On November 8, 2016<\/a>, the government announced that the Rs.500 and Rs.1,000 notes then in circulation would cease to be legal tender from midnight. The first question the ban raised was whether people would deposit or exchange their unaccounted-for cash at banks. Almost all of it, 99.3 per cent by value, had come back into the banks, thus belying the government\u2019s expectations that if cash is squeezed out, the black economy<\/a> would be eliminated.<\/p>\n The second, harder question is whether the ban on these notes led to enduring change. The government aimed for three long-term benefits from it: that people would move from cash to a digital economy, the menace of fake notes would be curbed, and the number of income taxpayers would increase substantially. Were these long-term goals achieved? If so, to what extent? And, how much credit for the results belongs to the ban, and how much to later events like the goods and services tax (GST), the COVID-19 pandemic, and the growth of digital payments? Thanks to ten years of official data, now there is an answer.<\/p>\n The main official objective of demonetisation was to remove black money: the notification scrapping the notes said high-value notes were being used to hoard unaccounted wealth. Since people turned in almost all the cancelled currency<\/a>, the strike on unaccounted wealth held in cash proved to be ineffective. Arun Kumar, retired professor of economics at Jawaharlal Nehru University and author of Demonetization and the Black Economy<\/i> (2017), says cash makes up only a small part of anyone\u2019s wealth, black or white. \u201c[It] is held as a part of the portfolio of assets both in black and white\u201d, he told Frontline<\/i>. \u201cSince it earns no return by itself, it is likely to be small, say, 1 per cent of the total assets.\u201d There is no direct way to assess the ban\u2019s long-term impact, as the government informed Parliament in 2020 that it does not have an official estimate of black money.<\/p>\n If the ban had curbed black money for good, the evidence would show up in the first and third tests below. The economy would rely less on cash and keep less of it in high-value notes, and more people would file tax returns. The second test, of fake notes, follows the second official objective. It is easier to measure because the RBI counts the fakes detected in the banking system every year.<\/p>\n A digital payment is only useful if both buyer and seller use it, so a cash famine that gets both on board at the same time could create a habit that outlives the famine. The Journal of Political Economy<\/i> reported evidence of this effect in 2023. Adoption of a large digital wallet grew faster in districts where the cash squeeze was tougher, and stayed higher after cash returned.<\/p>\n When announcing the ban, Prime Minister Narendra Modi said: \u201cThe magnitude of cash in circulation is directly linked to the level of corruption.” Cash use is usually measured in relation to the size of the economy. That size is measured by gross domestic product (GDP), the total value of everything a country produces in a year. The amount of cash in well-run economies varies widely. In a 2018 study, the Federal Reserve Bank of Chicago found cash equal to nearly 19 per cent of Japan\u2019s GDP in the country. The rate was approximately 8 per cent in the United States and 4 per cent in Canada. No level of cash is right or wrong in itself.<\/p>\n \n Chart 1: Cash as a share of the economy fell sharply in the year of the ban and returned to its pre-ban range within three years. Cash was between 11.6 and 12.1 per cent of the GDP of India in the four years before the ban, according to official figures. The ban cut it to 8.7 per cent in 2016-17. It was back to 12.2 per cent in 2019-20, rose to 14.4 per cent in the pandemic year 2020-21, and stood at 12.1 per cent in 2025-26. However, the latest figures have a caveat, as the method for calculating GDP changed in February 2026. That month, the Ministry of Statistics and Programme Implementation (MoSPI) revised its GDP numbers, utilising newer data and changing the base year from 2011-12 to 2022-23.