In a new report that will possibly leave the Indian government red-faced, the country's central bank has revealed that 99.30% of the currency demonetized in November 2016 is back in circulation.
According to the Reserve Bank of India's annual report for 2017-18 released on Wednesday, almost all of the Rs. 500 and Rs. 1000 notes demonetized, which made up 86% of currency at that point, were exchanged for new currency or deposited into banks. While the government had early indicated it expected Rs. 4-5 trillion in "black money" would not return to the system, RBI has said that of the Rs.15.4 trillion in demonetized notes, Rs. 15.3 trillion had been returned and only Rs. 107 billion purged.
The central aim of the dramatic move to demonetize notes was to catch citizens stashing money not declared for tax purposes or obtained illegally by surprise. The government was hoping to put a dent in the country's underground economy. However, almost all of the money was returned to the banking system, revealing that the whole exercise, which derailed the economy, caused months of cash shortages, hurt the unorganized sector, more than doubled the amount RBI spends on printing new notes and even resulted in numerous deaths, failed to meet its main objective.
“None of the original objectives have been met. Some of the other objectives laid out fighting terrorism and corruption, even that has clearly not been met,” said Jayati Ghosh, economics professor at New Delhi’s Jawaharlal Nehru University told Quartz. “Instead, what it did was give a body blow to the informal economic activity and I don’t think that the country has still fully recovered from it.”
However, income tax collections rose following demonetization, which the government insists is a significant win. It recently pointed out that 209,000 non-filers who each deposited over Rs. 1 million in old bank notes paid Rs 64 billion in self-assessment tax after receiving notices from income tax officials.