Demonetisation : Failures – UPSC GS3

How demonetisation was a failure?
  • Disruption: The demonetisation in 2016 caused widespread disruption in the economy. For instance, personal hardship, the loss of income and savings, and economic slowdown.
  • Very little of its declared objectives were achieved such as eliminating black money, corruption, moving towards a “less cash and more digital economy”, or increased tax compliance.
  • Almost all cash returned to banks : More than 99.3% of the cancelled notes were returned to the banks. If black money had existed as stockpiles of illegal cash, clearly all of it was very efficiently laundered.
  • No difference in tax base: 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.
  • Increased use of Physical cash: The cash-in-circulation has now exceeded pre-demonetisation levels. Also, post-COVID-19, reliance on cash is much higher, and with more higher denomination notes in circulation.
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