At eight o’clock in the evening of November 2016, when Prime Minister Narendra Modi in his message to the nation shared with the people the decision to abolish the validity of five hundred and one thousand rupee notes, the whole country was astonished. But despite the difficulties, the general public supported it a lot. However, the opposition parties protested loudly in this regard. Cash was restored in the country after some difficulties, but in order to maintain sufficient availability of legal cash in the country, the central government started the circulation of new notes of five hundred and two thousand instead of old notes of five hundred and one thousand.
At that time, a total of 17.74 lakh crore currency was with the public in the country, out of which 85 percent was in the form of five hundred and one thousand notes. Due to the delay in printing of five hundred notes, it was the compulsion of the government and the Reserve Bank to issue two thousand notes. By March 2018, Rs 2,000 notes had reached Rs 6.73 lakh crore. In the name of demonetization of big notes, the issue of two thousand notes was against the spirit of demonetization. That’s why the withdrawal of Rs 2000 notes started from March 2018 itself. Initially, Rs 6.73 lakh crore worth Rs 2,000 notes were reduced to Rs 3.62 lakh crore by March 2023. The Reserve Bank says that 89 percent of the total issued notes of two thousand were issued before March 2017, which have already completed their time period. So the withdrawal of Rs 2000 notes cannot be called a sudden decision.
Opposition parties say that the government’s claim that the objective of demonetisation was to move towards a ‘less cash’ economy through digital payments has not been proved right. At the time of demonetisation, a total of 17.74 lakh crore cash was with the people in the country, which increased to 32.42 lakh crore by December 2022. But it has to be understood that the GDP at current prices in the country in 2015-16 was only Rs 135 lakh crore, which increased to Rs 272 lakh crore in 2022-23. It can be understood that the cash to GDP ratio has come down to 11.91 percent from the earlier 13.14 percent. That is, due to digitization, the practice of ‘cash’ has reduced in the country. The Reserve Bank says that the general public has very few notes of two thousand rupees. So the 2000 notes that are in circulation are mostly with those people who have kept their money in cash. If the Reserve Bank is to be believed, then with this decision there will be a huge increase in the deposits of the banks, the revenue of the government will also increase and transparency will also come in the economy.
Opponents argue that demonetisation harmed small entrepreneurs, reduced jobs and harmed the economy. But if we go by the figures, the GDP at current prices has increased from 135 lakh crores to more than 272 lakh crores in almost six years since 2015-16. The country’s exports are expected to increase from $465.5 billion in 2013-14 to $767 billion in 2022-23. Progress is visible in all sectors of agriculture, service, industry. Housing, infrastructure, financial inclusion are being arranged for the rural and urban poor with the help of the government. All point to the fact that the economy is moving ahead without any hindrance.
The biggest benefit of demonetisation has been in terms of inflation. In the six years after demonetisation (between December 2016 and November 2022), the consumer price index (consumer inflation) increased by only 32.5 percent, compared to 54.1 percent in the six years before that (between December 2010 and November 2016). The percentage was This happened because due to demonetisation, fake notes coming from foreign countries, especially enemy countries, went out of circulation on a large scale in the country. Since the amount of money itself decreased, it was only natural for inflation to decrease. Pakistan also got a big shock due to demonetisation. Today its economy has almost collapsed. Its foreign exchange reserves have been exhausted and it is caught in the vicious cycle of defaulting on international liabilities. Pakistan sponsored terrorism has also been curbed. Naxalite activities have also decreased already.
It is believed that since the Rs 2,000 note had almost gone out of circulation, the withdrawal of these notes is not going to affect the general public. Also, notes of two thousand up to twenty thousand can be changed by going to the bank till 30 September. Those whose black money is lying in the form of Rs 2,000 notes and if they do not deposit in the banks, then some specific expenditure may increase immediately, the economy will also benefit from that. Some economists believe that due to this, about one lakh crore rupees will be added to the financial institutions including the banks of India.
(These are the personal views of the author.)