WHAT IS
DEMONETISATION?
On 8 November 2016, the Government of India announced the demonetisation of all ₹500 (US$7.40) and ₹1,000 (US$15) banknotes of the Mahatma Gandhi Series on the recommendation of the Reserve Bank of India (RBI).[2] The government claimed that the action would curtail the shadow economy and crack down on the use of illicit and counterfeit cash to fund illegal activity and terrorism.[3][4] The sudden nature of the announcement—and the prolonged cash shortages in the weeks that followed—created significant disruption throughout the economy, threatening economic output.[5][6] The move was heavily criticized as poorly planned and unfair, and was met with protests, litigation, and strikes.
Prime Minister of India Narendra Modi announced the demonetisation in an unscheduled live televised address at 20:00 Indian Standard Time (IST) on 8 November.[7][8] In the announcement, Modi declared that use of all ₹500 and ₹1,000 banknotes of the Mahatma Gandhi Series would be invalid past midnight, and announced the issuance of new ₹500 and ₹2,000 banknotes of the Mahatma Gandhi New Series in exchange for the old banknotes.
In the days following the demonetisation, the country faced severe cash shortages with severe detrimental effects on a number of small businesses, agriculture, and transportation.[9][10] People seeking to exchange their notes had to stand in lengthy queues, and several deaths were linked to the inconveniences caused due to the rush to exchange cash.[11][12] Also, following the announcement, the BSE SENSEX and NIFTY 50 stock indices fell over 6 percent in the day following the announcement.[13]
Initially, the move received support from several bankers as well as from some international commentators. It was heavily criticised by members of the opposition parties, leading to debates in both houses of parliament and triggering organised protests against the government in several places across India.[14][15][16] The move is considered to have reduced the country's GDP and industrial production. As the cash shortages grew in the weeks following the move, the demonetization was heavily criticised by prominent economists and by world media.
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