An honest introspection of the demonetisation decision on the occasion of its second anniversary should reveal that the costs have far outweighed the benefits; the pain caused to the general public was far greater than the gain to the economy. Though the intent behind banning the high-value currency notes was lofty, the consequences turned out to be an economic misadventure, evoking criticism that it ended up being a money laundering scheme. None of the objectives of the note ban — unearthing black money, eliminating counterfeit currency and choking terror funding — has been achieved. Nearly 86% of the cash in circulation vanished at one go when Rs 500, Rs 1,000 notes were declared invalid on November 8, 2016, dealing a severe blow to the small and medium enterprises and the cash-dependent informal sectors. Apart from causing major hardship to the common public who were made to stand in long queues before the ATMs, which often went dry, and suffer due to restrictions on cash withdrawals, the unorthodox move hit the employment sector very hard. With about 99.3% of the demonetised currency notes coming back to the banks, the outcome of one of the most disruptive economic decisions in independent India has become highly questionable. The banks have received Rs 15.30 lakh crore while only Rs 10,760 crore, constituting a mere 0.7% of the invalidated notes, has gone untraceable. The initial expectation of the government that nearly Rs 3 lakh crore unaccounted money would be unearthed has proved to be wrong.
India lost its status as the world’s fastest-growing economy in the quarter that followed demonetisation, when the GDP growth fell to 6.1% year-on-year in January-March, 2017, from 7.6% in the year-ago quarter. There is no data to back the claim that the note ban has arrested terror funding. Though unearthing the counterfeit currency was one of the stated objectives of the demonetisation exercise, the RBI now says that the number of fake currency notes detected has dropped by 31.4% in 2017-18 compared with the previous year due to the introduction of high-security feature notes. Many economists wonder whether demonetisation has turned out to be a case of all pains and no gains. Former Prime Minister Dr Manmohan Singh, himself a distinguished economist, has warned that the scars and wounds of demonetisation will only get more visible with time. Beyond the steep drop in headline GDP growth numbers after demonetisation, the deeper ramifications of notebandi are still unravelling. However, the counter-narrative has focused on positive impacts of demonetisation like bringing in more cash into the banking system and thereby lowering the cost of loans, expanding the tax base, increasing digitisation and formalising the economy.