Positive and Negative Impact of Demonetisation on Indian Economy : Year 2016 Was Master Stroke or a Master Blow ?

Overview & Introduction:

The 8th of November 2016 is a memorable day, the historic night when Hon. Prime Minister Modi made that TV announcement, “From midnight of 8th November 2016.” Just thinking about it gives you goosebumps, it shook the entire country. People forgot everything, standing in long lines in front of ATMs. The sight of the new 2000 rupee notes was like a blessing. Except for a few anti-national individuals from the ‘tukde tukde’ gang, most people stood in line happily, with the vision of a corruption-free India for the future.

It was a time when the whole nation was moved, and the announcement created a wave of enthusiasm. People willingly endured the long queues, optimistic about a better future. The reference to our soldiers standing in Siachen emphasized the idea that if they could endure such hardships, standing in line for the ATM was a small sacrifice. And after all, it was just a matter of 50 days. The hope was that black money would vanish, and the 2000 rupee notes came into existence. In this Article we would cover positive and negative impact of demonetisation on indian economy, we also find demonetization advantages and disadvantages.

However, soon those 2000 rupee notes disappeared too, and the promised 15 lakh rupees in everyone’s account, much like the ‘acche din,’ seemed elusive. Modi’s 50 days passed quickly, but people started questioning the idea that the flaws of 70 years couldn’t be rectified in such a short time. Nehru’s mistakes couldn’t be compensated in just 50 days. Many were saying, after demonetization took place people were saying like “Take 50 years more, but give us acche din”

In fact, there was a separate enthusiasm in the country regarding demonetization. It was considered a masterstroke, a weapon of a different level. People set aside their small inconveniences, looking at the long-term benefits of demonetization. Big economists also emphasized thinking about the long run. The public saw it as a formality, saying that it was okay to endure these difficulties for the greater good.

People were so positive about the long-term vision of demonetization that they even organized weddings in their homes during cash crunch situations. Everyone believed that this move would strengthen the country in the long run, and development was on the horizon. Just as we have entered the era of ‘Amrit Kaal,’ the next 25 years will see us becoming the World Guru, learning from demonetization to keep a long-term vision for the country. Have a look below the Positive and Negative Impact of Demonetisation on Indian Economy.

If there are questions, doubts, or anti-national sentiments, they can be expressed after 25 years, in the new India, following the 25-year plan.


What is Notebandi or demonetisation?

Notebandi or demonetization means stopping the use of certain money notes. In 2016, the government said, “From now on, these big notes of Rs. 500 and Rs. 1,000 are not legal tender money anymore.” They wanted to do this to fight against black money and make our economy stronger. Legal tender terms comes from RBI. It means the currency which is applicable in india called legal tender.

What was the Need for demonetization in India?

India comes in the category of a developing country, and India is moving towards the category of developed country day by day, and is setting new dimensions of development. The historic decision to curb dangerous activities like corruption, black money, terrorism in India was taken by the Indian government, this decision was taken by the Prime Minister of India, Hon. Narendra Modi himself told all the citizens of his country and urged all the countrymen to maintain peace and provide full cooperation in this work, and he also gave enough time to the countrymen to exchange their old Rs.500 and Rs.1000 notes through Banks.

Reasons for Demonetization :

  1. To curb hoarding of black money.
  2. To completely curb the business of fake notes, so that all fake notes can be eliminated from the market.
  3. To teach a lesson to the people involved in corruption.
  4. To curb the excessive cash transactions that people do to evade taxes.
  5. To curb terrorist activities, so that movement of large quantities of currency notes can be stopped.
  6. To prevent misuse of notes outside the country, so that activities like hawala and money laundering can be stopped.
  7. To stop the dirty game of using excessive currency notes during election campaign.
  8. To fix the country’s economy and inflation.
  9. To promote online transactions and Digital India.

