ECONOMIC AND REGIONAL STUDIES STUDIA EKONOMICZNE I REGIONALNE DOES DEMONETISATION IN INDIA ACHIEVE ITS OBJECTIVES?

Subject and purpose of work: The demonetisation exercise in India aimed to tackle the problems of black money, fake currency, corruption, and terror funding. The drying-up of cash due to demonetisation initially led to a significant increase in digital payment methods. However, large underprivileged informal Indians still prefer cash for their daily needs. The restoration of currency in circulation and increasing cash–to–GDP ratio in the following years questioned the success of digitalisation. Demonetisation has been noted to increase the tax base, tax collection and taxpayers. But this does not compensate for the negative impacts of demonetisation on the economy. Therefore, this paper tries to answer the question whether all of the stated goals will be achieved. Materials and methods: Results: The short-term and at the same time, it wreaked havoc and harmed the economy. Conclusions: The efficiency of demonetisation as a strategy for combating black money is still up for dispute. If the government had done its homework before executing demonetisation, all of the mayhem could have been avoided. It was a badly thought-out, poorly planned, poorly implemented, and disastrously executed.


Introduction
On November 8, 2021 India marked the passing of five-years since undertaking demonetisation. On that day in 2016, currency notes of 500 and 1000 rupees ceased to be legal tender (Modi, 2016 (RBI, 2016). The percentage share of these notes was 47.8 per-cent and 38.5 per-cent, respectively. Together, these currency notes accounted for 86.3 per-cent of all currency in circulation. In India, where cash is used in nearly 98 per-cent of transactions, such an unexpected decision threw the economy into chaos. A liquidity crunch occurred as a result of this decision and created a domino effect throughout the economy (Srivastava & Bisaria, 2018). It was a bad financial situation in which there was a cash flow shortage and people were unable to obtain sufficient quantities of commonly used currency denominations. It led to a lack of currency for consumption, investment, production, and employment (Agarwal et Manju & Kalamani, 2017). People were advised to deposit their available cash in their bank accounts by 30 December 2016 and if they failed to do so, it would become illegal to keep any such old currency. Due to the cash shortage, the most active parts of the population who rely on currency to conduct their activities experienced numerous challenges. Long lines appeared in banks, and individuals struggled to pay their daily expenses, with many losing their lives. Cash is often used by daily wage employees, other labourers, small traders, and small industries who are the part of the informal economy.

Combating Black Money
One of the main goals of the demonetisation was to get rid of black money. All earnings acquired through illicit activities and otherwise legal income that is not recorded for tax purposes are referred to as 'black money'. As per the study conducted by the Indian Statistical Institute, in India, only 250 out of every 10 lakh notes in circulation (0.025 per-cent) are counterfeit, with a total worth of INR 400 crore in circulation at any given time (Chauhan, 2016). The government had believed that the action would remove at least INR 3-4 lakh crore in dirty money on its own. But what happened in reality? There are two ways to seize black money. The first is to tax it directly, while the second is to indirectly bring it into the tax net. Let's examine how demonetisation affects each of these channels.

Direct Method
Demonetisation allows the government to seize black money directly; nevertheless, one requirement was that the share of demonetised currency returned to the RBI be much less than 100 per-cent. Will demonetisation be able to achieve this, or not? According to RBI data, practically all of the invalidated money (99.35%) ended up in the banking system. Notes worth INR 15.31 lakh crore were returned from the Rs 15.41 lakh crore invalidated notes. This direct way of capturing unaccounted wealth did not work, as over 99.35 per-cent of the old currency was returned.

