The Reserve Bank of India (RBI) has come out with its annual report giving a balance-sheet of

demonetisation implemented 21 months ago. Of Rs 15.41 lakh crore demonetised currency notes of Rs
500 and Rs 1,000 denominations, only Rs 10,720 crore did not reach to the banks or the RBI.

This means only 0.7 per cent of demonetised currency notes were junked in the exercise. The
government had initially expected that approximately Rs 3 lakh crore of demonetised currency notes
would not come back to the banking system, thus shedding the substantial weight of black money.

While announcing demonetisation on November 8 in 2016, Prime Minister Narendra Modi had outlined
three broad objectives to fight black money, corruption and terror funding. These objectives have
always been debatable for the lack of accurate verifiable data.

Soon after the RBI released its annual report, former Finance Minister P Chidambaram launched a fresh
attack on the Modi government saying that the country paid a huge price for demonetisation by way of
job loss, closure of industries and the GDP growth.

"Indian economy lost 1.5 per cent of GDP in terms of growth. That alone was a loss of Rs 2.25 lakh crore
a year. Over 100 lives were lost. 15 crore daily wage earners lost their livelihood for several weeks.
Thousands of SME units were shut down. Lakhs of jobs were destroyed," Chidambaram said in a series
of tweets. The Congress demanded an apology from PM Modi.

Demonetisation cost for RBI

When demonetisation was announced, the RBI and the currency printing presses were unprepared to
replace the volume of the recalled currency notes. The currency printing machinery had to run overtime
to meet the targets.

The RBI spent close to Rs 13,000 crore over the next two years to remonetise Indian money market in
post-demonetisation phase. New notes of Rs 500 and Rs 2,000 were introduced. The designs were
markedly different from the recalled ones. This escalated the cost of printing as it had several new
features.
The RBI report says that Rs 7,965 crore was spent in 2016-17 on printing new notes both old and new
denominations. In 2017-18, the amount spent on printing notes stood at Rs 4,912 crore. The money
spent on the printing of notes in post-demonetisation was very high. The RBI had spent Rs 3,421 crore
on printing currency notes a year ago, that is, in 2015-16 (July to June cycle).

Such high spending on note printing impacted the profit of the RBI which reflected in the dividend that it
paid to the government. The RBI had transferred a surplus of Rs 65,876 crore to the government in
2015-16.

But when the amount of dividend declined by more than half in 2016-17 when demonetisation was
implemented. The RBI paid a dividend of Rs 30,659 crore. It went up again in 2017-18 but did not touch
the mark of 2015-16. The RBI paid Rs 50,000 crore as dividend to the government earlier this month.
Demonetisation appears to be the spoiler-in-chief for the RBIs profit.

Money In Market Post-demonetisation

Before demonetisation, Indias money market had the overall circulation of banknotes worth Rs 17.97
lakh crore on November 4, 2016. The banned banknotes constituted 86.4 per cent of the total money in
circulation.

Today, according to the RBI, overall banknotes in circulation are worth Rs 18.03 lakh crore (March 2018).
This means the volume of currency in circulation is 9.9 per cent more compared to March 2016-level.

The share of high denomination currency notes was 86.4 per cent at the time of demonetisation. The
RBI says that the share of Rs 500 and Rs 2,000 notes is 80.6 per cent. This indicates a 5.8 per cent
increase in the use of small denomination currency notes.

Was Demonetisation a success?

Officially, yes. The government says so. Economic Affairs Secretary Subhash Chandra Garg says so. Garg
explains, Demonetisation achieved its objectives quite substantially. The currency in the system now is
87-88 per cent, that is, about Rs 3-4 lakh crore less currency than it would have been if the system
would have continued in the old manner.
Another argument has been an assault on the counterfeit notes post-demonetisation. However, the RBI
report says that detection of fake Rs 500 and Rs 1,000 decreased by 59.7 and 59.6 per cent in after
demonetisation.

There was, though the increase in detection of fake notes in Rs 100 and Rs 50 denominations. The RBI
says, "Compared to the previous year, there was an increase of 35 per cent in counterfeit notes
detected in the denomination of Rs 100, while there was a noticeable increase of 154.3 per cent in
counterfeit notes detected in the denomination of Rs 50."

On black money, the government had in August 2017 said that nearly Rs 3 lakh crore that had remained
out of the banking system was deposited in banks post-demonetisation. It claimed that over Rs 2 lakh
crore of black money reached banks.

The government has maintained that the Income Tax Department is examining about Rs 1.75 lakh crore
of suspicious deposits post-demonetisation. Around 18 lakh people with disproportionate income have
been identified by the I-T officials. Action against them and exaction of tax with a penalty will achieve
the stated objective of fighting black money.

More than 105 people had died in the post-demonetisation rush for cash across the country.
Demonetisation also hit small-scale businesses. According to the Centre for Monitoring Indian Economy
(CMIE), demonetisation caused loss of about 15 lakh jobs. The CMIE compared the employment data for
January-April 2017 with the figures for the September-December quarter of 2016, when demonetisation
was implemented.

A fresh war of words has ensued between the supporters and opponents of demonetisation broadly
aligned along political divide. Was demonetisation a success or failure? It is for the readers to decide in
the view of known demonetisation facts.