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Demonetisation: Everything You Need To Know About The Note Ban And Its Impact - BQ Explains

Who said what about demonetisation a year after it was implemented. 

(Source: BloombergQuint)
(Source: BloombergQuint)

Exactly one year ago, the Narendra Modi-led government surprised India with demonetisation. The move that invalidated Rs 500 and Rs 1,000 currency notes, caused a protracted cash crunch and its effects can also be seen in slowing economic growth. On the other hand, it prompted a surge in bank deposits and a quantum jump in digital payment infrastructure.

Here are some of BloombergQuint’s lead stories on demonetisation and its impact:

Manmohan Singh To Modi - Time For Politicking Over, Let’s Rebuild The Economy

Former Prime Minister of India Manmohan Singh called demonetisation “damaging” and a “blunder” in an interview with BloombergQuint's Contributing Editor Praveen Chakravarty. He urged Modi to “graciously acknowledge the blunder” and seek support from all to rebuild the economy.

“I strongly feel the time for politicking over demonetisation is over,” Singh said.

A Year After Demonetisation

Finance Minister Arun Jaitley criticised Manmohan Singh for calling the note ban an “organised loot” and insisted the exercise was an “ethical drive and a moral step” that made corruption difficult. In an essay published on his Facebook blog yesterday, Jaitley claimed that the move had achieved its main goal of making “India a less cash economy and thereby reducing the flow of black money in the system.”

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Piecing Together Parts Of The Demonetisation Puzzle

Twelve months after the big move, many questions have still remained unanswered. Whose idea was it? What was its true objective? And what were the pros and cons for the economy? Those and many more such questions remain unanswered, either completely or partially. This story attempts to answer those questions.

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What Demonetisation Delivered

While the U.S., Europe and Japan have been fixated for the better part of the last decade on ways to put more money in people's pockets in order to put idle resources to work, India -- with significant slack of its own -- decided to go the other way, and freeze out a bulk of its citizens' purchasing power, wrote Bloomberg columnist Andy Mukherjee.

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One Year Of Demonetisation: Where Is The Black Money?

The fact that 99 percent of the demonetised currency came back into the banking system, as per the Reserve Bank of India’s annual report, proves that the government has failed to extinguish black money from the economy, Swaraj Abhiyan Founder Yogendra Yadav and Arun Kumar, author of The Black Economy In India told BloombergQuint in an interview.

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A Year Since Demonetisation, RBI Says Still Verifying Returned Notes

In reply to a Right To Information query, the Reserve Bank of India said that it is still processing the returned Rs 500 and Rs 1,000 notes. It has processed about 1,134 crore pieces of Rs 500 notes and 524.90 crore pieces of Rs 1,000 junked notes, having face value of Rs 5.67 lakh crore and Rs 5.24 lakh crore respectively, as on September 30.

India Cancels 2.24 Lakh Suspected Shell Companies Post Demonetisation

Meanwhile, the Ministry of Corporate Affairs has struck off around 2.24 lakh companies for remaining inactive for a period of two years or more. The ministry also put restrictions on operation of bank accounts and sale of movable and immovable properties on several of the suspected shell companies until they are restored. The decision was taken based on data received from 54 banks post demonetisation.

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Note Ban: Over 20,000 Income Tax Returns Picked For Detailed Probe

The income tax department has picked 20,572 tax returns for “detailed scrutiny” suspecting discrepancies in incomes before and after demonetisation, official sources said on Nov. 6.

Demonetisation Cost India’s 3 Vital Sectors $15 Billion

The impact of demonetisation on headline GDP numbers can be very misleading, says BloombergQuint contributing editor and IDFC Institute fellow Praveen Chakravarty. He estimates the economic impact based on the three sectors that are most prone to liquidity impacts - agriculture, manufacturing and construction.

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Surprised That Damage From Demonetisation Was Not More, Says Ken Rogoff

India’s gross domestic product grew at 8 percent in 2014. Since the last six quarters, the growth metric has been consistently falling with 5.7 percent growth reported in the first quarter of the current financial year. But it could have been much worse, said Harvard University economist Kenneth Rogoff in an interview with BloombergQuint.

“...You would expect economic activity, particularly in the informal economy to contract a lot. But the Indian people seem to have been incredibly creative. It is really a surprise that the damage was not much more.
Kenneth Rogoff, Economist, Harvard University

Don’t Blame Demonetisation And GST, This Is A Six-Year Structural Slowdown

Deep Narayan Mukerjee, a financial services professional and professor of finance at Indian Institute of Management, Calcutta, said that the slowdown in GDP growth is structural and not necessarily due to the government’s reforms. The macroeconomic data is still inconclusive on demonetisation and GST being the culprits, he wrote in a column for BloombergQuint.

Stablising Oil Prices, Not Note Ban, Behind India’s Growth Slowdown: JPMorgan

JPMorgan’s chief India economist Sajjid Chinoy, said that stabilising oil prices were to blame for the slowdown in growth, not the note ban. He also highlights the financialisation of the economy and expansion of the tax base as positive outcomes.

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Demonetisation And Digitisation: Every Picture Tells A Story

Has demonetisation brought a significant decline in transaction behaviour or in cash holdings by the public? Early evidence in this regard suggests that the impact might not be too large if the right comparisons are made.

Small Retailers Make Tentative Shift To Less-Cash

As cash returned to the system and the initial euphoria waned, the volume of digital payments declined. Yet, demonetisation managed to nudge retailers to go less-cash. A year ago, only two-three percent of customers opted to pay by card, said Praveen Khandelwal, national secretary of the Confederations of All India Traders . “That’s changed as 15-20 percent prefer to swipe now.”

Cash Is King (Again) In India’s Cashless Village

Nirmala Bhanushali, resident of a village in rural Thane, Maharashtra, dubbed as the ‘first cashless village of India’, spent Rs 2,000 to get a card-payment terminal for her grocery store. She calls it a waste of money. “Out of 10 customers, one pays by card.”

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Modi's Popularity Endures Despite Economic Strife From Cash Ban

As for Narendra Modi, turning 86 percent of India’s cash into worthless paper has not seemed to take a significant toll on his popularity. Gujarat elections next month will be a key test, where voters will weigh his personal popularity against the disruption caused by his policies.


Click here for one year of demonetisation coverage on BloombergQuint.