Demonetisation, 5 years on: Key economic indicators paint a mixed picture

 Today marks the fifth anniversary of demonetization. How has the historic event impacted the economy? Let's take a look at how some of the indicators have progressed since the 2016 'note ban'

On November 8, 2016, Prime Minister Narendra Modi had announced ‘demonetization’ to weed out black money from the country. The move, which saw the currency notes of Rs 500 and Rs 1,000 denominations getting banned, wiped out 86% of India’s currency overnight.

The currency with the public, which stood at Rs 17.97 trillion at the time, declined sharply to Rs 7.8 trillion in January 2017, soon after demonetization. A few months later, of the Rs 15.41 trillion which had been demonetized, Rs 15.31 trillion came back to the RBI. So, more than 99% of the demonetized currency notes were returned to the banking system. Large cash deposits have given rise to inquiries from probe agencies like the I-T Department and the Enforcement Directorate against millions of account holders. The government’s efforts on this front remains a work in progress. A few months ago, the RBI asked banks to not destroy the CCTV footage of their branches from the demonetization period.

What is the status five years later?

THE FIVE KEY INDICATORS

1. Cash still rules: Circulation touched all-time high of Rs 28.3 trillion on October 8
2. Digital transactions: These, including UPI, have also touched an all-time high
3. No. of UPI transactions: Up from just 0.29 million in Nov 2016 to 4.2 billion now
4. Value of UPI transactions: A record high of $103 billion last month
5. Currency in circulation: Growing in line with nominal GDP growth

Reserve Bank of India data show that the cash in circulation as on October 8 this year reached an all-time high of Rs 28.3 trillion, proving that cash is still the king. This figure is 57% higher than the level seen right before demonetisation. The demand for cash also increased ahead of the festival season. The currency in circulation has been growing in line with nominal GDP growth.
As a percentage of GDP, too, the cash in circulation has jumped sharply from 8.7% in FY17 to 14.7% in FY21.

At the same time, the government’s efforts to digitise the economy have also borne fruit. The number of transactions done through the Unified Payments Interface (UPI) has seen an exponential rise since demonetisation – from just 0.29 million in November 2016 to 4.2 billion now. The value of UPI transactions touched a record high of $103 billion last month.