On 8 November 2016, the PM Modi announced the demonetization of all ₹500 and ₹1,000 banknotes of the Mahatma Gandhi Series. It also announced the issuance of new ₹500 and ₹2,000 banknotes in exchange for the demonetized banknotes. It was undertaken to weed out black money and nudge people to change their method of payment from cash to digital.
It is one of the most controversial steps taken by the Modi government, and the opposition parties still consider it as a colossal failure. However, the government consider it as a monumental step to streamline the cash economy and eliminate the black money.
Demonetization was indeed a watershed moment for Indian Economy, as due to long Congress rule, Indian financial system was in very bad shape and facing various issues such as
1. Huge black money
2. Counterfeit notes
3. Liquidity crunch
4. Cash economy
Demonetization was one of step among 100s of other steps that India made after 2014 to restructure their financial system that was almost rotten by Congress govts. Demonetization brought- – Systemic change – Behavioral change among people and entities.
Here, we are presenting an in-depth analysis of Demonetization, that may help you understand its benefits. We will also evaluate the changes that occurred in Indian economy and financial system in last 7 years on the following parameters:
1. Black Money
2. Tax collection and GDP
3. Cash economy vs Digital economy
Black Money – Black money is unaccounted money that any person did not disclose whether its legit or illegit. If someone didn’t disclose it, its black money. Suppose someone sells his land at Rs 20 Lakh. HE takes Rs 10 Lakh in cheque and remaining Rs 10 Lakh in cash. That remaining 10 Lakh in cash is unaccounted money, and it can be considered as black money.
So one way to stop this black money is to stop this cash transaction After Demonetization people deposited all their money into banks
– Rs 10,000 crore never deposited in bank so that was direct benefit to govt
– After scrutiny of deposited money, Govt found Rs 59,000 Crore undisclosed money
– 17 Lakh people were found who had undisclosed money
– Govt launched operation clean money check website cleanmoney.gov.in
– Tax of Rs13,000 crore recovered from non-filers
-During 01.04.2014 to 31.08.2022, Undisclosed income of Rs. 94,368 crores admitted
– Cash transactions in the housing market have reduced by at least 75-80 %
– 8 Lakh shell companies detected with Rs 85,000 crore of undisclosed income
– 344 persons convicted
– more than 2960 benami assets/properties valued at more than Rs. 18400 crores provisionally attached
Tax base and GDP In India
Number of income tax payer were very less but Demonetization brought the financial data of every individual on computer and that helped govt to track those people who were not paying income tax despite of eligibility.
– In 2015-16, Income tax collection was Rs 7,41,945 crore, In 2022-23 it reached to Rs 16,61,000 cr. Just double
-4.63 crore people filed tax return in 2015-16 and in 2022-23 around 6.98 crore people filed Income tax return
– Tax/ GDP ratio improved to 5.97% from 5.47 in 5 years
Black money, tax theft, terror financing all these related to cash economy. As economy moves from cash to digital, these things automatically go down One of the biggest achievement of Demonetization was push to digital economy where India have become superpower.
– Share of payment by cash reduced from 88% in FY16 to 20% in FY22
– Cheque transaction declined from 46% in FY16 to 12.7% in FY22 due to RTGS n other online payments
– Rs 84 lakh crore UPI transections in FY22. During Apr-June, FY23
– UPI transactions increased 785% in 3 years
– Rise of Fintech industry in India
– More than 9,933 fintech startups in India, market size of $56 billion in 2022, and it is estimated to reach $150 billion by 2025
– Fintech adoption rate of 87% against the global average of 64% in India
– Recently IMP praised India for this
– Naxal network completely destroyed
– Incidents of stone pelting almost gone to zero in Kashmir Indian GDP grew by 8.3% in Demonetization year 2016-17 so the claim Demonetization destroyed the Indian economy is also false. Today India is among fastest growing GDP of world.
So if we see Demonetization in TOTALITY considering : Digital economy Widening of Income tax base Curbing on shell companies, benami property GST collection GDP growth we can say DeMo completely changed Indian financial system. Demonetization made it so robust and shock proof that despite of once in a lifetime crisis like Covid-19, the Indian economy remained shock proof.