Indirect Method
The second one is the indirect method, by which demonetisation can be used to capture black money due to the impact on the tax base. To demonstrate this, there were two options for exchanging old money: One by,-exchanging old notes for new ones at the counter, and another by,-depositing demonetised currency in a bank account and withdrawing new cash later. In the first case, the RBI imposed severe restrictions, which set a limit on the maximum amount that may be exchanged over-the-counter at banks. In the second case, depositors would be traceable. As a result, the government may identify individuals with higherthan-average deposits and then look more thoroughly at these depositors' tax and income footprints to identify tax evaders and seize black money.
The indirect method can be examined through the time-series analysis of tax-to-GDP ratio before and after demonetisation. However, India launched the Goods and Service Tax (GST) in July 2017 as a major tax reform that varied across states both in terms of magnitude and extent. As a result, isolating the effect of demonetisation on tax receipts is difficult due to the close closeness of the two policies. Therefore, it is better to discuss the direct and indirect tax ratio to GDP separately.
Metodę pośrednią można badać przy użyciu analizy szeregów czasowych stosunku podatków do PKB przed i po demonetyzacji. W lipcu 2017 r. Indie wprowadziły podatek od towarów i usług (GST) w ramach szeroko zakrojonej reformy podatkowej, której skala i zakres różniły się w poszczególnych stanach. Reforma podatkowa i demonetyzacja nałożyły się w czasie, co utrudnia ustalenie wpływu samej demonetyzacji na wysokość wpływów z podatków. W związku z tym lepiej osobno omówiono wskaźnik relacji wpływów z podatków bezpośrednich i pośrednich do PKB.  The direct tax to GDP ratio is the proportion of a country's direct tax revenue to the size of its economy, which is measured by gross domestic product (GDP). Personal income taxes and corporate taxes are the most common types of direct taxes. The direct tax to GDP ratio from 2000-01 to 2020-21 is displayed in Figure 1. Over time, this ratio increased steadily and reached its maximum (6.3 per-cent) during 2007-08. It then fluctuated continuously with minor changes. 2016-2017 marked the financial year of demonetisation, although there was some improvement in the tax to GDP ratio in the following two years, no significant enhancement is found, and it then shows a declining trend. Surprisingly, these direct tax-to-GDP ratio levels are below the levels reached in 2007-2008. Consider the nation's indirect tax to GDP ratio, which is the ratio of indirect tax revenue to the size of its economy (GDP), shown in the

Eliminating Counterfeit Currency
Another major goal of demonetisation was to eliminate counterfeit currency from the economy. One of the key concerns was the counterfeit currency used to fund terrorism, which threatens India's social wellbeing. It poses several other problems in addition to terrorism. Inflation is one of them. The introduction of a large amount of counterfeit currency raises the amount of money in circulation, potentially leading to a surge in demand for products and services. The result of the increased demand creates scarcity of commodities, leading to an increase in the price of the goods. It may also cause currency depreciation. Other consequences of counterfeit currency include a loss of public trust, and product black marketing. All of these harm a country's economy and should be addressed immediately.
Dostępne są dwa oficjalne źródła informacji na temat sfałszowanej waluty dopuszczonej do obiegu w Indiach. Pierwszym z nich jest roczny raport RBI, reporting includes information on the number of counterfeit currency traced through the banking system, while NCRB data is based on fake Indian currency notes seized by law enforcement authorities. During the fiscal year 2015-2016, India had 90.26 billion currency notes in circulation, according to the Reserve Bank of India. During the fiscal year, just 0.63 million of the currency in circulation, or 0.0007 per-cent, was counterfeit. The value of the money in circulation in the given this year was 16.41 lakh crores. The total value of counterfeit notes was INR 29.64 crore. This equates to 0.0018 per-cent of the value of the money then in circulation.  Since demonetisation, as per RBI data (Table 2)  According to the NCRB data, the overall volume of fake currency confiscated in 2016 was 2,81,839 and climbed to 8,34,947 in 2020, with a value of INR 15.10 crore to INR 92.00 crore, respectively, during the same period. INR 2,000 banknotes contributed the most to the sum of recovered counterfeit currency in India in terms of value. Their share was 53.3 percent in 2017, rising to 61.01 per-cent in 2018 and 53.00 per-cent in 2020. Both RBI and NCRB data reveals that even after demonetisation, there exists a huge amount of fake currency notes in India and bypassing security hurdles is not that difficult for rackets. It demonstrates the inefficiency of demonetisation in eradicating counterfeit money.

Minimise Terrorism
Another goal of demonetisation was to stop money flowing to terrorist groups. Terrorist financing is a severe threat to national security and has severe economic and social consequences; hence, it is a cause for concern. The government believed that prohibiting the circulation of high-value currency would regulate the monies used in terrorist activities and, as a result, minimise terrorist activity in the country. According to a Lok Sabha reply from the Ministry of Home Affairs on March 23, 2021, between 2014 and 2020, Jammu and Kashmir alone saw 2,546 terrorist instances, with 481 security force personnel and 215 civilians killed in these attacks. The number of terrorist incidents and people killed has grown in the last five years, proving that demonetising currency had little or no effect in the fight against terrorism. Furthermore, it is not a long-term solution to the problem of terrorism, particularly foreign-funded terrorism.

