Now that the Reserve Bank of India (RBI) has given some details of the impact of demonetisation in its annual report, the question on everyone’s lips is: Was demonetisation worth all the disruption?

The answer to this question is a yes and a no.

Nearly 10 months ago when Prime Minister Narendra Modi through a speech purged 15.44 trillion of cash held by the country’s citizens, it was touted as a masterstroke that would rid the country of illicit money.

The pitch for demonetisation was that the bulk of 500 and 1000 notes were stored as illicit wealth, besides being easily counterfeited to fund illegal activities.

Fast forward to today and the numbers in the annual report of the country’s monetary authority show that some of this is true.

Let us set aside the argument that black money resides not just in cash but in real estate, offshore investments and other routes.

The number of suspicious transactions reported by banks to the Financial Intelligence Unit in fiscal year 2017 (FY17) has surged to 361,214 from just 61,361 in the previous year. Add the fact that 98.96% of the high-value notes returned to the banking system, and it would seem that illicit money did find its way back into the system.

But now what? Fiduciary agents should have sprung to action, which is not evident. Public statements by the revenue department and other officials have at best been pithy assurances rather than data or facts.

The argument of fake notes too seems to have held up a bit. In FY17, fake notes detected rose 20% from the previous fiscal figure but what was telling is that fake pieces of 1000 detected rose a massive 79%. But even then, the total detection is less than 1% of the total currency pieces in circulation. Already, fake pieces of the new 2000 and 500 notes have been detected.

Which brings us to whether demonetisation cleaned up businesses or individual behaviour. It is tough to say so convincingly. There is no guarantee that the new notes won’t be used to store illicit money, they are already 50% of total currency in circulation because of rapid remonetisation.

An unintended benefit that demonetisation has given is the fall in interest rates after the surfeit in liquidity—this has helped borrowers, but hurt savers. Also, Indians have begun to transact digitally more often than before as the surge in digital transactions shows. But we still have a long way to go. After all, 99% of the demonetised cash by value is back into the economy, according to RBI.

At what cost have these benefits come?

It is worth a repeat that demonetisation hurt every nook and corner of the economy. Industrial output crashed, services growth slowed and economic growth decelerated, best shown by the massive fall in growth excluding agriculture and government spending.

What will indeed make Indians pay more taxes are the tax reforms and the laws to monitor real estate. RBI believes that the harmful effects of demonetisation on the economy are transient. The government needs to ensure that its benefits are not.

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