Arshad Shaikh revisits the painful and futile exercise of demonetisation on its sixth anniversary and finds out why we have not learned any lessons from what was termed a “monumental disaster” by former P.M. and an acknowledged economist, Dr. Manmohan Singh. Cash is still king despite the enormous growth in online payments.

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Six years later, cash is still king

Arshad Shaikh revisits the painful and futile exercise of demonetisation on its sixth anniversary and finds out why we have not learned any lessons from what was termed a “monumental disaster” by former P.M. and an acknowledged economist, Dr. Manmohan Singh. Cash is still king despite the enormous growth in online payments.

The withdrawal of `500 and `1000 currency notes in one stroke (on 8 November 2016) was supposed to be a surgical strike against black money, counterfeit notes, and terror funding. Yet, all these maladies remain firmly entrenched reinforcing the perception that the implementation of demonetisation was a case of “organised loot and legalised plunder” (again paraphrasing Dr. Singh) and enacted either out of sheer naivety and/or pure narcissism. Anyway, the price was paid by the common man with zero consequence for those who came up with such an ill-conceived idea. The spin around the success of demonetisation is a classic case of ‘post-truth’ and typifies the tragedy of our times.

In Urdu, the term Tughlaqi Farmān implies a pronouncement or decision that is perceived as being dictatorial and leading to negative consequences. The colloquial expression refers to the many (now) ill-conceived decisions by 14th-century Delhi Sultan – Muhammad bin Tughlaq. One of his faramīn (edicts) was the introduction of a token currency in the form of copper and brass coins that could be exchanged for a fixed amount of gold and silver. The ruling was withdrawn because the token currency began being forged undoing the motive for the revolutionary monetary reform. Many believe that this particular diktat weakened the economy of the Sultanate and ultimately caused its demise.

Who could have imagined that history would repeat itself as a tragedy in the form of demonetisation in the year 2016? In a sudden move, the government decided to junk 85% of its currency (in the form of `500 and `1000 denominations).

The justification was to get rid of corruption, black money, fake currency and terrorism. The Prime Minister announced, “To break the grip of corruption and black money, we have decided that the five hundred rupee and thousand rupee currency notes presently in use will no longer be legal tender from midnight tonight that is 8th November 2016. This means that these notes will not be acceptable for transactions from midnight onwards. The five hundred and thousand rupee notes hoarded by anti-national and anti-social elements will become just worthless pieces of paper.”

Celebrated American economist, Milton Friedman once said, “The government solution to a problem is usually as bad as the problem.” His words reverberate as we reminisce the immediate aftermath of the announcement to demonetise. People of all ages braved the suffering and affliction of standing for hours and days together in serpentine queues outside ATMs and banks. The worst to suffer were women and the elderly.

However, this meek behaviour of the public also underscored our docility and showed that unquestioned submissiveness to authority may not always be in our best interests. With the media spin in full force to justify the benefits of the move, people were encouraged to bear the ordeal and torture of exchanging their own demonetised notes with the new ones in the name of “national interest” and for a “noble cause”. Unfortunately, there has been no official acknowledgment of the failure of the entire exercise. In fact, as strange as it may sound, demonetisation helped the ruling party to win the Uttar Pradesh assembly elections by harping on the specious assertion that it was a surgical strike on black money and the ill-gotten wealth of the rich.


The logic for demonetisation appears to have been inspired by Bollywood films where black money is shown stuffed in suitcases, gunny bags, or inside bedsheets. It is held by gun-wielding terrorists and greedy sahukars. This illegitimate and undeclared black money would never return to the system if it were to lose its status as legal tender. With its ‘suddenness’ and ‘sheer unpredictability’, demonetisation would strike out black money in one stroke. A bonus would be the display of ‘shock and awe’ capability of our Prime Minister, boosting his persona as the “tough guy against corruption”. The whole media spin around demonetisation was virtually decimated as news trickled in that more than 99% of cash was returned to the banks.


As all cash returned to the system, the goal post for demonetisation was shifted towards developing a cashless and digital economy by boosting online payments. Undoubtedly, it did that largely but economist Ajit Ranade correctly pointed out that “India’s digital journey did not need a demonetisation jhatka. It would have happened anyway, as the current pace of adoption shows.”

India has some of the highest numbers of unbanked individuals (around 20% of our population). Cash is still the only form of payment for this segment. According to a report in the Indian Express, November 8, 2022 – “Cash with the public has shot up by 239 per cent from `9.11 lakh crore recorded on November 25, 2016, two weeks after `500 and `1,000 notes were withdrawn from the system.

According to the RBI data, in the fortnight ended October 21, 2020, the currency with the public rose by `25,585 crore on the eve of the Diwali. It rose by 9.3 per cent, or `2.63 lakh crore, on a year-on-year basis.”


As we complete six years of demonetisation, it makes sense to study the ‘lessons learned’ and create a state where such policy decisions are reached only after due diligence and a broad consensus and the decision-makers are held accountable for their acts of omission and commission. There is almost consensus on the fact that India’s GDP growth suffered a major slowdown because of demonetisation.

The imprudent move targeted the informal economy or the cash economy, assuming that it is the greatest source of corruption while ignoring the fact that real corruption is the facilitation of selected capitalists and industry houses over all else.

This crony capitalism or corporatocracy, which has gripped our country is corruption of the highest order and yet there is little outcry and almost zero resistance against it. What is required is the strengthening of people’s power and a media that does its job of acting as a watchdog of democracy and criticising the government for its various acts of omission and commission.

We must also not ignore the moral dimension of the problem. Whether it is cash or digital, people must follow the law of the land when it comes to financial transactions. Tax evasion or bribing those in power in exchange for jobs and contracts is as much an issue of ethics as it is about fiscal loss and favouritism. Progress at the cost of losing one’s moral fibre is deceptive and short-lived. American lawyer and judge, Potter Stewart said – ethics was “knowing the difference between what you have a right to do and what is the right thing to do.” We all need to know that difference.