Model Answer

Demonetisation in November 2016 withdrew ₹500 and ₹1,000 notes, representing nearly 86% of currency value, to curb black money, counterfeiting and promote formalisation.

Major Achievements

1. Digital payments expanded rapidly. e.g: UPI processed over 241 billion transactions in FY26.
2. Bank deposits increased temporarily as withdrawn notes entered banks.
3. Financial transparency improved through greater visibility of cash deposits.
4. Tax scrutiny became easier by identifying suspicious deposits.
5. Counterfeit currency of withdrawn denominations became invalid.
6. Digital infrastructure gained momentum through greater adoption of electronic payments.

Major Limitations

1. Black money recovery remained limited, with 99.3% of withdrawn currency returning to banks.
2. Cash dependence persisted. e.g: Currency in circulation rose from ₹17.77 lakh crore in 2016 to ₹43.16 lakh crore in October 2026.
3. Informal sector disruption affected cash-dependent businesses and workers.
4. Employment losses emerged from temporary business closures and reduced activity.
5. Counterfeiting persisted as fake notes of new denominations subsequently appeared.
6. Economic disruption affected consumption, production and short-term growth.

Way Forward

1. Target black money through tax intelligence, enforcement and transparency.
2. Strengthen digital inclusion through affordable internet, cybersecurity and financial literacy.
3. Support formalisation through simpler taxation and easier credit access for MSMEs.

Demonetisation accelerated certain financial changes but did not eliminate cash dependence or black money. Sustainable formalisation requires institutional reforms rather than currency withdrawal alone.