Four Years On

Context: An assessment of the impact of Demonetization after four years.

Benefits of Demonetisation:

• Reduction in black money

• Increased tax compliance

• Increased transparency

• Increased formalization in economy

• Stepped up Digitization: through the growth of the JAM (Jan Dhan, Aadhaar, and Mobile) trinity and the United Payments Interface(UPI).

Issues associated with Demonetization:

• Formalization and Digitization may be possible even without Demonetization.
• The mobile transaction had returned to pre-demonetization growth: Mobile transactions as a percentage of all transactions have largely returned to its pre-demonetization growth trend.
• Growing currency in circulation: In 2018-19, according to the Reserve Bank of India, the currency in circulation is as a percentage of gross domestic product is 11.2 % while it was 12.1% in 2015-16.
• Reversal of Increase in Tax buoyancy: It has returned to the levels seen in 2012-13, and remained far below its pre-financial crisis thresholds (i.e. before 2008).
• Insufficient Tax net: Only 58 million income-tax returns were filed by individual taxpayers for the financial year 2018-19 till February 2020
• Black money may recur again: Black money might have taken a one-time hit, but it is a flow as much as stock.
• Diminished capacity of Informal enterprises
• Decrease in employment generation

Conclusion: The benefits associated with Demonetization may not be enough to outweigh the negatives associated with it.