What do you think about banning 500 and 1000 rupee notes in India?

The decision to ban the ₹500 and ₹1000 notes in India, announced by Prime Minister Narendra Modi on November 8, 2016, was a highly controversial and complex economic experiment. Here are some key points to consider:

Objectives

The primary goals of the demonetization were to combat black money, reduce corruption and counterfeiting, and to promote a digital, cashless economy12.

Outcomes

• Black Money: The effort was largely unsuccessful in removing black money from the economy. Most of the demonetized notes were deposited back into the banking system, often through intermediaries, indicating that big tax evaders did not hold their wealth primarily in cash. Instead, they held it in other forms like real estate, gold, and foreign bank accounts12.
• Economic Disruption: The move led to significant economic disruption, including prolonged cash shortages, lengthy queues outside banks and ATMs, and a substantial impact on the informal economy. This resulted in a reduction in industrial production and GDP growth, and an estimated loss of 1.5 million jobs2.
• Counterfeiting: The introduction of new ₹2000 notes did not prevent counterfeiting; in fact, counterfeits were detected in the new currency within a month of demonetization1.
• Digital Transactions: While the move did lead to an increase in digital and cashless transactions, this was more of a short-term response to the cash shortage rather than a sustained shift towards a cashless economy2.

Criticisms

• Planning and Execution: The demonetization was criticized for being poorly planned and executed. The Reserve Bank of India and other experts had raised concerns about the potential negative effects on growth and the incorrect assumptions about the nature of black money2.
• Human Impact: The cash shortage caused significant hardship for the general public, particularly the poor and those in rural areas who were heavily dependent on cash transactions. There were reports of deaths linked to the rush to exchange cash2.

Legal and Social Implications

• Legal Challenges: The decision faced several legal challenges, including public interest litigations (PILs) in various courts. The Supreme Court of India referred cases related to the legality and implementation of demonetization to a constitutional bench2.
• Social Unrest: The move was met with protests, litigation, and strikes across India, reflecting widespread dissatisfaction with the policy2.

In summary, while the intention behind the demonetization was to tackle corruption and promote a digital economy, the execution and outcomes were largely seen as unsuccessful and disruptive. The policy did not effectively target black money, caused significant economic and social hardship, and its long-term benefits are still debated.