<\/p>\n The revisions show a slightly smaller economy, so the same amount of cash now represents a slightly larger share of it. The RBI estimates cash at 11.2 per cent of GDP based on old figures and 11.7 per cent on the revised figures for 2024-25. In any case, cash is now back to or near its pre-ban level, even as more and more everyday payments are made by phone. The ban did lead to a drop in cash but it did not last.<\/p>\n When asked whether the cash now held in the country could be split between savings, precaution, and unaccounted deals, Arun Kumar said: \u201cCash is also for transactions. It is not possible to separate the cash held into the three compartments you mention.\u201d<\/p>\n High-value notes retain the same place in the currency as before. The Rs.500 and Rs.1,000 notes together comprised 86.4 per cent of the value of notes in circulation before the ban; at the end of March 2026, the Rs.500 note alone comprised 85.5 per cent. The space for holding unaccounted wealth in large notes, which the ban sought to constrict, has returned to its previous value.<\/p>\n \n Chart 2: Following the note ban, UPI transaction volumes saw minimal growth over the next three years. Major initial expansion occurred during the two pandemic years, after which growth continued to compound. The Unified Payments Interface (UPI), launched in August 2016, processed about three lakh transactions in November 2016, according to The Quint, and 24,162 crore in 2025-26. According to data from the National Payments Corporation of India, 78 per cent of all UPI transactions from launch to March 2022 were made in 2020-21 and 2021-22.<\/p>\n Demonetisation, by its nature, is likely to reduce the number of fake currency notes. A new design with new security features forces the counterfeiters to start from scratch.<\/p>\n The clearest test is comparing the cancelled notes with one that the ban didn\u2019t touch. Here, high-value notes mean Rs.500 and Rs.1,000 notes before the ban and Rs.500 and Rs.2,000 notes after the ban. RBI\u2019s figures show an 89 per cent decline in fakes in these notes from 4,04,794 in 2015-16 to 45,400 in 2018-19. The Rs.100 note was never demonetised, and its fakes continued at 2,21,447 and 2,21,218 over the same three years.<\/p>\n \n Chart 3: Forgeries of high-value notes collapsed after the ban, while those of the Rs.100 note, which was left alone, held steady. High-value fakes have since more than tripled from their low. The gain has been falling away. The number of high-value fakes has grown more than three times since 2018-19 to 1,42,754 in 2025-26, and almost all of them are Rs.500 notes, whose counterfeits rose 20.5 per cent in 2025-26 alone. More than a quarter of the fall achieved by 2018-19 has now been reversed. The position is better when measured against the stock of notes. In 2025-26, about 20 fakes were detected for every crore of high-value notes in circulation, compared to about 169 per crore before the ban.<\/p>\n The frequently quoted fall in the rate of forgery across all notes from 70.1 per crore notes in circulation in 2015-16 to 13.4 in 2025-26 is a combination of two different trends. About 72 per cent of that fall came by 2018-19, mostly in the cancelled denominations, and belongs to the ban. The rest came later and was shared by notes the ban never touched: Rs.100 fakes have come down about 81 per cent from their 2017-18 peak, to 45,621 in 2025-26.<\/p>\n \n Chart 4: Most of the decade\u2019s fall in the forgery rate came within two years of the ban; the slower decline since then has been shared by notes that the ban did not touch. These are the numbers of fakes caught. This depends on how many notes come through banks and how carefully they are checked. So, part of the fall after 2020 may be because banks handled less cash. With that caveat, the forgery benefit is real; the ban can account for most of the early decline, and the data show it eroding since.<\/p>\n Arun Kumar weighs that gain against the cost of the ban. \u201cCounterfeit currency was never the real issue since it was a tiny fraction of the total currency in circulation. It still is a tiny fraction of the total currency in circulation,\u201d he said. \u201cThe benefit of eliminating it is nothing compared to the loss in output and incomes due to the demonetisation. It has to be dealt with in other ways than demonetisation.