he said. RBI was asked to prepare a note on demonetization. The note containing potential benefits and harms of demonetization was presented to the Government. Some alternatives to achieve the desired objectives as substitutes to the coercive steps were also presented. The former Governor had also cautioned the Government about the cost of demonetization. Ultimately, the final decision was taken by the Government.

Immediate effects of Demonetization

GDP after demonetization

Demonetization in simple words slowed the economy, by declining the flow of cash in the market. The most renowned economist and former PM Dr. Manmohan Singh had predicted a downfall of 1-2 % in GDP which turned true. GDP grew 5.7% in April-June quarter falling short of expected 6.1% mark and declining nearly 2.2% when compared to the like quarter a year ago(7.2%). The apprehensions and predictions so far have overshadowed any positive effect of demonetization. .

Subsequent Legistations


The RERA act introduced in 2016 had become operational from 1 May 2017. Enacted with an aim to streamline and refine the real estate sector, this act has halted the development of real estate sector, as a  sector needs a few months to acquaint with new guidelines. Apprehensions are inevitable when changes occur or are introduced.


Goods and Services Tax act is the latest tax regime introduced by the central Government. It aims to subsume the innumerable;e taxes and compact them into a single tax i.e. GST. This act of legislature had revised tax rates on all commodities except a few.  Adhering to and familiarizing with new system and guidelines of a totally different tax system requires considerable amount of time. Turbulence thus is  inevitable.

Hence, demonetization coupled with jolts of new land and tax reforms are to be blamed for the slow down of the economy.

A Look at the Positive Aspects

Demonetization coupled with GST, RERA and subsequent legislation has wobbled the Indian economy. Causing some short term effects(as of now) on GDP, the conglomerate has also effected some positive effects too.

Tax Net Widened

The taxpayer base grew nearly 56% from 4 crore to 6.26 crore (at the end of last fiscal year). The net effect of the aforesaid policies have resulted into total net tax revenue growth of 18% at 17.10 lakh crore, highest in last 6 years. The indirect taxes kitty grew by 22% at 8.63 lakh crore while that of direct taxes by 14.2% at 8.47 lakh crore. Information on net direct taxes can be obtained from here.

Transparency and enhanced vigil

The Aadhar based linkage of PAN and bank account will certainly nullify the multiple fraudulent PANs and will ensure better accounting of financial health of an individual. This regime will compliment the tracking machinery and ensure transparency for enhancing vigil. Cash deposit post demonetization was the precedent step of the process of linking Aadhar, as to ascertain the maximum holdings of an individual. This limit would help in future to check the compliance of that individual to the claim that he earlier made. A rough estimate of total wealth in a nutshell (excluding immovable property).

Digital Literacy

Demonetization, GST, RERA, and all the subsequent legislation and schemes promote digital literacy. The Government wants the people to switch from pen-paper to digital mode. Demonetization promoted digital transactions and people heavily used this mode of transaction post demonetization. GST regime introduced easy and convenient method to file IT returns digitally. A simple easy to use tax return filing software is no less a boon. RERA aims to infuse transparency in real estate sector by mandatory publicizing information of all the projects undertaken by promoter, by assigning a unique number to a certain ‘project’ as well as the ‘promoter’.

Read more on RERA here.

Demonetization failed on economic standards, but testing demonetization alone without taking into account the subsequent legislation (RERA, GST, etc.) would be unfair.

Demonetization Failed ? – Author’s view

Optimism and hope is what the current Government on its inception had infused into the minds of people. With such an overwhelming majority, competitive ministers the hopes are still high. Moreover there is no other option but to believe in the Government for next 2 years. Even though demonetization failed on economic standards, certain other acts of legislature prove that the Government is actively working to make the Nation great. Let us wait and watch.


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