While the GST could prove to be the game-changer, the effects of demonetization in November 2016 is beginning to be felt. The first fiscal of 2017-18 has taken the pounding. It will take time for economists to figure out whether the fall in the growth rate to 5.7 per cent is the result of the disruption caused by demonetisation and the Goods and Services Tax (GST), but most common people will see a connection between the two steps and a slowing down of the economy.

Demonetised currency finds its way back into the system — but can we still call it a success?

• Demonetisation policy failed to purge black money from the market, but analysts still view it as a success.

• Prime Minister Narendra Modi's BJP party saw a resounding electoral win in March, following implementation.

• The programme has improved tax returns and encourages digital payments, figures suggest.

November 2016 changed many things for India and Indians. Suddenly, overnight, people found themselves cashless and helpless. The government by declaring that two big currency of Rs 1000 and Rs 500 as invalid caught the nation unawares. A year later the repercussions are still being felt what with the economy taking a downward turn. India's demonetised currency may have found its way back into the system, but analysts suggest that far from tarnishing Prime Minister Narendra Modi's image, the strategy will ultimately be viewed as a success.

It’s important to remember that the demonetisation move was intended more as a political move than as an economic one. The drama of demonetisation allowed Prime Minister Narendra Modi to demonstrate in a very visible way his commitment to fighting corruption and black money.

With this unexpected shock-and-awe announcement, Modi tried to fulfill a declared campaign objective to fight “black money” or to put it another way, cash made from tax evasion, crime, and corruption. The prime minister declared that his announcement would not only rid the nation of black money, it would render worthless the counterfeit notes that were reportedly printed by Pakistan to fuel terrorism against India.

The initial stunned reaction was followed by a panicky scramble to unload the expiring notes: the very night of the announcement, people rushed to petrol pumps to fill up their tanks, jewelers tripled their sales, and loans were hastily returned. There were unexpected consequences too: housewives who had salted away their savings in biscuit tins for a rainy day found their years of thrift would soon be worthless. In most cases, even their husbands had not known how much their wives had saved.

But within days the real result of the Modi announcement became apparent— the severe disruption of normal economic activity. Inept implementation made a mockery of the initial shock-and-awe. Not nearly enough new currency had been printed before the announcement (some estimates were that only 4 percent of replacement currency was printed), so banks did not even have a fraction of the money needed to meet consumer demand for new notes. Long queues snaked in, outside and around banks, foreign exchange counters (including at the international airport), and ATMs to change the old notes and withdraw new ones.

But the ATMs were largely empty since the new notes had been made in a different size from the old ones and did not fit the existing ATMs. This needed re-calibration, a process that took tens of thousands of engineers several months to complete. The Government had not thought of making the new notes the same size as the old to avoid this obvious problem.

Unfortunately, there is no evidence that any of the declared objectives of the scheme will be attained. In a largely cash-fueled economy, all cash is not “black money” and all black money is not cash. In fact, most of India’s black money has been invested in real estate and other forms of property, gold and jewellery, investments in property abroad, and “round-tripping” that has seen the money return to India’s stock market as “foreign investment” via countries like Mauritius. The Modi move, therefore, touches only a small proportion of black money assets.

Worse, the government had hoped that the sudden move would eliminate a large portion of the black money holdings altogether from the government’s liabilities since it was assumed that many hoarders would destroy their money rather than attract the attention of the taxman by declaring it. Various agencies of the government had initially estimated that around 25 to 35 percent of the demonetized banknotes would not be deposited by the stipulated dates. On November 23rd, 2016, the Attorney General of India told the Supreme Court of India that the government expected that notes worth four to five lakh crores (some $800 billion) would be rendered worthless by not being deposited

But the story unfolded somewhat different: the annual report from the Reserve Bank of India (RBI), the country’s central bank, found that a total of 15.28 trillion rupees ($239 billion) worth of cancelled high-value notes were deposited or exchanged for new money in the 10 months since the strategy was implemented

just one percent shy of the number in circulation before the plans came in.

The results suggest a damning failure for Modi and his flagship policy. In November last year, Modi announced the radical step to demonetize the currency notes in order to tackle the rampant problem of the so-called black money – billions of dollars’ worth of cash in unaccounted wealth and fake currency notes. The government decided to introduce a new 500 rupee note and also introduce a higher denomination banknote of 2,000 rupees. Opponents hit out at Modi and accused him of damaging the economy and tarnishing the country's credibility at home and abroad. First quarter gross domestic product (GDP) data released marked a three-year-low of 5.7 percent, versus 7.9 percent the year before. The RBI had to spend 79.65 billion rupees on quickly printing updated replacements for the 500 rupee ($7) and 1,000 rupee notes which were abruptly banned at midnight on November 8 last year, according to the central bank's annual report.

Meanwhile, cash-dependent small businesses and poorer citizens – those Modi had claimed to be helping – have been badly hurt by note-shortages this year.

Prior to the data release, it was unclear how successful Modi's policy had been, and as such his political motives were enough to win him favor with India’s vast segment of poorer voters at the polls. His Bharatiya Janata Party (BJP) won overwhelming support in March 2017 elections in Uttar Pradesh, India most populous and one of its poorest states.

“If the government had not spent an incredible amount of energy on demonetisation it may -- may, because it had not done anything the previous six months either -- have been able to pay attention to the deeper problems of low investment and job creation,” says Dr C Rammanohar Reddy, the economist who edited the Economic and Political Weekly for 12 years, and is the author of the widely acclaimed book, Demonetisation and Black Money.

The government and its supporters can argue that even if demonetization failed to remove black money from circulation, that at least Modi and the government tried to do something about it.

But politics aside, analysts claim that the economic benefits will emerge over time.

The demonetisation campaign clearly contributed to the economic slowdown, reflected in poor GDP figures in April-June. In hindsight, this can be deemed a failure from an economic point of view. Still, assuming that demonetisation is complemented by efforts to enhance tax compliance, then some success can be salvaged and lead to higher government revenue.

As a result of demonetization, and in tandem with Modi's 'Digital India' strategy, which aims to expand India's online infrastructure, the country now sits on a treasure trove of data. The government has been gradually making enrolment to its national electronic database 'Aadhaar' mandatory for tax returns, the opening of bank accounts and any purchases above 50,000 rupees. It is estimated that over 99 percent of Indians aged 18 and above are now enrolled in the scheme.

This means that the government can expect to see the benefits of taxation on previously hidden black money over the coming months and years.

India's finance ministry says it is probing 1.8 million bank accounts where cash inflows during the demonetization period "did not appear in line with its tax profile," meaning it can expect some belated tax payments.

There are also long-term benefits from demonetization in terms of increasing income tax payments going forward and encouraging the use of digital payments over cash, a means of encouraging better tax compliance among businesses.

However, whether it is a model to be replicated by other countries struggling to combat corruption and illicit money is not yet clear.

The initial economic fallout may be too much for other economies to stomach. On balance, governments abroad are unlikely to replicate India's experiment given the economic fallout. Traditionally, other governments have only embarked on demonetization schemes in times of extreme need, such as hyperinflation, political upheaval and wars.