Belying the expectations of the government that a significant amount of currency held by people would not return to the banking system, the RBI on Wednesday announced that 99 per cent of the demonetised Rs 500 and Rs 1,000 notes were deposited or exchanged.
As on June 30, 2017, notes worth Rs 15.28 lakh crore were deposited by people, according to RBI’s annual report. At least Rs 16,000 crore did not return to the system as the total value of Rs 500 and Rs 1000 notes in circulation was Rs 15.44 lakh crore. And RBI spent Rs 7,965 crore, nearly half of the Rs 16,000 crore gain, for printing new notes between July 2016 and June 2017.
Scrapping of the higher denomination notes had caused immense hardship for the public due to the slow pace of remonetisation. Squeezing the cash meant long queues outside ATMs and businesses taking a hit as the country’s economy was largely cash-driven.
The disruption it caused raises questions over the overall gains made and its impact on the economy.
After the country’s GDP growth fell close to two per cent, this year’s midterm economic survey had indicated that the impact from demonetisation is between 1/4 and 1/2 percentage points relative to the baseline of about 7 per cent.
Defending the demonetisation move, the government had repeatedly said it would curb terror financing and dent the drug trafficking industry as they heavily rely on counterfeit notes.
In July, the RBI told a parliamentary committee that ending the counterfeit currency menace was one of the reasons for accepting the govenrment’s demonetisaton move. The bank said that it was becoming increasingly difficult to differentiate between genuine notes and fake notes.
Despite the RBI stating in its report that counterfeit notes detected was 20.4 per cent higher than the previous year, the value of the fake demonetised Rs 500 and Rs 1000 notes in 2016-17 was just Rs 41 crore.
Meanwhile, Union Finance Minister Arun Jaitley, on Wednesday, said that one of the principal objects of demonetisation was to gradually bring down the quantum of cash operating in the system and an integration of the informal economy with the formal one where progress has been achieved.
“The object of demonetisation was not confiscation of money. The object of demonetisation was that India is predominantly a high-cash economy and, therefore, that scenario requires to be significantly altered,” he told reporters after the release of Reserve Bank of India’s Annual Report for 2016-17.