DisobeyTyranny
Based Member
Groc AI says:
On November 8, 2016, the Government of India, under Prime Minister Narendra Modi, announced a sudden and dramatic policy known as demonetisation (often spelled "demonetization" in some contexts). Effective from midnight that day, all ₹500 and ₹1,000 banknotes (the two highest-denomination notes in circulation at the time) were declared invalid as legal tender. These notes represented about 86% of the total currency value in circulation (roughly ₹15.44 trillion, or around US$230 billion at the time). People were given a limited window (initially until December 30, 2016) to deposit the old notes into bank accounts or exchange them for new currency (new ₹500 notes and newly introduced ₹2,000 notes). After the deadline, the old notes lost all value except in very limited cases (e.g., certain charitable donations).Official Reasons Given by the Government Prime Minister Modi described the move as a "surgical strike" on corruption and the black economy. The key stated objectives were: Curbing "black money" — undeclared income (often from corruption, tax evasion, illegal activities like smuggling, human trafficking, or bribery) that evades taxes and fuels the shadow economy.
Reducing counterfeit currency — especially high-denomination fake notes allegedly used to fund terrorism, espionage, and other illegal operations.
Disrupting terror financing and other illicit funding through cash hoards.
Pushing India toward a more formal, digital, cashless (or "less-cash") economy by forcing more transactions into the banking system.
The government highlighted that cash holdings had grown disproportionately compared to economic growth in prior years, and high-denomination notes facilitated anonymous large transactions. Immediate Effects and Disruption The announcement caused massive disruption in a country where cash was (and largely still is) king for everyday transactions, especially in the informal sector, rural areas, agriculture, small businesses, and daily wage labor: Long queues formed at banks and ATMs for weeks/months as people tried to deposit old notes or withdraw new ones.
Severe cash shortages occurred because new notes were printed and distributed slowly, and many ATMs weren't recalibrated for the new ₹2,000 notes.
Economic activity slowed sharply in cash-dependent sectors (construction, agriculture, small retail, manufacturing).
Estimates suggest GDP growth dipped by 1–3 percentage points in the short term (Q4 2016 and Q1 2017), with temporary job losses (around 1.5 million cited in some reports) and hardship for the poor and rural populations.
Longer-Term Outcomes and Assessments Most independent analyses and data (including from the Reserve Bank of India) indicate the policy largely failed to achieve its core anti-black-money and anti-counterfeit goals: Black money: Nearly 99.3% of the demonetized notes (₹15.3 trillion out of ₹15.44 trillion) were deposited back into banks. Very little "black cash" was permanently extinguished, suggesting most undeclared wealth wasn't held as cash stacks but in assets like real estate, gold, or overseas accounts. The move did force some black money into the formal system (potentially increasing future tax scrutiny), but it didn't eliminate the parallel economy.
Counterfeit currency and terror funding: Counterfeit detection improved somewhat due to new security features in replacement notes, but the overall impact was limited. Introducing a ₹2,000 note (higher value than the old ₹1,000) arguably made large anonymous cash holdings easier again.
Positive side effects: It accelerated digital payments (UPI, mobile wallets, etc.) dramatically in the short term, boosted bank deposits (lowering lending rates temporarily), and brought more people into the formal banking/tax net (income tax filers rose in subsequent years, though partly due to other reforms like GST).
Criticism: Widely viewed as poorly planned and executed, causing unnecessary hardship to honest citizens and the poor while having minimal long-term effect on corruption. Many economists called it an "epic failure" on its main promises, though some credit it with symbolic political impact (e.g., strengthening Modi's anti-corruption image ahead of elections).
On November 8, 2016, the Government of India, under Prime Minister Narendra Modi, announced a sudden and dramatic policy known as demonetisation (often spelled "demonetization" in some contexts). Effective from midnight that day, all ₹500 and ₹1,000 banknotes (the two highest-denomination notes in circulation at the time) were declared invalid as legal tender. These notes represented about 86% of the total currency value in circulation (roughly ₹15.44 trillion, or around US$230 billion at the time). People were given a limited window (initially until December 30, 2016) to deposit the old notes into bank accounts or exchange them for new currency (new ₹500 notes and newly introduced ₹2,000 notes). After the deadline, the old notes lost all value except in very limited cases (e.g., certain charitable donations).Official Reasons Given by the Government Prime Minister Modi described the move as a "surgical strike" on corruption and the black economy. The key stated objectives were: Curbing "black money" — undeclared income (often from corruption, tax evasion, illegal activities like smuggling, human trafficking, or bribery) that evades taxes and fuels the shadow economy.
Reducing counterfeit currency — especially high-denomination fake notes allegedly used to fund terrorism, espionage, and other illegal operations.
Disrupting terror financing and other illicit funding through cash hoards.
Pushing India toward a more formal, digital, cashless (or "less-cash") economy by forcing more transactions into the banking system.
The government highlighted that cash holdings had grown disproportionately compared to economic growth in prior years, and high-denomination notes facilitated anonymous large transactions. Immediate Effects and Disruption The announcement caused massive disruption in a country where cash was (and largely still is) king for everyday transactions, especially in the informal sector, rural areas, agriculture, small businesses, and daily wage labor: Long queues formed at banks and ATMs for weeks/months as people tried to deposit old notes or withdraw new ones.
Severe cash shortages occurred because new notes were printed and distributed slowly, and many ATMs weren't recalibrated for the new ₹2,000 notes.
Economic activity slowed sharply in cash-dependent sectors (construction, agriculture, small retail, manufacturing).
Estimates suggest GDP growth dipped by 1–3 percentage points in the short term (Q4 2016 and Q1 2017), with temporary job losses (around 1.5 million cited in some reports) and hardship for the poor and rural populations.
Longer-Term Outcomes and Assessments Most independent analyses and data (including from the Reserve Bank of India) indicate the policy largely failed to achieve its core anti-black-money and anti-counterfeit goals: Black money: Nearly 99.3% of the demonetized notes (₹15.3 trillion out of ₹15.44 trillion) were deposited back into banks. Very little "black cash" was permanently extinguished, suggesting most undeclared wealth wasn't held as cash stacks but in assets like real estate, gold, or overseas accounts. The move did force some black money into the formal system (potentially increasing future tax scrutiny), but it didn't eliminate the parallel economy.
Counterfeit currency and terror funding: Counterfeit detection improved somewhat due to new security features in replacement notes, but the overall impact was limited. Introducing a ₹2,000 note (higher value than the old ₹1,000) arguably made large anonymous cash holdings easier again.
Positive side effects: It accelerated digital payments (UPI, mobile wallets, etc.) dramatically in the short term, boosted bank deposits (lowering lending rates temporarily), and brought more people into the formal banking/tax net (income tax filers rose in subsequent years, though partly due to other reforms like GST).
Criticism: Widely viewed as poorly planned and executed, causing unnecessary hardship to honest citizens and the poor while having minimal long-term effect on corruption. Many economists called it an "epic failure" on its main promises, though some credit it with symbolic political impact (e.g., strengthening Modi's anti-corruption image ahead of elections).
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