On November 8, 2016, Prime Minister Narendra Modi announced in a televised address to the nation that he was withdrawing all 500- and 1,000-rupee banknotes from circulation at midnight.
The surprise move invalidated 86.9% of the value of currency in circulation in a single stroke.
Modi asked Indians to make a “grand sacrifice for cleansing our country.”
He promised that the hardship would help eliminate black money, corruption, counterfeit currency and terrorist financing. The exercise was presented as a major step towards a cleaner and more transparent economy.
The cost to the informal economy
Millions of Indians rushed to banks to exchange their savings. Long queues formed outside banks and ATMs, with people waiting for hours, sometimes without knowing when they would get their money.
Workers missed wages, small businesses struggled to pay employees and families found it difficult to buy everyday essentials. Reports of people dying during the cash crisis added to the distress.
“I still remember my domestic help’s father,” businessman Prakash Patra from Jaipur city told DW. “He panicked, collapsed, and passed away right there, standing in a long queue just trying to exchange his family’s life savings. It wasn’t just cash that was lost in those lines. It was human lives.”
For India’s most vulnerable, particularly rural women and people without bank accounts, the sudden cash shortage made savings difficult to access. Money set aside for family weddings, medical emergencies and basic survival was suddenly compromised.
Joe Athialy, executive director of the New Delhi-based Center for Financial Accountability, a financial watchdog, says the impact fell disproportionately on the poor and the informal economy.
“Demonetization destroyed livelihoods, disrupted small businesses and pushed millions into deeper economic insecurity. The poor and those dependent on the informal sector bore the greatest cost,” Athialy told DW.
Arun Kumar, former professor of economics at Jawaharlal Nehru University and author of “The Black Economy in India,” shared a similar assessment. The government wrongly assumed that illicit wealth was primarily held in cash, he said.
“And it penalized the cash-dependent informal sector while leaving the real engines of the black economy untouched,” Kumar told DW.
Did it solve the black money problem?
The first major setback came in 2018, when the Reserve Bank of India (RBI) reported that 99.3% of the demonetized currency had returned to the banking system.
Only a small fraction of the withdrawn money had failed to come back, undermining the expectation that large amounts of undeclared cash would be extinguished.
A decade later, there is little evidence that demonetization made a significant dent in black money or corruption. Economists have long pointed out that much illicit wealth in India is held in property, gold and other assets rather than cash.
Some supporters of the policy argued that forcing cash into the banking system would help formalize the economy and widen the tax base. But the extent to which these changes could be attributed to the currency withdrawal remains contested.
Lekha Chakraborty, a professor at the National Institute of Public Finance and Policy, said research after the exercise pointed to limited success in achieving its stated objectives.
She draws on studies that examined both the immediate economic shock and its longer-term effects.
“The research points to modest gains against demonetization’s primary objectives, alongside temporary but real economic costs. The impact was particularly severe in the informal sector, where cash remains central to everyday transactions,” Chakraborty told DW.
“The economic shock was real, even if much of it faded over time. But there is little to suggest that demonetization produced a lasting change in the way black wealth is generated or concealed.”
Athialy argues that the policy was based on a flawed understanding of how illicit wealth is held in India.
“Cash is only an insignificant part of the black economy. Much of India’s unaccounted wealth is held in assets such as real estate and in tax havens, not currency,” he said.
He also questions the absence of accountability for the disruption and its institutional consequences.
“Nobody has been held accountable for the economic disruption or the undermining of institutions such as the RBI.”
Boost to digital payments
Digital payments have expanded rapidly since 2016. The Unified Payments Interface (UPI), launched in August that year, has become a major part of India’s retail payment system today.
In 2025-26, UPI processed 241.6 billion transactions, worth 314.2 trillion rupees (approximately €2.95 trillion), according to the RBI.
Yet the growth of digital payments has not reduced the amount of physical currency in circulation.
RBI data show that the value of banknotes in circulation stood at 43.15 trillion rupees (about €405 billion) on October 23, 2026, compared with 17.97 trillion rupees (€169 billion) in November 2016.
The figures show that Indians are increasingly using digital platforms for everyday payments, but cash remains firmly in circulation.
Chakraborty cautions against attributing the growth of digital payments to demonetization. “Digital payments largely continued a trend that was already under way before the currency ban,” she said.
A decade after the unprecedented move, the gap between the government’s promises and what demonetization ultimately delivered remains central to its legacy.
