Wed, May 07, 2025
On this day seven years ago, Prime Minister Narendra Modi made a surprise announcement to scrap currency notes bearing denominations of Rs 500 and Rs 1,000. The show-and-awe announcement left citizens and businesses alike in severe distress for months, caused a sharp economic deceleration and triggered an intense debate over whether the action was desirable and justifiable.
In a late-evening statement issued on Nov 8, 2016, the Ministry of Finance said the high value currency notes were being scrapped "with a view to curb financing of terrorism through the proceeds of Fake Indian Currency Notes (FICN) and use of such funds for subversive activities such as espionage, smuggling of arms, drugs and other contrabands into India, and for eliminating Black Money which casts a long shadow of parallel economy on our real economy."
A few weeks following the decision, the government said demonetisation was also intended to encourage a shift away from over-reliance on cash to embracing digital, cashless transactions.
Cut to now, while there is little data on the impact of demonetisation on curbing black money, what is evident that cash still remains the king even as digital transactions have grown at an exponential pace. Here are seven charts on seven years of demonetisation that you may like to look up:
Cash is King: At the time of demonetisation, there was about Rs 17.7 lakh crore in cash, circulating in the economy. Demonetisation caused a temporary fall in the number, but data from Reserve Bank of India show cash in circulation has steadily risen through the years. In FY2022-23, it was estimated at Rs 33.8 lakh crore, almost twice from the year preceding demonetisation.
Digital Boom: Driven by rapid growth in Internet spread and penetration of smartphones, more and more Indians across all economic classes are embracing digital payments. The volume of digital transactions have grown exponentially from 2.1 thousand crore in in 2017-18 to 13.5 thousand crore in 2022-23 -- a nearly 7-fold increase.
Subdued Value Growth: Although the number of transactions have increased exponentially, the growth in value of digital transactions remains somewhat subdued. It has increased from Rs 1,962 trillion rupees in 2017-18 to Rs 3,344 trillion rupees, according to data available with the Reserve Bank of India.
Rich Still Prefer Cash: Given that the growth in the number of transactions far outpace the value of digital payments, the average ticket size of a transaction has been falling. Which means, digital is counter-intuitively emerging as more preferred mode of payment by poorer consumers, while the rich prefer to stay with cash.
UPI Is Clear Winner: From Paytm to Google Pay and PhonePe, while payment apps of a wide variety have become household names in recent years, the United Payments Interface (UPI) system seem to have been a run-away winner in the digital payment revolution in the aftermath of demonetisation. From a modest base of 430 million transactions in 2017, the number of UPI transactions topped 74 billion in 2022. For calendar year 2023, it is projected to touch 83.8 billion.
Robust Outlook: All told, the future is digital. The RBI's Digital Payment Index shows the growth of digital payments and transactions has already placed on an accelerated trajectory. The value of index, which is based on parametres such as payment enablers (Internet, mobile phones etc.), infrastructure (credit card, debit card, payment systems), performance (value and volume) and consumer centricity (awareness, education safe practices etc.), has grown four-fold in the past 6 years.
Fake Still Doing Rounds: There have been some reduction in fake currency notes, but they continue to be in circulation. As per RBI data, authorities continue to seize significant number of counterfeit currency year after year.