Creating a Digitalised Economy
The second argument for demonetisation is that it encourages more digital transactions to establish a cashless economy. With the support of government initiatives and the RBI, India Lakh: the number 100,000 in the languages of India Lakh: występujące w językach Indii określenie liczby 100 000 CRORE: A Crore denotes ten million and is equal to 100 Lakhs in the Indian numbering system. Koti -sanskrycki liczebnik, określenie liczby 10 000 000. Jedno koti to sto lakhów.   However, the rapid expansion of UPIs and other digital payment methods is the effect of the fast growth and adoption of technology. This would not have been feasible without the country's extensive adoption of mobile internet and smartphones, which have enabled consumers and businesses to transact digitally. Of course, the demonetisation drive initiated the move to digital transactions and forced people to follow suit.

Moving towards the Cashless Economy
Five years after demonetisation, the amount of currency in circulation has increased dramatically. In recent years, cash levels have reached new highs despite the digitalisation of payments. In the current decade, the number of banknotes in circulation has quadrupled, from 5,654.9 crore pieces in 2009-10 to 11,597.7 crore pieces in 2019-20, and 12,436.7 Crore pieces as of March 31, 2021. According to RBI data, the value of notes in circulation (NIC) has increased from INR 7.99 lakh crore in 2010 to INR 28.26 Lakh crore in Szybkie upowszechnienie UPI i innych cyfrowych metod płatności jest jednak efektem dynamicznego rozwoju i popularyzacji technologii. Nie byłoby to możliwe bez powszechnego wprowadzenia w Indiach mobilnego Internetu i smartfonów, które umożliwiły konsumentom i przedsiębiorstwom dokonywanie transakcji cyfrowych. Rzecz jasna to demonetyzacja zapoczątkowała przejście na transakcje cyfrowe i niejako zmusiła obywateli Indii do tego samego.

Value (Billion Crore)
It's unclear whether India has transitioned to a cashless economy since demonetisation. The easiest way to answer this question is to look at the cash/ currency to GDP ratio. The cash-to-GDP ratio is the proportion of money in circulation to nominal GDP. The cash-to-GDP ratio has been steadily dropping from 12.3 per-cent in 2009-10 to 11.42 per-cent in 2014-15. However, in 2015-16, the year preceding demonetisation, currency in circulation accounted for 12.1 per-cent of GDP. It plummeted to 8.7 percent in 2016-17 as the banking system struggled to reintroduce cash into the system following demonetisation. This percentage has continuously risen since then, reaching 12.03 per cent in 2019-20 and 14.5 per-cent in 2020-21, the highest since independence. It is one of the highest among the world's major economies. It's also true that the current peak in the cash-to-GDP ratio reflects the recession that followed the adverse effects of Covid-19 on GDP. However, even if the GDP improves, the amount of currency in in circulation is unlikely to fall significantly because the enormous informal sector will continue to be dominated by the cash culture.

Wnioski
Podsumowując, w tym opracowaniu wykazano, że -z wyłączeniem określonych obszarów One major policy blunder was to act on the belief that an increase in digital payments will correspondingly decrease the amount of cash in circulation. That means that if it is to be effective, the transition to a cashless society must include a reduction in currency. However, cash is still moving everything around us; despite the rise of mobile payments, credit cards, and other digital payments, more cash is in circulation than ever. Around 89 per-cent of all transactions in India by volume were estimated to be cash-based in October 2020, placing India in the second rank among emerging economies, after Indonesia-and ahead of Brazil and China (Bruno et al., 2020). Both digital payments and cash in circulation are on the rise, which is a lesson for policymakers who assumed that all currency was dodgy and that digital payments would inevitably curtail the cash economy. Cash has long been the lifeblood of the enormous informal economy. Over 90 per-cent of Indian households have a monthly income of less than INR 15,000 per month. Such small incomes are largely earned and spent by these people in terms of cash and forcing them to 'go digital' makes little sense. Demonetisation had no substantial impact on this metric until 2020-21, as shown by this restoration of money in circulation to nominal GDP ratio.

Conclusions
In short, except in certain areas, demonetisation has failed to achieve its claimed key objectives.
Only minimal short-term gains have resulted from demonetisation and at the same time, it wreaked havoc and harmed the economy. The discomfort due to this exercise has far surpassed the benefits. Many studies show the same results. The efficiency of demonetisation as a strategy for combating black money is still up for debate. Of course, some people have been caught up in the fight against black money, while others have gotten away by paying hefty taxes in the form of penalty to the government, but none of these sums have come near to the government's anticipated revenue intake. If the government had done its homework before executing demonetisation, all of the mayhem could have been avoided. It was a badly thought-out, poorly planned, poorly implemented, and disastrously executed.