What was the impact of demonetization :
i) Turing to cashless economy
ii) returning black money
iii) stopping counterfeiting of money
i) Moving towards a Cashless Economy
Impact
Demonetization gave a strong push to digital payments, especially in the short term.
Facts & Data
• Digital transactions (UPI, cards, wallets) increased sharply after 2016.
• UPI transactions:
• 2016: negligible (launched same year)
• 2023–24: crossed 100+ billion transactions annually
• BHIM app and mobile wallets (Paytm, PhonePe) saw massive growth.
• Debit/credit card usage increased at POS terminals.
Examples
• Small vendors, tea stalls, and even rural shops started accepting QR code payments.
• Government initiatives like Digital India and Jan Dhan–Aadhaar–Mobile (JAM) supported this shift.
Critical View
• After cash supply normalized, cash usage rebounded, showing India is still a cash-dominant economy.
• Digital divide (internet access, literacy) limited long-term impact in rural areas.
ii) Returning Black Money
Impact
The expectation was that black money holders would not deposit illegal cash, exposing unaccounted wealth.
Facts & Data
• According to RBI, about 99.3% of demonetized currency returned to the banking system.
• This suggested that most black money was either:
• Already in forms like real estate, gold, offshore accounts, or
• Successfully laundered through loopholes.
Examples
• People used benami accounts, Jan Dhan accounts, and shell companies to deposit cash.
• However, deposits created a data trail, enabling the government to track suspicious transactions.
Positive Outcome
• Increased tax compliance:
• Rise in income tax returns filed after demonetization.
• Use of data analytics by Income Tax Department to identify evasion.
Critical View
• Limited success in actually eliminating black wealth.
• Black money is mostly stored in non-cash assets, not cash.
iii) Stopping Counterfeit Currency
Impact
Demonetization aimed to eliminate fake currency circulating in the economy.
Facts & Data
• Old counterfeit notes became invalid overnight, disrupting fake currency networks.
• Initially, there was a sharp decline in fake notes detected.
Examples
• Fake ₹500 and ₹1000 notes held by anti-national elements lost value instantly.
• New currency notes were introduced with enhanced security features.
Critical View
• Counterfeiting resumed over time even in new notes.
• NCRB and RBI reports show fake notes still being detected, though in smaller quantities.
