Worth the trouble? Indian economy will gain from long-term effects of demonetisation
On November 8 2016, Prime Minister Narendra Modi announced the demonetisation of Rs 1000 and Rs 500 notes in circulation. The aim was to stop a thriving parallel economy dominated by unaccounted ‘black’ money and fake currencies. Five years later, the notes in circulation and fake currency seizures continue to rise, prompting critics to pronounce the move a failure, but the Indian economy benefitted from the note ban in more ways than one.
The demonetisation had a telling effect on the country’s informal economy and hit the micro, small and medium enterprises hard. However, it also led to several positive changes. One of the major achievements was the increase in digital financial literacy and the rise of online payments. This, along with the improvements in technology, played an important role in establishing the trust of the public in digital payment gateways. The digital finance revolution saw the emergence of a large number of fintech and techfin players, leading to universal use of digital wallets by consumers and sellers — from street vendors to organised retail outlets.