Ten years after demonetisation, In India cash is still king

TEN years after Prime Minister Narendra Modi announced the withdrawal of Rs 500 and Rs 1,000 notes, questions remain about whether demonetisation achieved its stated objectives.

While digital payments have grown rapidly, cash continues to play a major role in the economy. The impact on black money, counterfeit currency and informal workers also remains contested.

Announcing the decision to demonetise Rs 500 and Rs 1000 currency notes, Prime Minister Narendra Modi on November 8, 2016 said: “In a country’s history, there come moments when every person feels he too should be part of that moment, that he too should make his contribution to the country’s progress. Such moments come but rarely. Now, we again have an opportunity where every citizen can join this mahayajna against the ills of corruption, black money and fake notes. The more help you give in this campaign, the more successful it will be.”

"The magnitude of cash in circulation is directly linked to the level of corruption," the PM had stated.

The demonetisation invalidated 86% of the currency in circulation by value. The Union government said the move would eliminate black money, curb counterfeit notes and terror financing, and reduce India's dependence on cash. The subsequent growth of digital payments, particularly the Unified Payments Interface (UPI), became one of the major outcomes associated with the exercise.

However, data and expert assessments suggest that several of its original goals remain unfulfilled.

The Reserve Bank of India's 2017-18 annual report showed that ₹15.31 lakh crore of the ₹15.42 lakh crore in withdrawn notes had returned to the banking system. This amounted to 99.3% of the currency withdrawn.

In an interview with Mathrubhumi English, economist CP Chandrasekhar said this contradicted the expectation that a substantial amount of unaccounted cash would remain outside the banking system.

Economist Jayati Ghosh argued that black wealth is often held through formal financial channels, offshore tax havens and companies with opaque ownership. Former Andhra Pradesh minister Parakala Prabhakar said it was also held in assets such as gold, land and buildings, rather than entirely in cash.

The return of the currency does not mean all the money deposited was legitimate. However, it weakened the expectation that demonetisation would eliminate a substantial amount of undisclosed cash. Chandrasekhar argued that tackling black money requires sustained investigation and enforcement, not a sudden withdrawal of currency.

Cash remains a major part of the economy

RBI figures examined by The Hindu show that currency with the public stood at 11.9% of GDP in 2015-16, before demonetisation. By March 31, 2026, it had risen to 12.1%.

An analysis by Scroll.in also found that the currency-to-GDP ratio remained around 12% over the decade, indicating that India's dependence on cash had not declined substantially.

At the same time, digital payments expanded rapidly. The Hindu reported that UPI transaction value rose from zero as a share of GDP in 2016-17 to nearly 91% in 2025-26. Scroll found that UPI accounted for 85% of payment transactions by volume in 2025, though only 9.5% by value.

However, Scroll noted that the spread of smartphones and the growth of digital payments during the COVID-19 pandemic also contributed to this shift. 

Counterfeit currency has not disappeared

Demonetisation was also intended to curb counterfeit currency. RBI data cited by The Hindu show that counterfeit notes detected per one crore notes in circulation across all denominations fell from 70.1 in 2015-16 to 13.4 in 2025-26.

However, the detection of counterfeit Rs 500 notes has increased since the new series was introduced. The figure rose from 0.3 per crore notes in 2016-17 to 20.1 in 2025-26.

Economists interviewed by Mathrubhumi English also highlighted the disruption caused to India's cash-dependent informal economy.

Ghosh said the loss of income among informal workers and small businesses had wider consequences for demand and economic recovery. She noted that around 85% of India's workers were employed in informal enterprises, many of them self-employed.

She also highlighted the impact on women who had saved small amounts of money from household expenses for their children's education and other needs. The withdrawal of old notes forced some to disclose or surrender these savings, sometimes leading to conflict and violence within households.

Ghosh further argued that the introduction of the Goods and Services Tax in July 2017 added to the pressure on small businesses already struggling after demonetisation.

The Scroll article said that the economic cost of demonetisation was never formally quantified. It cited independent estimates of output losses ranging from 1% to 2.5% of GDP in 2016-17. However, the long-term impact on the informal sector is difficult to separate from the effects of later policies and the pandemic.

A decade later, questions remain

As almost all the withdrawn currency returned to banks, the government's defence of demonetisation increasingly focused on digital payments and economic formalisation.

Scroll noted that there was no immediate surge in personal income-tax collections after the exercise, despite banks and financial institutions filing more than 4.5 lakh suspicious transaction reports in 2016-17.

It also found that the currency-to-GDP ratio remained around 12%, while ₹500 notes accounted for 85.5% of currency notes in circulation.