On 8 November 2016, the goverment of India announced the demonetisation of all Rs.500(US$7.80) and Rs.1,000(US$16) banknotes of the Mahatma Gandhi Series.
The goverment 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.
Prime Minister of India Narendra Modi announced the demonetisation in an unscheduled live television address at 20:00 Indian Standard time (IST) on 8 November. In the announcement, Modi declared that use all Rs.500 and Rs.1,000 banknotes of the Mahatma Gandhi series would be invalid past midnight, and announced the issuance of new series in exchange for the old banknotes. The BSE SENSEX and NIFTY 50 stock indices fell over 6 percent on the day after the announcement.
In the days following the demonitisation, the country faced severe cash shortages with severe detrimental effects acreoss the economy. People seeking to exchange their bank notes had to stand in lengthy queues, and several deaths were linked due 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 goverment in several places across India. Debates also took place concerning the move in both houses of parliament. The move is considered to have reduced the country's GDP and industrial production.
Chaos ensued in the cash Dependent economy (some 78% of all Indian customer transaction are in cash), as long, snaking lines formed outside ATMs and banks, which had to shut down for a day. The new rupee notes have different specifications, including size and thikness,requiring recalibration of ATMs: only 60% of the country's 200,000 ATMs were operational. Even those disprnsing bills of lower denominations faced shortages. The goverment's restriction on daily withdrawal amounts added to the misery, through a waiver on transaction fees did help a bit.