In November 2016, the media reported the perils faced by 64-year old Munni Lal, a 65-year-old vegetable vendor in Noida, who spent 24 hours scouring the city to get cash to cremate his wife. It’s not because Lal did not have any money, but he could not access it easily because of the long queues and empty ATMs that demonetisation ushered in.
While demonetisation was aimed at transitioning India into a cashless society, it ended up making India totally ‘cash’-less in the days after November 8, 2016 when the central government announced demonetisation. Almost overnight, lakhs of currency notes stood invalidated and those holding them had to stand in long queues to deposit it in banks. The government hoped to flush out black money, fake notes and deal with unaccounted wealth with the demonetisation drive.
But did Munni Lal’s hardship and those of a billion others pay off?
On August 30, 2017, the RBI in its annual report revealed that of the Rs 15.44 lakh crore of notes taken out of circulation on November 8, Rs 15.28 lakh crore, or almost 99%, had returned to the system by way of deposits in banks. The government had expected that demonetisation would result in at least Rs 3 lakh crore not returning to the system and therefore being exposed as ‘black money’.
The aim to reduce fake notes also fell flat. While the RBI said that 2016-17 had yielded 7,62,072 fake notes, higher than the 6,32,926 notes seized in 2015-16, in total, fake notes caught account for only 0.0007% of total notes in circulation.
The government hoped that introduction of the new Rs 2,000 notes with extra security features would end the fake currency racket in the country. But in April, Union minister Kiren Rijiju had informed the Rajyas Sabha that various Indian security agencies, including the National Investigation Agency, had seized fake currency notes with a face value of Rs 6.23 crore post demonetisation.
Meanwhile, the RBI had spent Rs 7,965 crore on printing new currency notes in 2016-17 as against Rs 3,400 crore spent in 2015-16, more than double in a year.
Thirdly, the government had also hoped tax collections would rise after demonetisation. “Post demonetisation, tariff tax base has increased substantially. Personal IT returns have increased by 25%," said finance minister Arun Jaitley on August 30. However, this is not new. In the past, number of new tax fliers has also increased by 27%.
Total income tax collection rose by 20% in 2016-17 which is only 4% higher than tax collections in 2014-15.
Denying that demonetisation failed to achieve its objectives, finance minister Arun Jaitley said the measure had succeeded in reducing cash in the economy, increasing digitisation, expanding the tax base, checking black money and in moving towards integrating the informal economy with the formal one.
“The objective of demonetisation was that India is a high-cash economy and that scenario needs to be altered,” Jaitley said after RBI released the annual report.
“Those dealing in cash currency have now been forced to deposit these in banks, the money has got identified with a particular owner,” he said.
"The next object of demonetisation is that digitisation must expand, which climaxed during demonetisation and we are trying to sustain that momentum even after remonetisation is completed. Our aim was that the quantum of cash must come down,” Jaitley said.
He said the RBI reports that the volume of cash transactions had reduced by 17% post-demonetisation. But earlier in April, the RBI had said the pace of digitisation had taken a hit.
“The integration of the informal with the formal economy was one of the principle objectives of demonetisation,” said Jaitley.
He said demonetisation countered terrorist and Maoist financing. But the real costs of demonetisation on common people like Munni Lal are yet to be ascertained.