Demonetisation was a blunder of epic proportions—and no amount of spin by pro-government economists, analysts and corporate bigwigs would exonerate the Centre for wrecking the economy, and worse, forcing millions into the abyss. When demonetisation was announced five years ago on 8 November 2016, India’s cash-to-GDP ratio was around 12%—and the government considered that excessive. At that time, the same was around 13% for Japan, 10% for the Euro Zone and 8% for the US.
While the Centre argued that with one stone (demonetisation), it had killed many birds (black money, terrorism, counterfeit currency and many more ‘evils’ that the government came up with), none of it came to fruition, and the country was left with a broken economy. The futility of the whole exercise was proved when in a report in August 2018, the Reserve Bank of India admitted that 99.3% of the demonetised currency notes of Rs 500 and Rs 1,000 were returned to the banks, belying the claim that a large number of those currencies wouldn’t come back to the system.
The GDP growth rate has been clocking an underwhelming below 7% ever since (barring a couple of quarters in Financial Year 2018). And while other factors have also contributed to the declining pace of GDP growth of the country, the lagging effect of demonetisation on the economy cannot be denied. While the Union government tried hard by coming up with flimsy arguments like higher tax collection and increased use of mobile transactions post-demonetisation, none of it was convincing enough to justify the notes ban. And now that India’s cash-to-GDP ratio has increased to 14.5% (Rs 29.44 lakh crore of cash with the public as per the latest RBI report), one wonders what the government of the day was thinking when it decided to withdraw 85% of sovereign-guaranteed currencies in circulation.