It was on November 8, 2016 that the government announced the radical economic decision of demonetisation that invalidated designated bank notes (DBNs) of denomination Rs 500 and Rs 1,000. The demonetisation exercise was followed by cash crunch, job loss and economic slowdown. The government, however, has defended the move calling it the watershed moment. The decision to scrap 86 per cent of the currency in circulation in the then second largest emerging market in the world divided public opinion sharply.
The RBI announced earlier that around 99 per cent of demonetised currency came back into the banking system. The value of the demonetised currency on November 8, 2016 stood at Rs 15.44 lakh crore and notes worth Rs 15.28 lakh crore worth of demonetised notes were deposited into banks.
Let’s take a look at how things unfolded after the move was announced by Prime Minister Narendra Modi on the evening of November 8 last year.
On November 8, 2016, Prime Minister Narendra Modi, in an evening address to the nation, said: “From midnight Nov 8, 2016 today, Rs500 and Rs 1,000 notes are no longer legal tender,” adding that post midnight the notes will become just worthless pieces of paper. PM Modi, in his 40-minute long speech which he gave once each in Hindi and English, said that the decision was aimed at curbing the menace of black money, terror financing and corruption.
For the next two days, banks and ATMs remained closed in preparation for collecting the DBNs. When they finally opened, the banks banks exchanged old notes and credited the money into accounts. They also exchanged limited amount of demonetised currency with older Rs 100 notes or with the new Rs 2,000 notes which was in short supply. ATMs were meant to be recalibrated in the two days that they were closed to be made capable for dispensing the new currency. However, it took many weeks in some cases for the same to happen.
The entire month of November was a picture of long queues, cash crunch and protests across the country as a result of the immediate impact of the cash vacuum created due to demonetisation. RBI issued a large number of guidelines on deposits, withdrawals and exchange of cash post demonetisation.
November 24, 2016: Former prime minister Manmohan Singh gave one of the most stinging criticisms of demonetisation going beyond the implementation and questioning the motive of the decision. “Those who say demonetisation is good in the long run, should recall the quote: ‘In the long run, we are all dead’,” Singh said. He went on to say that demonetisation of Rs 500 and Rs 1,000 notes was “organised loot and legalised plunder” and “monumental mismanagement has taken place.”
RBI’s guidelines for cash withdrawal. New currency notes were rolled out from November 10 for immediate use but DBNs were allowed extended time for use at places like petrol pumps, toll plazas, government pharmacies, government hospitals or medical centres etc. The daily limit on cash withdrawals kept changing from Rs 4,000 a day to Rs 2,500 or Rs 2,000. Also, the weekly withdrawal cap from banks also kept changing.
December 2016: Incidents of starvation and deaths started getting reported from different corners of the country due to cash crunch, lack of enough currency at banks or overstressed digital banking network.
December 10, 2016: The slow pace of remonetisation irked the Supreme Court and it asked the Centre that why even after a month of demonetisation, it had failed to provided Rs 24,000 to people for bank withdrawals which was the allowed limit.
December 14, 2016: Bimal Jalan, RBI governor during the first NDA governor from 1997-2003 questioned the timing of demonetisation and the secrecy surrounding the decisions. Jalan questioned the explanation of the government that the secrecy helped the country and said that there ought to be a very strong reason, war or a threat to national security for demonetising a legal tender.
December 15, 2016: Then Chief Justice of India TS Thakur questioned that why people were unable to receive the rationed amount of cash per week when some people were getting lakhs in new currency. Attorney General Rohatgi’s comments in the apex courts had raised the issue that some bank managers were involved in illegal activities. The Supreme Court had also sought answers from the Modi government on whether demonetisation was constitutional.
January 31, 2017: Income Tax department sends notices to around 18 lakh taxpayers to give explanations of large deposits made into accounts after demonetisation. Also, the Economic Survey 2016/17 says note ban reduced GDP growth by up to 0.5 per cent in ficsal year 2017.
February 21, 2017: DEA Secretary Shaktikanta Das says that the note ban was discussed first with the RBI as back as February 2016.
February 27, 2017: Strikes seen across the country. Banking operations brought to halt. Bank employees demand increased injection of cash as well as some relief in workload.
February, 28, 2017: The statistics department comes out with growth numbers. GDP growth rate found to have slowed to 7 per cent during October-December 2016 quarter.
March 13, 2017: All limits imposed on cash withdrawals enforced post demonetisation by RBI lifted and restored. Banks free to put limits that existed before demonetisation.
March 20, 2017: IT sleuths zero down on Mumbai-based trader in the first crackdown by government agencies after demonetisation.
March 21, 2017: The Supreme Court of India asked the Central government why it was unable to create a separate category for people who were unable to deposit their demonetised case before the December 30, 2016 deadline just like it had done for the NRIs and people not present in India at the time.
April 1, 2017: This was the last day when exchange of demonetised currency was allowed.
April 6, 2017: Cash logistics firms reveal that they were yet to receive Rs 110 crore meant to recalibrate ATMs for the new currency notes.
April 19, 2017: The Central Board of Direct Taxes sets a deadline of May 31 for completing verification of data of cash deposits under the Operation Clean Money.
April 27, 2017: After repeated appeals, the RBI agrees to submit the minutes of meeting of demonetisation before a parliamentary panel, though in a sealed cover.
May 11, 2017: Point of sale machines installed at a significant scale. Data revealed banks added over 10 lakh PoS machines from November 2016 to March 2017 in cash crunch.
May 17, 2017: Government launches Clean Money Portal. The Centre’s estimates said around 91 lakh new taxpayers had been brought under the tax net and it had detected, in the six months post demonetisation, undisclosed income worth Rs 23,144 crore.
June 2, 2017: Finance Minister Arun Jaitley said it will be erroneous to attribute the sharp drop in GDP growth rate during the fourth quarter of 2016-17 fiscal only to demonetisation.
June 21, 2017: Banks and post offices granted permission by the Centre to deposit junked notes of Rs 500 and Rs 1,000 denomination to the RBI latest by July 20. This was the second such window that the government provided banks, post offices and cooperative banks.
July 12, 2017: RBI Governor Urjit Patel appeared before a parliamentary panel to inform that the RBI was still in the process of counting the demonetised notes that found their way back into the banks.
July 16, 2017: Government officials brief a parliamentary panel saying that there was only a seven per cent increase in debit and credit card transactions after demonetisation against the total surge of 23 per cent in digital transactions. The digital transactions in November 2016 were 22.4 million but rose to 27.5 million by May 2017.
July 17, 2017: Upon the Supreme Court’s urge to consider providing another window for depositing demonetised currency for genuine individuals who couldn’t deposit it earlier, Centre says it would defeat the purpose of demonetisation.
July 23, 2017: The Centre submitted before the apex court that Rs 71,941 crore of undisclosed income had been unearthed in the previous three years due to IT search and seizures.
August 11, 2017: A paper by the RBI says that there was unusual deposit of around Rs 1.7 lakh crore after demonetisation.
August 14, 2017: Centre says that 2.83 crore IT returns were filed with an increase of 24.7 per cent.
August 23, 2017: Finance Minister Arun Jaitley refutes all notions that the government may be planning to ban Rs 2,000 notes.
August 25, 2017: RBI issues new currency notes of Rs 50 and Rs 200 denominations.