On 8 November 2016, the Government of India announced the demonetisation of all ₹500 and ₹1000 banknotes of the Mahatma Gandhi Series. 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. 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.
Indian Prime Minister Narendra Modi announced the demonetisation in an unscheduled live televised address at 20:00 Indian Standard Time (IST) on 8 November. In the announcement, Modi declared that use of all ₹500 and ₹1000 banknotes of the Mahatma Gandhi Series would be invalid past midnight, and announced the issuance of new ₹500 and ₹2000 banknotes of the Mahatma Gandhi New Series in exchange for the old banknotes.
The BSE SENSEX and NIFTY 50 stock indices fell over 6% on the day after the announcement. In the days following the demonetisation, the country faced severe cash shortages with severe detrimental effects across the economy. People seeking to exchange their bank notes had to stand in lengthy queues, and several deaths were linked to the rush to exchange cash.
Initially, the move received support from several bankers as well as from some international commentators. The move has also been criticised as poorly planned and unfair and was met with protests, litigation, and strikes against the government in several places across India. Debates also took place concerning the move in both houses of parliament. The move reduced the country’s industrial production and its GDP growth rate.
By the end of August 2017, 99% of the banned currency had been deposited in banks: only approximately ₹14,000 crore of the total demonetised currency had been discarded, leading analysts to state that the effort had failed to remove black money from the economy. In June 2018, Reuters reported that all the farmers they had spoken to in Uttar Pradesh and Madhya Pradesh said that demonetization had made things worse for them. (Excerpt from Wikipedia)
Demonetization shook the country upside-down. Watch how a bold move in the Indian economy changed the lives of millions.