Demonetisation in India: An Impact Assessment

Abstract

Indian economy took a historic move of banning high denomination notes measured as 87 percent of total currency in November 2016. The early objectives of the move were linked to various issues such as curbing black money, removing counterfeit currency and stopping terrorist funding. But in due course the implications of demonetisation have been pronounced in the form of wider tax base through accounted income, progress towards a cashless economy, increase in bank deposit balances under Basel III accord, controlling inflationary activities, removing the asset bubbles through limited cash availability, etc. In this regard, several academics have carried out their own analysis of demonetisation and its effects but most of the research work has addressed the partial effects of the demonetisation move and have been carried out in the early months of the move. But now that the economy has crossed about one and a half year of this landmark reform, there is ample scope to measure the true impact of demonetisation on the financial system, inflation and real economy of India. The paper concludes that overall the effects of demonetisation on the economy can be said to be neutral. Interestingly, macro indicators of the economy have improved in recent years despite two major initiatives of demonetisation and GST reforms. This reflects that the resistance of the Indian economy continues due to its strong demand. This is of prime importance for reviving investment in the economy, which in turn, has wider implications for the overall growth and development.