Demonetization Overview

Demonetization means a particular currency, ceases to be legal tender. On the 8th, November 2016, Prime Minister Narendra Modi announced in a surprise address to the nation that Rs. 500 and Rs.1000 would no longer be legal tender from midnight of the same night. The decision was taken to curtail the perils of black money and corruption. It caused and resulted in many social, political and economic effects

The Advantages of Demonetization were

  • It was the first move from Cash Economy to Digital Economy thus progressing towards a Cashless Economy. People started using more of debit and credit cards and mobile wallets instead of cash. Digitalization will, in turn, create transparency in transactions and online lending space.
  • It was a huge blow to the parallel economy creating hurdles for black money hoarders, the government has been able to track black money
  • Fake currency was eradicated out of the system for those high-value currencies
  • It placed a temporary brake on terrorist activities
  • Disclosure of income in the form of depositing money in the bank accounts led to major generation of tax revenue
  • The unaccounted money came back into the banking system thus strengthening the banks
  • It brought down the rate of inflation during the months that followed demonetization, as the prices of day-to-day consumer goods came down

Disadvantages

  • The biggest disadvantage was the inconvenience caused to the common man disrupting their day-to-day life. Long ATM queues, inadequate supply of new notes. Cash-based businesses, manufacturers and all sections of business suffered losses. The daily wage earners were badly affected. Rural India faced worse situations due to lack of banks and ATMs in their localities
  • The Economic growth slowed down, the GDP went down
  • Due to substantial cash component in the Realty market transactions, sales were hampered significantly. Though slowly it is reviving
  • The Government had to bear huge costs for destroying the old currency and printing new ones
  • Many black money hoarders had their funds invested in assets like real estate, gold and so on which could not be traced
  • It made a minor dent in corruption

With all the pros and cons of demonetization, what was criticised the most was the implementation. The implementation of any such idea is more critical in a country like India than the policy itself.  The suffering of the common man could have been minimized with better planning.

The demonetization isn’t the only measure to curb black money and corruption. Regulations that target root cause, that is, transactions leading to generation of black money and not the cash output should be made

By NSS

28th January2018