How many times demonetisation in India

  1. For the first time in India, the decision to ban 500, 1000 and 10 thousand rupee notes was taken in the year 1946. Even in the 1970s, the Wanchoo Committee, which investigated direct taxes, had suggested demonetization, but the suggestion became public, due to which demonetization could not take place.
  2. In January 1978, Morarji Desai’s Janata Party government made a law and banned 1000, 5000 and 10 thousand rupee notes, then RBI Governor IG Patelhad opposed this demonetization.
  3. In India, in 2005, Dr. Manmohan Singh’s Congress government had demonetized the pre-2005 Rs.500 notes.
  4. In 2016 also, Modi Governmentdecided to demonetise 500 and 1000 rupee notes. These two currencies captured 86% of the Indian economy and were the most prevalent notes in the market.

Positive and Negative Impact of Demonetisation on Indian Economy

Demonetisation Advantages:

  1. The government could get the account of every legal and illegal earning of the public through banks. Every information about the money deposited by the public in their bank accounts could reach the government, and it was possible for the Income Tax Department to take necessary tax action as per the rules against those who deposited more money than required.
  2. Control on terrorist activities. The black money which was deposited with the anti-nationals in the name of spreading terror, was now just a paper, hence the money which was now only a paper, could be used to curb anti-national activities and incidents like terrorism could be curbed. Found that all the money that had been deposited outside the country had been destroyed.
  3. Return of black money. People who had kept large amounts of black money deposited with them, all of it came back into the government treasury and it could be properly accounted  for, this also made it possible to stop black marketing etc.
  4. Promotion of online and digital payments.  There was a decline in cash transactions, which encouraged online transactions and gave wings to the dream of Digital India.  Before demonetization, people were afraid of online transactions, on the other hand, with the advent of facilities like UPI, people are now openly Doing online transactions.
  5. Control on activities like theft, robbery etc.  Whereas most people used to keep large amounts of cash in their homes and were afraid of online transactions, now online transactions have become easier and this frees anyone from having to carry large amounts of cash with them. As a result, activities like theft, dacoits could be curbed.
  6. Elimination of Fake Notes.  Before demonetization, fake notes had established themselves in the market, and due to this, the business of fake notes was increasing and the general public was being cheated, due to the decision of demonetization, all the fake notes were destroyed.
  7. Increase in the number of taxpayers and reduction in corruption. As a result of demonetization, online transactions have got a boost, people keep less cash deposits, due to this the number of tax payers has increased and corruption has also been curbed.

 Disadvantages of Demonetization

  1. Problems Faced By The Public. The citizens of the country had to stand in queues for several hours outside the banks to exchange and deposit currency, due to which many people lost their lives and the health of many was adversely affected. Families who were to organize weddings and all had to face a lot of problems in purchasing goods, because online transactions were not possible everywhere.
  2. Excessive Expenditure In Printing New Notes. Printing new notes in place of old notes and releasing them in the market is also a challenging task, which also involves huge expenditure.
  3. Loss of Tourism. People cancelled all their tours, and even those who were going on tourism were spending limited amounts, this had a bad impact on tourism, foreigners also cancelled their tours to India.
  4. Economic Hit. Negative impact was seen in the economic growth rate.
  5. Waste of Notes or Currency. It was seen at many places that people burnt their old notes, threw them in some rivers and at some places threw them in the garbage, all these activities were seen.

7 year of notebandi a Master Stroke or Master Blow to the economy

Master Stroke:

Why Some People Liked It


Why Some People Didn’t Like It

Fighting Black Money:

The government said that many people were keeping money secretly, and not telling the government about it. By stopping these big notes, they wanted to catch those who were hiding their money.

Difficulty for Common People:

Suddenly stopping some notes created a lot of problems for regular folks. Imagine going to buy groceries and finding out the money in your pocket is not accepted anymore. Many people faced difficulties in getting new notes.

Digital Money:

After notebandi, the government encouraged people to use digital money more – like using cards and apps for payments. They thought it would be safer and more transparent.

Impact on Businesses:

Small businesses suffered because they often dealt with cash. With no money in hand, they couldn’t run their shops smoothly.


Equal Distribution:

Some people believed that notebandi would help distribute money more equally, making sure everyone pays their fair share of taxes.




Economic Slowdown:

Some experts say that notebandi slowed down our economy. When people don’t have enough money to spend, businesses can’t sell as much, and everything slows down.

Not Stopping Black Money:

Critics argued that notebandi didn’t stop black money as much as expected. People found ways to convert their black money into other forms.


