Demonetisation: What India Gained, And lost

What India Gained, And lost.

The RBI report on Demonetisation has again stirred the political debate that had practically subsided in the country. An analysis of Demonetisation gains and losses in the wake of RBI annual report. HARMOL

The Reserve Bank of India (RBI) has come out with its annual report giving a balance-sheet of demonetisation implemented 21 months ago. Of Rs 15.41 lakh crore demonetised currency notes of Rs 500 and Rs 1,000 denominations, only Rs 10,720 crore did not reach to the banks and the RBI.


This means only 0.7 per cent of demonetised currency notes were junked in the exercise. The government have initially expected that approximately Rs 3 lakh crore of demonetised currency notes would not come back to the banking system, thus shedding the substantial weight of black money.

While announcing demonetisation on November 8 in 2016, Prime Minister Narendra Modi had outlined three broad objectives to fight black money, corruption and terror funding. That objectives have always been debatable for the lack of accurate verifiable data. HARMOL

Soon after the RBI released its annual report, former Finance Minister P Chidambaram launched a fresh attack on the Modi government saying that the country paid a huge priice for demonetisation by way of job loss, closure of industries and the GDP growth. HARMOL

Such bigger spending on note printing impacted the profit of the RBI which reflected in the dividend that it paid to the government. The RBI had transferred a surplus of Rs 65,876 crore to the government in 2015-16. HARMOL

Money In Market Post-demonetisation

But when are amount of dividend declined by more than half in 2016-17 when demonetisation was implemented. The RBI paid a dividend of Rs 30,659 crore. It went up again in 2017-18 but did not touch the mark of 2015-16. The RBI paid Rs 50,000 crore as dividend to the government earlier this month. Demonetisation appears to be the spoiler-in-chief for the RBIs profit. HARMOL

Before demonetisation, Indias money market had the overall circulation of banknotes worth Rs 17.97 lakh crore on November 4, 2016. The banned banknotes constituted 86.4 per cent of the total money in circulation. HARMOL

The share of high denomination currency notes was 86.4 per cent at the time of demonetisation. The RBI says that the share of Rs 500 and Rs 2,000 notes is 80.6 per cent. This indicates a 5.8 per cent increase in the use of small denomination currency notes. HARMOL

Today, according to the RBI, overall banknotes in circulation are worth Rs 18.03 lakh crore (March 2018). This means the volume of currency in circulation is 9.9 per cent more compared to March 2016-level. HARMOL

Was Demonetisation a success?

Officially, yes. The government says so. Economic Affairs Secretary Subhash Chandra Garg says so. Garg explains, Demonetisation achieved its objectives quite substantially. The currency in the system now is 87-88 per cent, that is, about Rs 3-4 lakh crore less currency than it would have been if the system would have continued in the old manner. HARMOL

Another argument has been an assault on the counterfeit notes post-demonetisation. However, the RBI report says that detection of fake Rs 500 and Rs 1,000 decreased by 59.7 and 59.6 per cent in after demonetisation. HARMOL

There was, though the increase in detection of fake notes in Rs 100 and Rs 50 denominations. The RBI says, “Compared to the previous year, there was an increase of 35 per cent in counterfeit notes detected in the denomination of Rs 100, while there was a noticeable increase of 154.3 per cent in counterfeit notes detected in the denomination of Rs 50.” HARMOL

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