[walterbell]

India's approach was to cancel large-denomination banknotes, but it did not have the intended effect, https://archive.ph/ynouY

> India’s prime minister, announced in November that Rs1,000 ($16) and Rs500 notes would no longer be legal tender, he suggested that corrupt officials, businessmen and criminals — popularly believed to hoard large amounts of illicit cash — would be stuck with “worthless pieces of paper”. But the Reserve Bank of India’s annual report on Wednesday suggested that most holders of the old currency managed to dispose of it

> ... The bank’s estimate follows media reports that complex money-laundering networks sprang up in the wake of the demonetisation to help wealthy Indians deposit huge volumes of previously undeclared currency without exposing themselves to tax authorities. Such people allegedly sold the old notes, at a discount, to brokers who then dispatched low-income Indians to deposit or exchange them at banks.

[jeswin]

> India's approach was to cancel large-denomination banknotes, but it did not have the intended effect

The objective was not to cancel large-denomination banknotes, given that even larger notes were issued in their place (2000 Rupee notes). The printing of those notes were well underway when "demonetization" was announced. The goal was to understand how much cash remained in the system, and to move away from a cash-based economy.

Just as most government programs, results are mixed. It seemed more of a failure immediately afterward, but with 6 years of hindsight doesn't seem as bad. It kicked off India's digital economy, with UPI digital payments finding mass acceptance. UPI payments went from $1.5B in October 2016, to $10B the following month. This triggered mass adoption of phone payment apps, and the transaction value stands at $140+ billion per month as of today. In most tier-1 and tier-2 cities in India, you don't need cash or a credit card to survive.

As far as tax evasion is concerned, while it wasn't any sort of total success it did pave the way for more transactions to flow through monitored digital channels. Today banks don't accept any significant amount as cash deposits and there are strict caps on annual cash transactions. Overall, the "demonetization" event of Nov 2016 was imho a success as far as the government's objectives were concerned.

As a private citizen however, I don't particularly like the privacy problems that tag along with this.

[unmole]

> The goal was to understand how much cash remained in the system

The RBI which prints the banknotes knows how much cash is in the system. I've heard a lot of nonsensical justifications of demonetization. This is by far the the worst.

> but with 6 years of hindsight doesn't seem as bad. It kicked off India's digital economy

Kick starting India's digital economy did not require bringing the physical economy to a fucking standstill.

> UPI payments went from $1.5B in October 2016, to $10B the following month.

Do you have a source for this? NPCI has very different figures: https://www.npci.org.in/what-we-do/upi/product-statistics

Value of UPI transactions in October 2016 was 48.57Cr, rising to 100.46Cr in November and 700Cr in December. In November 2022, the figure is 11,90,593.39Cr.

> This triggered mass adoption of phone payment apps,

Define mass. In 2016 smartphone penetration in India was ~24%.

> In most tier-1 and tier-2 cities in India, you don't need cash or a credit card to survive.

Ah, the endless queues, the needless suffering, the lost jobs and destroyed lives, all made up for by the fact that the urban middle class now has the convenience of UPI!

> Today banks don't accept any significant amount as cash deposits and there are strict caps on annual cash transactions.

Which to repeat myself, did not require bringing the economy to a fucking standstill. And limitations on value of cash transactions aren't a new idea and predate demonetization.

> Overall, the "demonetization" event of Nov 2016 was imho a success as far as the government's objectives were concerned.

99.3% of the demonetized currency was returned and six years later, the amount of cash in the economy has doubled. It takes a special kind of willful ignorance to claim this was a success.

[jeswin]

> This triggered mass adoption of phone payment apps,

I worked in the digital payments industry at that time. The sectoral growth was unprecedented during that period. Between Oct 2016 and Jan 2017, transaction value went up 40 times!

> UPI payments went from $1.5B in October 2016, to $10B the following month.

I stand corrected. The point I was trying to make was that it grew 600% that month, as opposed to 10-20% otherwise. To reach 140B today.

> Ah, the endless queues, the needless suffering, the lost jobs and destroyed lives, all made up for by the fact that the urban middle class now has the convenience of UPI!

It's not the urban middle class alone who have benefitted. People asking for handouts have UPI ids these days. $1.7T will flow through UPI over the next 12 months, even if you assume it stays at current levels. Credit cards would not have worked in India (if you leave out the wealthy), but UPI does.

> Which to repeat myself, did not require bringing the economy to a fucking standstill. And limitations on value of cash transactions aren't a new idea and predate demonetization.

The point is that transformation to a digital economy needs to be kick started. It'll take forever otherwise (if you study how various countries have done).

> Kick starting India's digital economy did not require bringing the physical economy to a fucking standstill.

a) How do you know, given that there's no precedent?

b) India still registered decent growth in 2016 and 2017. Economy wasn't in an "effing standstill".

[wtmt]

> The goal was to understand how much cash remained in the system, and to move away from a cash-based economy.

This is absolutely rewriting history. The stated goal at that time was “to remove black money”. The Reserve Bank of India knows how much cash is in the system at any point in time. That’s why we get periodic reports about it.

> It seemed more of a failure immediately afterward, but with 6 years of hindsight doesn't seem as bad.

A very badly thought out and badly executed move that resulted in about 150 people dying does seem very bad to me. The digital economy did not need such a stunt. Also, the amount of cash in circulation has more than doubled since that event in 2016.

The same attitude of “we’ll tell the people what’s good for them” repeated again during the COVID-19 pandemic with sudden lockdown announcements that left hundreds of thousands of migrant laborers without work and without a proper way to get back home (or have access to food and water).

As a private citizen, I would like others not to suffer so much because someone thinks they know better than everyone else and issues diktats that harm people.

[jeswin]

Thanks unmole for correcting these numbers. (Too late to edit now). - Nov 2022 is 140B (accurate) - Oct 2016 was 150m not 1.5B (incorrect) - Nov 2016 was 1B not 10B (incorrect)

The point still stands. UPI grew 600% in Oct-Nov 2016, and 10-20% per month afterwards - to reach 140B as of last month.

[jeswin]

Also, in India the dominant digital payments mode in 4Q 2016 was digitals wallets, not UPI. UPI was small fish, but rapidly grew to devour digital wallets (because you didn't have to preload money).

Damg, Sorry. Made a mistake again in the parent post: 150m = 15m, 1B = 100m^.

[r12343a_19]

All that suffering just so UPI payments go up?