Demonetisation, 10 years after: Evidence still points to limited gains

Demonetisation failed to deliver a lasting reduction in cash circulation or clear evidence of black money being unearthed, while causing widespread disruption to businesses and individuals.

“Demonetisation has been a radical, unprecedented step with short-term costs and long-term benefits,” noted the Economic Survey of 2016-17. To be fair, many commentators at that time believed it could have longer-term benefits. But that began to change soon. On November 8, 2016, the government decided to withdraw high-value currency notes of ₹500 and ₹1,000 from circulation. Those constituted about 86 per cent of the currency by value. The basic objective was to attack black money. It was reasoned that the “magnitude of cash in circulation is directly linked to the level of corruption”. The move was part of the overall fight against corruption, counterfeiting, and terrorism. The implicit assumption was that those holding black money would not come forward to exchange or deposit cash due to the fear of getting exposed. The government had taken various other steps to curb black money, such as the 2015 law on disclosing black money and the 2016 law on benami transactions.

 In a large economy like India, aggregate outcomes are often difficult to explain by a single factor. In the initial months and years of demonetisation, the government presented data and evidence in terms of an increase in the number of income-tax filings and collection of data that would help track black money and so on. Critics, on the other hand, argued that the lack of currency notes affected small businesses and the unorganised sector disproportionately. The slow pace of remonetisation did create difficulties for businesses and individuals. Sustained long queues in front of banks showed that the system was not prepared for such a large-scale operation.

 Now that a decade has passed, and with the benefit of hindsight, it is worth asking whether demonetisation was worth the trouble. The answer clearly is “no”. Most of the demonetised notes came back, and not much has been reported on how much black money was unearthed. Note that it was an attack on high cash circulation, which was seen as a symptom of corruption and illicit wealth. As the data featured elsewhere in this edition shows, cash as a proportion of gross domestic product was roughly at the same level in 2025-26 (12.06 per cent) as in 2015-16 (12.08 per cent). So, nothing changed.

 The ratio did go down in 2016-17, partly because of the pace of remonetisation, but it started moving up in subsequent years. In fact, such a level of cash in circulation is more intriguing in 2026 than it was in 2016, given that India now has a popular and efficient digital payments infrastructure. Large volumes of transactions are processed in real time through the Unified Payments Interface (UPI). The level of cash in the economy is also puzzling for the Reserve Bank of India as was recently articulated by one of its top officials. Currency in circulation is growing even as the share of cash in individual transactions is declining. It appears that cash is still preferred for large transactions, possibly to maintain anonymity or avoid taxes. Cash usage in real estate, for instance, is still said to be very high. Clearly, withdrawing about 86 per cent of cash at one stroke hasn’t yielded much. It also made it clear that there is no magic bullet for solving complex economic or social problems. Change usually is a process in a democracy and requires sustained effort and policy management. Reduction in the generation of black money will require a substantial reduction in the presence of the state in economic life, better use of technology to detect tax evasion, and tax reforms at various levels of government.