Demonetization in India Completes 7 Years; Know The Developments Till Now

By: Pune Pulse

November 8, 2023

Pune : November 8, 2016, will always be remembered by Indians as the Modi government had announced demonetization. The government had demonetised Rs 500 and Rs 1000 notes to counter black money. Everyone was shocked by this decision of the government.

On November 8, 2016, at 8 pm, news came out that shocked the country and the world. Prime Minister Narendra Modi while addressing the nation announced that Rs 500 and Rs 1000 notes will be banned from midnight. However, the Prime Minister also clarified that these notes can be exchanged in banks up to a limited amount. The government said that this decision was taken to remove black money.

Introduction of Goods & Service Tax (GST)

Just after the Rs 500 and Rs 1000 notes were demonetized, Goods and Services Tax (GST) came into effect on July 1 2017 through the implementation of the One Hundred and First Amendment of the Constitution of India by the Indian government.

In India, the VAT was replaced by the Goods and Services Tax (GST) on the supply of goods and services. A digitized version of VAT that allows for tracking of goods and services is called GST. The same taxation slabs apply to both GST and VAT.

It is a destination-based, multistage, comprehensive tax because it includes nearly all indirect taxes, except a few state taxes. Due to its multiple stages, the GST is levied at each stage of production; however, it is intended to be refunded to all parties involved, excluding the final consumer.

Additionally, because the GST is destination-based, it is collected at the point of consumption rather than the point of origin as with previous taxes.

Criticism of Opposition Parties

After the demonetization, the opposition also criticized the government as citizens had to queue for hours in front of banks to exchange notes. A very shocking picture of Rs 500 and Rs 1000 notes being thrown into rivers and lakes at many places was seen on social media. These notes were said to be black money, which was stashed away by political parties to buy votes during elections.

During COVID 19 & Lockdown

As India entered strict lockdowns in 2020 and 2021 due to the COVID-19 pandemic, people began saving money to cover their necessities. Even though the amount of money in circulation fell from Rs 17.97 Lakh crores on November 4, 2016, to Rs 7.8 Lakh Crores in January 2017, shortly after the demonetization process, cash in circulation continued to rise in 2020. Over the two weeks that concluded on October 23, 2020, the currency with the people rose by Rs 10,441 crore.

Withdrawal of Rs 2000 Notes

In the year 2023, the Reserve Bank of India (RBI) announced that Rs 2000 currency notes would be withdrawn from circulation. The Rs 2000 denomination banknote was introduced in November 2016 primarily to meet the currency requirement of the economy expeditiously after the withdrawal of the legal tender status of all Rs 500 and Rs 1000 banknotes in circulation at that time. With the fulfillment of that objective and the availability of banknotes in other denominations in adequate quantities, the printing of Rs 2000 banknotes was stopped in 2018-19.

A majority of the Rs 2000 banknotes were issued before March 2017 and are at the end of their estimated life span of 4-5 years. It has also been observed that this denomination is not commonly used for transactions. Further, the stock of banknotes in other denominations continues to be adequate to meet the currency requirement of the public.

Hence, the RBI had decided to withdraw the Rs 2000 denomination banknote from circulation.

These are some of the developments which took place after the demonetization of Rs 500 & Rs 1000 currency notes in 2016.

Seven years after demonetization, along with cash payment mode, Unified Payments Interface (UPI) and other digital payment mechanisms have emerged in the country which has reduced the number of cash transactions. demonetization was implemented by the government to flush out black money and encourage people to switch their mode of payment from cash to digital.

Shreyas Vange