On November 8, 2016, the Narendra Modi government had attempted a surgical strike against “black money”, “counterfeit currency”, and “corruption” by banning banknotes of higher denominations, which was 86 percent of the currency in circulation then. 

Announcing the move in his televised address, PM Modi had said, “In this fight against corruption, black money, fake notes and terrorism, in this movement for purifying our country, will our people not put up with difficulties for some days? I have full confidence that every citizen will stand up and participate in this ‘mahayagna’.”

But amid criticism about the impact of such a move on India’s economic landscape, the government gradually shifted its goalposts, ranging from reducing real estate prices to expanding the taxpayer base and promoting digital transitions.

The speculation that demonetisation could purge unaccounted wealth was doused very soon, by the government’s own admissions. In 2017, then finance minister Arun Jaitley suggested there were no large scale deposits of unaccounted wealth, and the next year, even the Reserve Bank of India said around 99.3 percent of demonetised currency had returned to banks.

But what about counterfeit currency and other original objectives? Let’s see what the data reveals, seven years on.

Fake notes

Despite the ambitious goals set for demonetisation in 2016, particularly the reduction of counterfeit currency circulation, the subsequent years have shown a stark reality with new banknotes.

In 2016, counterfeit currency amounting to Rs 15.92 crore was confiscated. Subsequent years witnessed a notable escalation in seizures, with the figures for 2017, 2018, 2019, 2020, and 2021 pegged at Rs 28.10 crore, Rs 17.95 crore, Rs 25.39 crore, Rs 92.17 crore, and Rs 20.39 crore, respectively. To provide context, in 2015, Rs 15.48 crore in fake currency was seized pre-demonetisation.

Additionally, in the fiscal year 2022-23, the RBI has disclosed a 14.4 percent surge in the incidence of counterfeit Rs 500 notes. As per the Annual Report of the RBI, 91,110 counterfeit Rs 500 notes, amounting to Rs 4.55 crore in value, were detected in the banking system. This marks an increase from the previous year’s figures, where 79,669 counterfeit notes with a total value of Rs 3.98 crore were detected.

Meanwhile, in the Lok Sabha, the government on August 1 last year revealed a significant surge in the number of confiscated counterfeit notes of Rs 2,000 denomination. From a mere 2,272 notes in 2016, the year of its introduction during demonetisation, the figure skyrocketed to an alarming 2,44,834 in 2020.

Black money 

With no official estimates for the amount of black money stored in Swiss Banks over the past decade and the term ‘black money’ lacking a defined status in crucial legislation, the efficacy of demonetisation in bringing about meaningful change remains a subject of scepticism. 

In Lok Sabha, to a query by Congress MP Vincent H Pala about the quantity of black money deposited in Swiss Banks over the past decade, Minister of State Finance Pankaj Chaudhry, in a written response dated July 26, 2021, said that there is no official estimate available.

In another written response dated February 13, minister Chaudhry informed the Lok Sabha that the word ‘black money’ is not defined under the Income Tax Act, 1961, Customs Act, 1962, CGST Act, 2017, Central Excise Act, 1944 and erstwhile Chapter V of Finance Act, 2017.

‘Magnitude of cash directly linked to level of corruption’

 In his televised address on November 8, 2016, PM Modi had conveyed that “the magnitude of cash in circulation is directly linked to the level of corruption. Inflation becomes worse through the deployment of cash earned in corrupt ways. The poor have to bear the brunt of this. It has a direct effect on the purchasing power of the poor and the middle class.”

A week later, on his Mann Ki Baat, the prime minister said, “Scrapping these notes has opened other avenues to make payments. Download apps of banks and e-payment options. Shopkeepers can keep card swiping facilities and everyone can ensure they pay safely using their credit and debit cards. If not a 100 percent cashless society, I request you to make India a ‘less-cash society’.”

Nevertheless, the data reveals a steady year-on-year surge in the circulation of cash within the economy. Notably, the amount of cash nearly doubled last year compared to the pre-demonetisation year of 2016. According to the government's response to the Rajya Sabha on December 22, 2022, cash in circulation rose from 16.41 lakh crore in 2016 to a substantial 31.05 lakh crore in 2022.

In 2016, when demonetisation was announced, India held the 79th position on the Transparency International Corruption Index. Six years later, in the 2022 report, the country experienced a setback, dropping to the 85th rank.

The BJP had celebrated the first anniversary of demonetisation as an “Anti-Black Money Day”, but there have been no full-page advertisements in recent years. The data above may offer insights into any attempt at understanding why. But has India learnt its lessons from the demonetisation exercise? Read this to understand the ramifications.