Takeaway : Positive and Negative Impact of Demonetisation on Indian Economy


RBI report on demonetization of 8th November

An RBI report has revealed that out of the Rs.500 and Rs.1000 notes that were in circulation in the market, about 99 % were deposited back in the Banks, meaning that no significant impact of this entire campaign is to be seen. What is not found is that due to almost all the money being deposited back in the bank, new currency came back to the black money marketers and now it was even easier for them because it is easier to deposit Rs.2000 notes instead of Rs.1000 notes. official website of RBI

Situation in the country during demonetization on November 8, 2016.

On November 8, 2016, at 8.15 pm, when the Prime Minister took the decision to stop the circulation of Rs.500 and Rs.1000 notes, an atmosphere of chaos was seen all around the country. Most of the people who had kept a large amount of money with them, started buying gold with that money in goldsmith shops. Gold and silver jewellery shops continued to operate till 1 am in the night, as if someone was selling gold for free. Goldsmith also took full advantage of that opportunity.

The next day, outside banks and ATMs. Long queues started forming outside the bank, the bank employees were seen troubled in this struggle the whole day. There is only one discussion on everyone’s lips in the entire country: The Demonetization Or Notebandi.

Demonetization brought friendship between Rich and Poor

Such stories were also heard that during demonetization in the country, there were rules for exchanging and depositing only a limited amount of money in banks every day. This was regretted by many rich people who had lot of money deposited with them. Then all those rich people offered to many of their friends and relatives to deposit their money in their bank accounts and in return they would give them some commission. Thus in those days everyone felt this friendship between the rich and the poor.

Opposition Parties Reaction on Demonetization

Due to this decision of the Modi Government, the opposition strongly attacked it and called it a wrong decision of the country. The opposition governments did everything by raising slogans against the Modi government, demonstrating at intersections, expressing anger etc. But the decision of the government remained firm and all the concerned officers of the government and all the employees of the bank supported this decision of the government with full hard work and dedication and worked day and night.

During demonetization, unpleasant incidents happened with the people standing in long queues and people had to face lot of difficulties, on this some media brothers appeared happy with this decision of the government while some showed it wrong

Final Words.

positive and negative impact of demonetization on Indian economy depends on various factor, In fact, in the last 7 years, no leader worldwide has demonstrated the level of audacity required to implement demonetization in their own country. It takes a unique level of humility to undertake such an action. The arrival of demonetization and the introduction of the ₹2000 note were revolutionary. We came to know about it mainly through the media. However, our tendency to quickly forget things played a role. Just as in the case of the government’s commendable work during the COVID-19 pandemic, which we seem to have overlooked, we have also forgotten the benefits of demonetization.

Demonetization did succeed in eliminating black money, and the dream of a cashless economy has been realized. Within 12 hours of demonetization, Paytm advertisements were on the front page of every newspaper, and a new era of “Paytm karo” had begun. If people still have such a strong inclination towards cash despite all efforts, and after the complete demonetization, seven years later, cash usage is still prevalent, and people are shying away from Paytm, it raises questions about the government’s approach.

Despite the decline in the use of cash, the share of Paytm is decreasing. The government has tried hard, and demonetization did give the economy a shock. The new 2000 rupee notes had advanced security features to prevent duplication by countries like Pakistan. However, it seems people developed a strange affection for the notes, as if it was a symbol of love for those involved in black money.

The success of demonetization and the ₹2000 notes was so monumental that today, it is rarely mentioned by the BJP. Narendra Modi seems to have distanced himself from this masterstroke. However, just like long COVID has left its impact, the economic shock and wounds caused by demonetization are still fresh for many, especially for the poor and small business owners who never recovered from the blows of GST and demonetization.

The big players managed to navigate through GST, greasing the palms of CAs, but small businessmen, small capitalists, suffered. If you happen to come across a forgotten ₹2000 note, it will remind you of how the nation was swept away in the rhetoric, much like the enthusiasm during Indira Gandhi’s tenure with the sterilization program. Attempts are made, but ultimately, it is the common man who bears the brunt, while politicians seize upon other issues, use different slogans, and exploit different dangers to secure votes.


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