DEMONETISATION 2016: AN ANALYTICAL STUDY OF POLICY PROCESS, ECONOMIC IMPACT, LEGAL VALIDITY, AND FAILURE FACTORS
AUTHOR – ATHARVA ASHOK KAPSE, 2ND YEAR BA LLB STUDENT AT KES JP LAW COLLEGE MUMBAI
BEST CITATION – ATHARVA ASHOK KAPSE, DEMONETISATION 2016: AN ANALYTICAL STUDY OF POLICY PROCESS, ECONOMIC IMPACT, LEGAL VALIDITY, AND FAILURE FACTORS, INDIAN JOURNAL OF LEGAL REVIEW (IJLR), 6 (6) OF 2026, PG. 829-840, APIS – 3920 – 0001 & ISSN – 2583-2344. DOI – https://doi.org/10.65393/IJLRV6I6487
ABSTRACT
Demonetisation in India in 2016 refers to the decision of the Government, led by Narendra Modi, to withdraw ₹500 and ₹1000 currency notes from legal tender on 8 November 2016. These notes constituted nearly 86% of the total currency in circulation. The policy was introduced with the objectives of eliminating black money, controlling fake currency, curbing terror funding, and promoting a transition towards a digital economy.
This study examines the entire process of demonetisation, including its background, secret planning, and implementation. It analyses how the decision was taken within a limited time frame, the role of the Reserve Bank of India, and the challenges faced during execution, such as cash shortages, lack of infrastructure readiness, and public hardship. The study also considers the legal dimension of the policy, particularly the judgment of the Supreme Court of India in Vivek Narayan Sharma v. Union of India (2023), where the policy was upheld by a majority, while dissenting views raised important concerns regarding procedural validity and institutional roles.
Further, the research evaluates the outcomes of demonetisation in comparison to its objectives. It highlights that although there was significant growth in digital payments and improved financial tracking, the core objective of eliminating black money was not fully achieved, as approximately 99% of the currency returned to the banking system according to the Reserve Bank of India. The study also identifies key reasons for failure, including inadequate planning, loopholes in implementation, misuse of banking channels by powerful individuals, and the disproportionate burden placed on the common and middle-class population, particularly small businesses and cash-dependent sectors.