The new 2000 Indian rupee banknotes. Photo: Reuters/ Mukesh Gupta
The rupee has gyrated between weakening and strengthening against the US dollar this year. Photo: Reuters/ Mukesh Gupta

As India heads toward its first anniversary of demonetization of high value currency notes (November 8), which was aimed at fighting shadow economy and counterfeit notes, the debate over the pros and cons of this drastic step got more intense.

Prime Minister Narendra Modi had on November 8 last year announced that Rs 500 and Rs 1,000, which constituted 85% cash in circulation, would cease to be legal tender.

While several opposition parties have announced that they would observe November 8 as ‘Black Day’ and hold protests across the country to highlight its “ill-effects” on the economy, the ruling BJP has decided to observe it as “Anti-black Money Day”.

Meanwhile, the country’s central bank has said it was still in the process of verifying junked notes. In reply to a Right to Information query, the Reserve Bank of India said it has processed about 11.34 billion pieces of Rs 500 (US$ 7.70) notes and 5.24 billion pieces of Rs 1,000 (US$ 15.40) junked notes, having face value of Rs 5.67 trillion (US$ 8.73 billion) and Rs 5.24 trillion (US$ 8.07 billion) respectively as on September 30. The combined value of the processed notes is Rs 10.91 trillion (US$ 16.80 billion) approximately, according to the reply.

RBI in its recent report had stated that more than 99% of demonetized currency returned to banks, leaving many people wondering whether it was worth the trouble. The resulting cash crunch due to demonetization had caused lot of pain to people with long queues before banks and ATM kiosks. In addition, there was a huge cost of printing new currency notes and recalibrating of ATM machines.

But some economists have said the measure has had positive impact as well, including bringing in cash into the banking system and lowering the cost of loans.

However, successive GDP figures reveal that it took a heavy toll on the economy. In the April-June quarter this year, the country recorded a growth of 5.7%, the lowest in the last three years, and many economists and critics had blamed it on demonetization.

A former member of the erstwhile Planning Commission Arun Maira has said that demonetization had hit the poor, but they forgave the Narendra Modi government because they believed it was on their side and the move was aimed against “filthy rich people”. It was, however, yet to be known whether the rich got hurt, he added.