The debacle of demonetisation
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News: Not a single one of the claims made for demonetisation has been materialised.

Read more here: https://forumias.com/blog/the-case-of-demonetisation-in-india/

Physical cash remains the dominant mode of exchange: The ratio of currency with the public to national income has, at 11.5%, remarkably remained the same from 2015-16 onwards. Money seems to remain a chosen medium of exchange for Indians, even if purchases are increasingly being made online.

No real increase in direct tax payments: The ratio of direct tax collections to the national income rose marginally in 2016-17. But this cannot be attributed to demonetisation alone. The Goods and Services Tax introduced in 2017 may have nudged potential income tax assesses to comply with the laws.

Reversed a growth acceleration: India’s economy did register a slight increase in the rate of growth. But it was mainly due to the growth of the agricultural sector. As agricultural yield is weather-related, it is independent of economic conditions in the short term. Whereas the other sectors of the economy, production suffered from the cash crunch engineered by demonetisation. For instance, data on the manufacturing sector shows growth slowing by about a third immediately.

Source: This post is based on the article “The debacle of demonetisation” published in The Hindu on 16th Nov 2021.


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