Demonetization of high denomination notes in India

Abstract

Prime Minister Narendra Modi has announced demonetization of high denomination currency keeping in view the manifesto of the party to fight corruption and respecting the sentiments of voters. Despite the pain which people are facing in the exercise, generally the scheme has been hailed by Indians across the spectrum. The sentiments are positive and encouraging.

First, some facts about the demonetized currencies. The note of Rs.500 was introduced in October 1987-88 while notes of Rs.1,000 were discontinued in January 1978 and reissued in November 2000. The history of Rs.1,000 note is interesting. It was first introduced in 1938 under the British rule and then demonetized in January 1946. Once again it was introduced in 1954 and demonetized in 1978 to be re-introduced in 2000. The total currency in circulation as on end March 31, 2016 is Rs. 16,415 billion of which notes of Rs.1,000 denomination account for 38.6 % (Rs.6,326 billion) and Rs.500 account for 47.8% (Rs.7,854 billion). The importance of Rs.500 has been increasing over the years, from 4.1% on March 31, 1990 to 47.2% on March 31, 2016. Similarly, the share of Rs.1,000 note has increased from 1.7% in 2001 to 38% in 2016. The total amount of Rs. 500 and Rs. 1,000 notes amount to Rs. 14,180 billion as compared with India’s national Income of Rs.1,35,761 billion in 2015-16 or about 10.5 percent of GDP. Assuming that the size of unaccounted economy in India, conservatively, is nearly 30% of the official economy, amount of Rs.4254 billion in high denomination notes could be due to unaccounted money. Read more at: https://globalnetwork.io/perspectives/2016/11/demonetization-high-denomination-notes-india