Demonetisation was proclaimed by the Narendra Modi government as a solution to India's black money and fake currency problems and later as a push towards a digital economy
New Delhi: According to the Reserve Bank of India’s annual report for 2017-18, 99.3% of the demonetised ₹ 500 and ₹ 1000 notes have been returned to the central bank. One of the primary aims of demonetisation: of extinguishing hoards of ill-gotten currency notes thus stands unfulfilled.
The cash-to-GDP ratio is only marginally lower compared to pre-demonetisation levels (See Chart 1B). On counterfeit money, there has been no significant change in the number of fake notes detected (See Chart 2). In 2017-18, the number of counterfeit notes detected was in line with pre-demonetisation levels and, more importantly, minimal in the grand scheme of India’s currency circulation.
The 522,783 fake notes detected accounted for a mere 0.0005% of total currency circulation.
Even on digital payments, demonetisation does not seem to have provided a significant and sustained push. Mobile payments and card payments through PoS have increased significantly since November 2016 but they were also increasing in the months preceding demonetisation (See Chart 3).
The demonetisation-induced cash crunch did increase digital payments but the years since, as cash returned, have seen more modest growth in digital payments.
Demonetisation’s impact on boosting tax compliance is tricker to assess. The 2018 Economic Survey suggests that demonetisation has helped increase India’s tax base, in terms of taxpayers, and this may have played some role in the increase in the tax-to-GDP ratio over the last two years (See Chart 4).