The Reserve Bank of India (RBI) announced on May 19 the unexpected withdrawal of Rs. 2,000 currency notes from circulation. Under its “Clean Notes Policy,” the RBI announced the withdrawal of Rs. 2,000 notes from circulation. The notes will still be accepted as legal tender to pay with the 2000-rupee note. However, as of September 30, 2023, the RBI has asked that people deposit or exchange these currencies. The RBI has instructed banks to stop issuing notes of Rs. 2,000.
The RBI introduced the Rs. 2,000 notes following the demonetisation of the Rs. 500 and Rs. 1,000 notes on November 8, 2016. It has been around since November 10, 2016. The introduction of the Rs. 2,000 denomination banknotes were made under Section 24 (1) of the RBI Act, 1934, to immediately meet the country’s currency needs following the removal of the legal tender status of all Rs. 500 and Rs. 1,000 banknotes in use at the time. This was done to quickly address the economy’s cash needs. Once banknotes in other denominations were widely accessible in sufficient numbers, the goal of issuing Rs. 2,000 banknotes were achieved. So, in 2018–19, production of Rs. 2,000 banknotes were stopped.
According to the data by the RBI, the total amount of Rs. 2,000 notes in circulation declined to 10.8 per cent of the total as of March 31, 2023, approximately 89 per cent of the Rs. 2,000 denomination banknotes were issued before March 2017 and now reached the end of their estimated lifespan of 4 to 5 years, it added. From a peak of Rs. 6.73 lakh Crore on March 31, 2018, which represented 37.3 per cent of all notes in circulation, to Rs. 3.62 lakh Crore on March 31, 2023, only 10.8 per cent of notes in circulation, the total value of these banknotes has decreased. The RBI states that this denomination is not commonly used for transactions.
Opposition leaders slammed the government after the RBI announced the withdrawal of Rs. 2,000 currency notes from circulation. Congress President Mallikarjun Kharge asked if the second demonetisation is an effort to cover up the wrong decision made earlier.
The scrapping of the Rs. 2,000 notes is yet another proof that the Modi government put in zero thought before taking the fateful decision of November 8, 2016, that caused widespread suffering among the poor and middle classes, Congress General Secretary K. C. Venugopal tweeted. Some have even claimed that the withdrawal was done to cover up the recent failure of the ruling party in the Karnataka election.
The withdrawal is in contrasts with the unexpected demonetisation incident that happened in November 2016 and which saw the old Rs. 500 and Rs. 1,000 notes become invalid overnight. This decision was the third of its kind; the first two, made on January 12, 1946, and January 16, 1978, both had some degree of success. The Indian Government made an effort to increase the size of the official sector of the market while also removing black money from the country’s capital circulation.
The decision to withdraw Rs. 500 and Rs. 1,000 notes disrupted several businesses in industries ranging from construction to agriculture. However, the Government took a number of measures to combat corruption, terrorism funding and black money and broaden the tax base and increase tax revenues. It can be observed that one had many beneficial effects, including the digitisation of transactions, a decline in terror activity etc. On the other hand, several negative impacts were observed, including a decline in GDP, significant private-sector layoffs etc. Demonetisation has reduced market liquidity and cash flow.
The Prime Minister himself announced the decision to demonetise the currency notes of Rs. 1000 and Rs. 500, valued at Rs. 15.44 trillion and accounting for 86.9 per cent of the total currency in circulation. “The two currencies will be just worthless piece of paper with immediate effect,” Prime Minister Narendra Modi said to the nation on November 8, 2016.
While the abrupt withdrawal of the Rs. 500 and Rs. 1,000 notes had an adverse effect on people from all walks of life, the decision to withdraw the Rs. 2,000 notes won’t immediately have a negative impact on citizens because they will have time to replace them.