Palaniappan Chidambaram, who has been finance minister four times between 1996 and 2014 , said the demonetisation exercise was the “worst example of incompetent policy-making”.

2. The report confirms what many of us had said — demonetisation was the worst example of incompetent policy-making.

 

— P. Chidambaram (@PChidambaram_IN) September 3, 2017

This was despite an annual report from the Reserve Bank of India at the end of last month showing an estimated 99% of the bank notes - 15.28 trillion rupees ($238.7bn) – had come out of circulation, mainly by being deposited at banks or being exchanged for new currency.

Chidambaram said the withdrawal of the notes – which were the highest available denominations and used regularly in India – in a bid to combat corruption had “failed miserably”.

3. So, the main objective of forcing people with black money to suffer losses has failed miserably.

— P. Chidambaram (@PChidambaram_IN) September 3, 2017

He believed this was because it had caused hardship to Indian citizens and the economy without any proof it had been a success. 

Chidambaram wrote, in a column for the Indian Express: “Fake currency has surfaced, terrorist activity has not abated and black money continues to be generated and used.”

In the article, he rebuked the government’s claims on the successes of the demonetisation, saying printing less currency had created an ‘artificial shortage’, the tax that will be recouped could be much less than suggested and there was no evidence activities such as terrorism had been stopped. 

The former finance minister pointed out the negative effect on the economy. 

“Since demonetisation, quarterly growth (and hence annual growth) has settled at between 6 and 7%,” he said. “Is that not a catastrophic blow to the economy?”

Consumer spending and exports slowed and India’s economic growth hit a three-year low of 5.7% in the June quarter, compared to 6.1% the January-March period.

But the joint commissioner of income tax Ravi Kant Gupta, speaking to Public Finance International, defended the move.

“Even if we say cash is not the major mode in which black money is kept, it is still the main mode of exchange that creates black money. 

“Demonetisation meant that all such illegal cash had to be ultimately brought to banks for deposits or exchange, creating huge data points for investigating suspicious transitions.”

Prime minister Narendra Modi made the surprise announcement on television on 8 November last year that the demonetisation of the high denomination notes would begin from midnight that night.

He and his Bharatiya Janata party had hoped the move would help rid the country of black market cash. 

‘Black money’ is cash earned, kept and exchanged out of sight of the authorities and might be untaxed, earned from corruption of used for terrorist financing.

Modi’s finance minister Arun Jaitley also said the government had hoped it would encourage more people in India to open bank accounts, cut down terrorist’s access to cash and increase electronic transactions. India has a cash-based economy.

Finance minister Arun Jaitley reportedly admitted last week that some ‘black money’ had come back into the banking system. But he explained tax officials were combing through 1.8m bank accounts to identify and tax it.

“We are now involved in a large amount of data mining and a large number of people are being questioned” he said. Adding: “The fact that money has got into the banking system does not mean that it is all now legitimate.”

Citizens were able to deposit the notes – called “worthless” by Modi in November last year - at banks or post offices until the end of last year.

During that time 148,000 bank accounts received deposits of more than $120,000.