Five years of demonetisation: What has changed in the Indian economy?
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Demonetisation was a hasty step to combat the threat of black money and the parallel economy (illegal business, such as money laundering, smuggling, and so on), with a visible influence on how the government's actions are seen in international economic circles.
It's been five years since the government took the decision to phase out high-denomination currency notes all at once.
Prime Minister Narendra Modi launched the demonetisation proposal at 8 p.m. on November 8, 2016, in a televised address, with the goal of addressing four issues: Terror financing, counterfeit currency printing, black money, and corruption.
From midnight on November 8, 2016, the Rs 500 and Rs 1,000 currency notes ceased to be legal tender as a result of the demonetisation exercise.
During this time, the economy has seen various highs and lows.The rise in digital payments has been the most significant.
Although digital payments have grown modestly in recent years, both in terms of value and volume across nations, according to an RBI research on digital payments, the data shows that the currency in circulation to GDP ratio has increased in lockstep with overall economic development.
According to official data, there has been an increase in digital payments via various channels, including plastic cards, online banking, and the Unified Payments Interface.
The National Payments Corporation of India (NPCI)'s Payments Interface (UPI) is quickly becoming a prominent mode of payment in India.
If we look at the rise of digital transactions since demonetisation, we can see that it has skyrocketed.
Following demonetisation, the overall number of counterfeit notes found dropped dramatically. With fewer counterfeit notes on the market, the potential for terror financing and funding left-wing extremist groups is substantially diminished.
Demonetisation has also reduced India's reliance on cash.
There were Rs. 16.41 trillion worth of notes in circulation at the end of the financial year 2015-16, representing a YoY increase of 14.51 per cent over 2014-15.
By the end of 2020-21, the total value of notes in circulation will have risen to Rs.32.62 trillion.
However, by the end of 2021, it had dropped to Rs.28.26 trillion.
However, the government's surprise move to demonetise two high-denomination currencies five years ago resulted in huge lines outside banks to exchange or deposit the demonetised notes.
The government's decision impacted several sections of the economy, particularly the unorganised sector.
(With inputs from agencies)