India witnessed a historic economic event 7 years ago today on November 8, 2016. Without any prior intimation, the country saw Prime Minister Narendra Modi come on their television screens and announce the demonetisation of high-denomination currency notes of Rs 500 and Rs 1000. This sudden and unexpected move sent shockwaves across the nation as the people tried to understand the new reality of the Indian economy they had just entered into.
The PM in his announcement revealed that the government is invalidating the Rs 500 and Rs 1000 denomination currency notes, which were a major portion of the currency in circulation at the time causing panic and amazement amongst the public.
The Indian government said that the major goal of demonetisation was to combat black money, fake currency, and corruption. As people stood in lines for months to deposit their money and daily life was disrupted across the country, small businesses and the informal sector emerged as the ones most affected by this decision due to their dependence on cash.
How Much Currency Came Back?
As an alternative to the invalidated currency, the government also announced the launch of new currency of Rs 2000 and Rs 500 for public circulation. This was followed by the banks extending the timeline to accept all the now invalidated Rs 500 and Rs 1,000 notes till well into 2017. Eventually all the older invalidated high denomination notes were ruled out of public circulation, and the RBI gradually stopped printing the Rs 2,000 notes. In it’s annual report for 2017-18, the banking regulator announced that from the Rs 15.41 lakh crore worth of Rs 500 and Rs 1,000 notes in circulation prior to November 8, 2016, notes worth Rs 15.31 lakh crore were returned into the system. This accounted for about 99.3 per cent of the overall invalidated old notes which were accounted for in the system after demonetisation.
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Digital Economy
The PM urged the people to accept this measure as a shift towards a digital economy to help maintain transparency in the financial system and create a cleaner economy. In order to strengthen the move to digitalisation, the government launched the Bharat Interface for Money (BHIM) app in December 2016 to facilitate digital payments.
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Rs 2,000 Notes Withdrawn
This was followed by the Reserve Bank of India (RBI) announcing the withdrawal of the Rs 2,000 currency note from circulation on May 19, 2023. The banking regulator allowed the Indian public time till September 30 to exchange or deposit all the Rs 2,000 notes in their possession, which was later extended to October 7, 2023.
As of August 31, 2023, the RBI said that Rs 2,000 notes worth Rs 3.32 lakh crore returned to the system. This meant that the total value of Rs 2,000 notes in circulation stood at Rs 0.24 lakh crore.
While the consequences of demonetisation continue to be a point of discussion between politicians, economists, and the people, it was a bold economic move that enhanced India’s move towards a digital economy. However, its aim to combat black money remains to be investigated further to come to any conclusions.