\u201d<\/p>\n The cancelled notes initiated a trail of untraced cash on bank records tied to Permanent Account Numbers (PAN) that the Income Tax Department could follow. Depositors had a reason to begin filing returns. If that worked, the number of people filing returns and the ratio of direct taxes (mainly income tax and corporate tax) to GDP should have picked up from 2016-17 and stayed higher than they would have been if they had continued to grow at their earlier pace.<\/p>\n The Central Board of Direct Taxes (CBDT) counts the persons filing returns. This measure avoids a distortion in the more well-known count of returns, as taxpayers could file for two assessment years in the same financial year until 2017-18. Filers grew at an average of 8.5 per cent a year before the ban, from 3.31 crore in 2013-14 to 3.91 crore in 2015-16. They then jumped to 4.47 crore, 5.45 crore, and 6.33 crore in the next three years.<\/p>\n \n Chart 5: For three years, filers were well above the number expected had they kept growing at the pre-ban pace. The gap has since narrowed to about 0.56 crore persons. There would have been 1.34 crore fewer filers in 2018-19 than there actually were, had they continued to grow at their pre-ban rate. After this, growth slowed to 2-4 per cent per annum until 2021-22, and the gap fell to 0.56 crore by 2023-24, when 8.09 crore persons filed returns. That residue is roughly 13 per cent of the increase in filers since 2015-16.<\/p>\n This is the upper limit of the ban\u2019s share, as the goods and services tax (GST) from July 2017 and a steady widening of tax deduction at source also drew people into the net. The timing backs up that caution. The biggest jump, of about one crore filers, was in 2017-18, the first filing season after the ban and also the year GST came into effect. In 2020, economist Amartya Lahiri found no break in the number of filers in 2017 and attributed the larger increase in 2018 to GST.<\/p>\n Arun Kumar reads the rise in filers differently. \u201cThe number of effective direct taxpayers remains unchanged even though the number of tax filers has increased substantially,\u201d he said. \u201cIn the old tax regime, one has to file a tax return at an income of Rs.2.5 lakh. This has remained unchanged since 2014. As inflation and growth continue, many more cross this limit and have to file a return even though they do not have to pay tax. Today, taxation begins at Rs.12 lakh.\u201d<\/p>\n The tax promise can also be tested from the revenue side. If the new filers were paying real tax, direct taxes should have risen as a share of GDP and remained there. Its share went up to 6.02 per cent in 2018-19 from 5.47 per cent in 2015-16. It then fell to 5.23 per cent in 2019-20, the year of the corporate tax cut, and 4.78 per cent in 2020-21, below its pre-ban level. The current high of 6.73 per cent in 2024-25 was built post-pandemic. Arun Kumar draws a sharper conclusion from the same ratio. \u201cIf black income generation had come down, the direct tax-to-GDP ratio would have sharply risen, but it has hovered between 5.5 per cent and 6.5 per cent of GDP,\u201d he said, adding: \u201cIf the black economy had been checked, it would have risen to 20% or more.\u201d<\/p>\n \n Chart 6: The ratio of direct taxes to GDP rose for two years after the ban, fell below its pre-ban level by 2020-21, and reached its present high only after the pandemic. Were there any lasting gains from demonetisation? In retrospect, can one attribute a decline in high-value forgery in the immediate aftermath of the note ban, an early push to digital transactions, a wider tax base, and the present share of cash in the economy to it?<\/p>\n Arun Kumar stands by his book\u2019s verdict. \u201cEven if there were some minor gains, the cost to the economy and society was far greater. So, it was not worth it,\u201d he told Frontline<\/i>. Demonetisation is based on the wrong premise and cannot solve the problem of black income generation, he added.<\/p>\n N.V. Geetha is a former Senior Technical Director at the National Informatics Centre. She writes data-based stories.<\/i><\/p>\n Also Read | All you wanted to know about India\u2019s demonetisation drive<\/a><\/strong><\/p>\nLess cash, more digital?<\/h3>\n
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\n N.V. Geetha\n <\/p>\n<\/div>\nFewer fake notes?<\/h3>\n
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\n N.V. Geetha\n <\/p>\n<\/div>\nBroaden the tax net?<\/h3>\n
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