The controversial demonetization step resorted to by Prime Minister Narendra Modi in 2016 is widely viewed as a misstep while the government is either mum on this or occasionally defending the decision by citing its “positive effects.” The principal aim of the demonetization was to check the sway of black money and stop the flow of counterfeit currency mainly from Pakistan that had the potential to destabilize the national economy. At that time, the government claimed that it managed to get much of the hoarded unaccounted cash into the bank vaults as accounted money. A major push by the government was also to reduce cash transactions and encourage people to adopt the digital mode, the aim being to thwart the flow of counterfeit currency.
Six years after the stunning step announced dramatically at night by the Prime Minister, cash in public hands is at an all-time high of Rs 30.88 lakh crore as per latest data released by the RBI. This was 72 per cent higher than the cash circulation in end-2016. Some 76 per cent of the public still prefer cash transactions for their daily requirements; a 44 per cent rise in this old mode of transactions since 2016 as a nationwide survey showed. This was mostly evident in the real estate sector, which is where the play of money is always at the maximum. Fake notes of the Rs 2000 denomination increased by 55 per cent this fiscal against its number the previous year. In other words, the very purpose of demonetization stand defeated.
On the positive side, an RBI official says demonetization has helped in a rise in tax collections and that demonetization had short-term costs but long-term benefits. Fact is hoarding of currency was made easy – a reverse effect – due to introduction of the Rs 2000 notes post demonetization. The highest till then was Rs 1000. The sudden shortage of currency in bank chests due to scrapping of high-denomination notes was caused by a lack of preparedness on the part of the government to keep ready new sets of notes. Hence, the panic response and release of the Rs 2000 notes. Even then, the economy took a huge hit in the absence of sufficient currency stocks in banks; and long queues were also the result. The scenario was further complicated by the difference in the sizes of the new notes, which ATMs could not dispense with. However, bygones are bygones. It is incumbent on the government to pursue its original goals with more seriousness. For one, the digital payment system must be encouraged through special efforts.
