Note Ban Anniversary: Major impacts of demonetisation

Mumbai, Nov 3: The epic ban on 500 and 1000 INR currency notes had taken the country by surprise. All we witnessed everywhere long ques infront of banks, people waiting for hours to get their currency exchanged or deposited, so on and so forth. This proved to be taxing and tiring for many. The move also allegedly claimed many lives. Here we look

Nearly a year after Prime Minister Narendra Modi announced demonetisation, the Rs 500 and Rs 1,000 notes returned to banks are still being “processed in all earnest” through a sophisticated currency verification system, said RBI. 

The major impacts of demonetisation can be listed below as: 

1) The average growth of money supply in the economy may slip to 9 per cent from 12 per cent in the near term, if 25-30 per cent of unaccounted currency does not flow back into the banking system post demonetisation move, Dun & Bradstreet said in a report.

2) On the "basis of the result of the demonetisation that took place in 1978; if 25-30 per cent of unaccounted /undeclared money does not come back in the system that is Rs 3.5 trillion to Rs 4.3 trillion, it will impact growth in money supply by about 3 per cent.

"Considering the average growth of money supply for last three years which is around 12 per cent, growth in money supply might moderate to an estimated 9 per cent in near term," it added.

3) In the case the RBI decides to print the entire 86 per cent of the high denomination notes, money supply will pick up with the new notes being gradually circulated over a period of time.

On the evening of November 8, the government announced that Rs 500 and Rs 1,000 notes would no longer be legal tender, as part of its move to eradicate black money.

4) As per D&B, while demonetisation would cause short term pain across the board, it is largely anticipated to have far reaching impact on the Indian economy in the mid to long term.

"In sync with the Digital India initiative, these measures would accelerate the move towards a cashless economy. Along with GST, this measure would improve tax compliance and fiscal balance of the government," the report said.

5) The move sent out a positive signal to global investors. D&B said it may help India climb the rank of various indices published by international agencies such as the corruption perceptions index.

6) The efforts taken by the government to eradicate black money over the past two and a half years include formation of a special investigation team, law passed in 2015 on disclosure of foreign bank accounts, levy of strict rules to curtail benami transactions in 2016, and scheme to declare black money in 2016. These efforts have resulted in more than Rs 1.25 trillion of black money being unearthed, the report said.