Demonetisation: Economic reform leads to temporary slip in nation’s GDP, augers well for transparent and cleaner economy

Prime Minister Narendra Modi’s announcement of note ban on national television on November 8, 2016 had triggered an anxiety among people to which he had claimed saying that the move would attack black money, terror funding and fake currency.

Large currency denomination notes of Rs 1000, and Rs 500 were withdrawn and new currency notes of Rs 2000 and Rs 500 were introduced. Initially, the move was appreciated by a large section of people but a few criticised it as long queues outside banks and ATMs raised apprehension behind the motive. Even, a few people had lost their lives.

Now, what the people have achieved in last one year as the nation is going to observe the first anniversary of demonetisation. 

In August, the Reserve Bank of India stated that Rs 15.28 lakh crore, or 99 percent of the junked 500 and 1,000 rupee notes, have returned to the banking system.

The RBI also submitted in its Annual Report for 2016-17 that only Rs 16,050 crore out of the Rs 15.44 lakh crore of the old high denomination notes have not returned.

Demonetisation not a very cost effective economic measure

On the other hand, the Central Bank had to spend Rs 7,965 crore on printing new Rs 500 and Rs 2,000 and other denomination notes, more than double the Rs 3,421 crore spent in the last year.

As on November 8, 2016, there were 1,716.5 crore pieces of Rs 500 and 685.8 crore pieces of Rs 1,000 in circulation, totalling Rs 15.44 lakh crore.

Meanwhile, a report of Income Tax Department put some weight behind the government’s decision when it informed that Rs 2.89 lakh crore deposited by 9.72 lakh people post demonetisation was under the scanner.

Country’s Q1 2017 GDP slips to below 6 percent

Adding fuel to fire, the country’s GDP slipped to a three-year low of 5.7 per cent in April-June as disruptions caused by demonetisation spilled over to the third straight quarter amid slowdown in manufacturing activities.

The figure came as a setback for the Centre and it took a slew of measures by pumping stimulus into the economy.

Now, it has become difficult for the Modi government to convince people that the decision has reaped the benefit and put the economy on the right track to which it has been claiming ever since the decision was taken.

In a desperate attempt, the finance ministry said the exercise had helped in flushing out black money, eliminate fake notes and reduce the circulation of cash.

Small traders SMEs affected-

SMEs and small traders were badly affected as their business operations were badly affected due to the cash crunch. The switchover from a cash-based system to a digital payment platform had its own operation glitches, and hence the labour class and business community were at the receiving end.

The RBI’s figure gave fodder to the opposition parties which were quick to criticise the Centre and questioned the measure.