10 Years of Demonetisation in India

Syllabus: GS3/ Economy

Context

• Ten years after demonetisation, Reserve Bank of India (RBI) data show that the exercise has had little impact on reducing cash in circulation and that detection of counterfeit notes.

Background 

• Announcement: The government on November 8, 2016, stated that the ₹500 and ₹1,000 notes would cease to be legal tender.
• Impact: The measure wiped out about 86% of the value of the cash in circulation.
• Objectives:
  • Curb black money and corruption.
  • Eliminate counterfeit currency.
  • Disrupt terror financing and hawala transactions.
  • Promote digital payments and a less-cash economy.
  • Encourage the economy’s formalisation.

Key Findings After 10 Years

• Limited Reduction in Cash Circulation: Currency with the public as a percentage of GDP has remained largely unchanged.
  • Currency with the public as a percentage of GDP stood at 11.9% in 2015-16, the financial year preceding demonetisation, and rose marginally to 12.1% by March 31, 2026.
• The value of UPI transactions as a percentage of GDP has grown from zero in 2016-17 to nearly 91% in 2025-26.

• Curbing Counterfeit Currency: Across all denominations, counterfeit notes detected per one crore notes in circulation declined from 70.1 in 2015-16 to 13.4 in 2025-26.
  • However, the detection of counterfeit new-series ₹500 notes increased from 0.3 per crore notes in 2016-17 to 20.1 in 2025-26.
  • Detection of counterfeit ₹2,000 notes also increased after the RBI initiated their withdrawal from circulation in 2023.

Supreme Court Judgement

• In Vivek Narayan Sharma v. Union of India (2023), a five-judge Constitution Bench of the Supreme Court examined the legality of the 2016 demonetisation decision.
• The Supreme Court upheld the validity of the demonetisation exercise.
• It held that the Central Government could exercise its powers under Section 26(2) of the RBI Act, 1934, on the recommendation of the RBI’s Central Board.

Way Ahead

• Improve coordination among RBI, Financial Intelligence Unit-India (FIU-IND) and enforcement agencies to identify suspicious financial transactions and curb money laundering.
• Target Sources of Black Money: Focus on benami properties, shell companies, tax evasion and undisclosed assets rather than relying primarily on currency withdrawal.
• Improve Tax Compliance: Simplify tax procedures, strengthen information-sharing and encourage voluntary tax compliance to reduce the informal economy.

Source: TH