Despite India's surprise ban on high-value currency notes last year, almost all the money has made its way back into the nation's banking system. Analysts describe the attempted crackdown on illegal wealth as a disaster.
On November 8 last year, Prime Minister Narendra Modi's government gave Indians a shock in the form of its controversial demonetization announcement, which was aimed at flushing out illegally-obtained money or "black money" lying with the wealthy.
In a drastic move, Modi withdrew all 500- and 1,000-rupee notes from circulation, leading to a cash crunch in Asia's third-biggest economy.
The cancelation of a whopping 86 percent of the country's currency that was in circulation caused huge disruption to everyone's lives, including over 100 deaths claimed to be owing to exhaustion after standing for long hours in serpentine queues outside banks and ATMs to replace their rupee notes or make small withdrawals.
A costly risk?
The stated objective of this mammoth exercise was premised on the three-fold promise of eliminating black money, fake currency and terror financing. Unfortunately, the fallout was that it targeted the poor and the middle classes who dealt in cash for most of their day-to-day transactions.
Modi withdrew all 500- and 1,000-rupee notes from circulation last November, leading to a cash crunch in Asia's third-biggest economy
The Reserve Bank of India (RBI), the country's central bank, recently revealed in its annual report that nearly all of the demonetized currency had returned to the system, thus puncturing the celebratory mood that followed last year's decision.
Currency worth 15.28 trillion rupees (around €203 billion) had been deposited in banks up to June 30 this year, according to the RBI. This actually meant that either there was no significant black money in cash or hoarders found a way to legitimize most of their ill-gotten cash.
After the publication of the RBI report, the reactions were fast and frenetic as many economists and experts questioned the efficacy of the Modi administration's currency move.
The criticism was compounded by the fact that there were no estimates of how much black money was held in the form of cash, despite a widely-held perception that people tended to hold about 5 percent of their black money in cash.
"This is clearly a colossal failure of policy, whatever spin the government might want to give it. The obvious fallout of this monetary vandalism inflicted on the nation last November is a dip in industrial growth, bank lending and employment generation," says economic analyst M K Venu.
Former RBI Governor Raghuram Rajan revealed in his latest book "I do what I do" that he did not favor demonetization. "I was asked by the government in February 2016 for my view on demonetization, which I gave orally. Although there might be long-term benefits, I felt the likely short-term economic costs would outweigh them," Rajan wrote.
What was further embarrassing for the government was that the RBI ended up spending over 300 billion rupees (€3.9 billion) on the printing of new currency and managing of other logistics of demonetization.
Opposition parties were quick to jump on the RBI disclosure, terming the demonetization move "anti-national" and a "colossal disaster." Rahul Gandhi, the Congress party's vice president, maintained the exercise was a colossal failure which cost innocent lives and ruined the economy.
Realizing the blowback from its move and that most of the cash had returned, the government gave a different spin stating that the exercise was not just aimed at unearthing unaccounted wealth but also about getting more number of people under the tax net, improving digitization and curbing terrorist financing.
"The real object of demonetization was formalization, attack on black money, less cash currency, bigger tax base, digitization, a blow to terrorism," said Finance Minister Arun Jaitley. "And we do believe that in each of these areas, the effect of demonetization has been extremely positive," he added in a recent press conference.
However, with a slowdown emerging in sectors like real estate and finance, many conclude that the decline in economic momentum is linked to demonetization. They say the exercise weakened consumer spending and discouraged businesses from making new investments. India's economic expansion has slowed over the past several months, with the nation's GDP growth tumbling to 5.7 percent in the April-June quarter - its slowest pace since the January-March quarter in 2014.
The effect of demonetization is still felt it many areas such as farming, the informal retail sector and by thousands of tiny tradesmen in smaller towns. Three months back, angry farm protests broke out in the states of Maharashtra and Madhya Pradesh, claiming several lives. The problem of liquidity remains and many still want to use cash to conduct their transactions.