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Economic effects of the decision to discontinue the use of INR 2000 Notes

March 1, 2024

Approximately 89% of the Rs 2,000 banknotes were printed before March 2017 and are nearing the end of their anticipated life of 4-5 years.

The total amount of these banknotes in circulation has decreased from Rs 6.73 lakh crore, which represented 37.3% of notes in circulation as of March 31, 2018, to Rs 3.62 lakh crore, which represented only 10.8% of notes in circulation on March 31, 2023.

It’s impact:

  • Due to the swift digitalization of the country’s payment ecosystem, market analysts believe that this time the decision won’t have an effect on the economy and markets.
  • Kranthi Bathini, Equity Strategist, WealthMills Securities said: “The move will not impact the market and economy because the circulation of currency is already less. At the same time, the digitalisation payment system is also very strong in the country.”
  • Karthik Srinivasan, Senior Vice President Financial Sector Ratings, ICRA, “As witnessed during demonetisation, we expect the deposit accretion of banks could improve marginally in near term. This will ease the pressure on deposit rate hikes and could also result in moderation in short-term interest rates.”
  • G Chokkalingam, Founder, Equinomics Research and Advisory said: “It is a brilliant move. Now mostly it is with banks and some quantity maybe with black money hoarders. People with black money will be cornered as the public or common man would hesitate to accept it. This move ultimately would reduce the quantum of black money and help tax collections to improve. Hence, it is a positive development for markets.”
  • The removal of the 2000-rupee notes may cause short-term difficulties for small businesses and cash-dependent industries like agriculture and construction, according to Yuvika Singhal, economist at QuantEco Research.
  • According to Singhal, if people holding 2000-rupee notes decide to spend them rather than deposit them in bank accounts, discretionary spending may increase, especially in areas like buying gold.
  • The return of all the 2000-rupee notes to the banking system, according to Madhavi Arora, an economist at Emkay Global Financial Services, would result in a decrease in the amount of cash in circulation. It is anticipated that this decrease in cash flow will increase liquidity within the banking system.