Nine Years After Demonetisation, Promised Economic Gains Remain Elusive

New Delhi: Nine years ago, on the night of November 8, 2016, Prime Minister Narendra Modi stunned the nation with an unscheduled address announcing that Rs. 500 and Rs. 1,000 currency notes would cease to be legal tender. According to the ruling Bharatiya Janata Party (BJP) the aim was to root out black money, curb the circulation of counterfeit notes, and move India towards a digital, less-cash economy with no corruption.

The announcement, hailed by supporters as a bold economic reform and a decisive blow against corruption, triggered unprecedented disruption across the country. As queues formed outside banks and ATMs, millions of ordinary citizens — particularly those in the informal sector — bore the brunt of the sudden liquidity shock.

The government had projected that demonetisation would flush out unaccounted wealth worth at least Rs. 4 lakh crore from the system. However, the Reserve Bank of India’s (RBI) subsequent data pointed at a starkly different picture. Of the Rs. 15.41 lakh crore worth of currency invalidated, Rs. 15.31 lakh crore — over 99% — was returned to the banking system, which means  that the vast bulk of black money was not held in cash and had found its way back into circulation.

The exercise was also intended to check the menace of fake currency and terror financing. Yet, according to recent figures from the Department of Economic Affairs, the circulation of counterfeit Rs. 500 notes has increased markedly. While 91,110 fake Rs. 500 notes were detected in 2022–23, the number stood at 85,711 in 2023–24 and has already risen to 1,17,722 in the current financial year (2024–25).

To offset the sudden cash shortage in 2016, the government had introduced a new Rs. 2,000 note. Seven years later, in May 2023, this denomination was itself withdrawn from circulation. While the Finance Ministry termed it a routine currency management measure, the move was an implicit acknowledgement of policy missteps and a continuation of the uncertainty triggered by demonetisation.

The sudden invalidation of high-value notes dealt a severe blow to India’s predominantly cash-driven informal economy, leading to widespread job losses and stunting small-scale enterprises. Though digital payments have expanded rapidly since 2016, analysts attribute this more to the proliferation of fintech platforms and pandemic-era behavioural changes than to the structural impact of demonetisation.

As the country marks nine years since that fateful night, the debate over demonetisation continues, with the promise of a cleaner, cashless economy — free from black money and counterfeit currency — yet to be realised.