Three years ago, on the evening of November 8, Prime Minister Narendra Modi announced to the nation the invalidation of Rs 500 and Rs 1,000 currency notes. In one go, Prime Minister invalidated 86 percent of the currency notes in circulation.
Essentially, every monetary or fiscal policy has a well-structured format of communication but the purpose and forethought of this disorderly economic move were not properly explained or communicated to the public.
The hasty decision of the government stirred weeks of economic derangement, long queues at the banks and whatnot. Nevertheless, some of the stated objectives were unearthing black money, cracking down on counterfeit currency and choking terror financing.
In just a few months after the demonetization, the reports suggested that the government had not come any close to achieving its stated objectives. CNBC-TV18 has listed the impact of the note-ban exercise on various important sectors of the economy.
According to the Labour Bureau's Sixth Annual Employment-Unemployment Survey, the unemployment rate rose to a four-year high in 2016-17, when the government demonetized old currency notes. In 2017-18, the country's unemployment rate stood at a 45-year-high of 6.1 percent, according to the National Sample Survey Office's (NSSO's) periodic labour force survey (PLFS).
Besides, demonetization caused a 2-3-percentage-point reduction in jobs and national economic activity in November and December 2016, according to research.
From 2016 and 2018, five million people lost their jobs and the labour force participation started sinking suddenly between September and December 2016 for both urban and rural men. The rate of decline slowed down by the second half of 2017, but the general trend had continued and there had been no recovery.
Agriculture considered to be India’s backbone, a sector which is wholly dependent on hard cash was worst-hit. As there is a majority of small to medium farmers who make little profit from their produce suffered a substantial debacle. Most farmers found no takers for their crops, as free cash was unavailable. The other farmers have to face the shortage of cash and they were unable to buy seeds or fertilizers for the next harvest.
With the demonetization, the total number of developers in the top nine Indian cities deflated by over 50 percent by 2017-18. Gurugram marked a decline of 76.8 percent in the number of developers from 82 in 2011-12 to 19 in 2017-18, Noida registered a plunge of 73.2 percent – from 41 to 11. The financial distress of small developers, lack of execution capability and over-supply of inventory played a key role in the downturn.
According to analysts, a large number of fly-by-night developers were forced to leave the market after demonetization. All major cities with significant potential for real estate development – Mumbai, Pune, Thane, Kolkata, Bengaluru and Hyderabad – saw a decline in the number of developers.
Demonetization was announced with the objective of turning India into a cashless economy. The government encouraged a less-cash society by increasing infrastructure to allow digital payments. Subsequent to demonetization digital payments in most of the tier-II and tier-III towns has doubled. Moreover, in the initial days, payment wallets like Paytm, Freecharge, and Mobikwik did speedy business.
Till December 2018, UPI managed transactions of more than Rs 1.02 trillion. National electronic funds transfer (NEFT) transactions saw an upsurge from Rs 9.88 trillion. Mobile banking payments also saw a spike since September 2015. All the digital transactions collectively registered an increase of 440 per cent since demonetization.But three years later, cash is back in business in India and the currency in circulation had overtaken the pre-demonetization levels in 2018 and it shows no signs of slowing down.