>> The real reason for this was political chest thumping.

As in many things in politics, things are not 100% this way or that way. Every political and Economical action has a "signalling" component, which in itself does not mean that "signalling" is the only component.

One needs to look at below for a counter viewpoint, if willing to hear both sides of the debate:

https://indianexpress.com/article/opinion/columns/demonetisa...

Excerpts from the above:

>> The return of cash:

Many of us felt (including the government) that of the Rs 15.8 lakh crore (or trillion) rupee notes that were demonetised, about Rs 2-3 trillion would not be returned. The assumption was that this was the minimum of black cash in the system, and since those hoarding cash would be afraid of getting caught by the tax official, they would burn the cash, rather than return it to the authorities.

What happened was that all the cash got returned, and those expecting that this would not happen, were naïve. Let me speak for myself — I am surprised, and at the same time I am impressed by the ingenuity of Indians, especially those with black money. If the only objective of demonetisation was to not get all the money back, then clearly the policy failed.

>> cash to GDP ratio

cash in fiscal year 2017/18 is 10 per cent below what it was in 2015/16 (the GDP has gone up for those wondering).

>> Tax Compliance:

I remember arguing in one of my articles that I wished all the cash was returned to the banks. Why? Because such people will be identified and will have to face the consequences of gaming the system. This is a long litigious process but major hints of the magnitude of black money involved (that was not supposed to be returned) is high. In his February 1, 2017 budget speech, Finance Minister Arun Jaitley stated the following: “After the demonetisation, the preliminary analysis of data received in respect of deposits made by people in old currency presents a revealing picture. Deposits of more than Rs 80 lakh were made in 1.48 lakh accounts with average deposit size of Rs 3.31 crores.” (Para 142).

Let us reflect on these data. Just after demonetisation, and even over the last few days, a lot of experts continue to opine that demonetisation was doomed to failure because “No one hordes black money in cash”. Just think about it — Rs 3.31 crore was approximately $5,00,000 (2017 exchange rate) and there are 1,48,000 such individuals. There are not that many Colombian drug lords who individually keep $5,00,000 in cash. In the aggregate, this cash — and it is reported to be cash — is close to Rs 5 trillion. How far is this number from the Rs 2-3 trillion that was supposed to not come back? It maybe the case that most of us made a very conservative estimate of black cash in the Indian economy.

>> tax buoyancy, that is, the ratio of growth in tax revenues and growth in nominal GDP

The fact remains that an improvement in tax compliance has been a major success story of demonetisation.

>> Withdrawal of cash from ATMs (plus paper clearing) as a proportion of all transactions (for example, RTGS, POS, IMPS) has declined by 30 per cent in volume and 17 per cent in value. The two periods are Jan-June 2016 (pre-demonetisation) and Jan-June 2018 (post-demonetisation).