5 YEARS OF DEMONETIZATION
CONTEXT
- The government under the prime ministership of Narendra Modi on November 8, 2016, had announced that the largest denomination of Rs 500 and Rs 1000 were demonetised with immediate effect ceasing to be a legal tender.
WHAT IS MEANT BY DEMONETISATION?
- Demonetisation is a method adopted by the country’s government to battle inflation and balance the value of the country’s currency by removing legal tenders.
- Once the currency note is demonetised, it cannot be used anymore.
- The removal of legal tenders in a country’s currency is a severe interference into the economy since it directly influences the medium of transaction used in any economic transactions whatsoever.
- It can assist in stabilizing some present difficulties or create chaos in the country’s economy, primarily if begun abruptly or without proper warning. Nations undertake demonetization for several reasons. The benefits and drawbacks of demonetisation are discussed explicitly.
SUCCESSES OF DEMONETIZATION: MERITS THAT FAVORED ECONOMIC GROWTH OF INDIA
- The pace of digitalization of money transaction quickened as demonetization opened the gateway for the same and we see both govt. and non govt. players in the online transaction space
- The terror rates across the border and in the other parts has definitely increased, which is evident of cut on supply of hard cash for their transactions
- The kick off for demonetization which further now has continued with denominations of Rs.100, Rs.50 and Rs.10 has made it clear to take steps against the money laundering.
- The track systems enabled will leave a mark for all the money movement and therefore has ensured the increase in the tax paying population year on year.
- The banks which were suffering shorter deposits are now overflowing with cash and therefore are ready to provide loans at a lesser rate of interest, compared to earlier rates. This has made the standard of living of a common man better.
- Even though 99% of the money has come back as deposit into accounts, the government has clear footprints of the depositors and therefore the tax evaders are at stake
- With the transparency in systems, the growth seemed quicker and the stocks started becoming bullish and the market saw a splurge in growth after demonetization
- The cost of living reduced as loans became affordable and therefore automobile sales picked, which further promoted manufacturing
FAILURES OF DEMONETIZATION: DEMERITS THAT HINDERED ECONOMIC GROWTH OF INDIA
- RBI report decaled that, 99% of the cash was deposited back into the system and therefore the govt. failed to achieve the primary objective of demonetization, to eliminate black money from the system
- India being a farmer led country, the farmers and local vendors who only deal in cash were the most to suffer, which was not the motive of the act.
- The Rs.2000 denomination released and exchanged in lieu of the old Rs.500 and Rs.1000/- notes made it very difficult to exchange it for daily needs like milk and other consumables.
- The cost of demonetization was found to be higher than its positive impact.
- Importantly, black money may not be only in cash and need not be only in India. Researching to understand the black money in cash would have helped.
- It can definitely be regarded as a highly under planned project as it has put the normal citizens at stake.
- Many a Indian citizens who did not have accounts also suffered.
- The world bank estimated that the GDP of India would reduce going ahead due to demonetization and it happened so rightly.
- The real estate, which majorly operates based on daily wages saw a complete halt due to the non-availability of money to circulate.
CONCLUSION
- Demonetisation was brought into effect with the major intend of curbing black money, containing terror funding, making a cashless economy etc. but without proper implementation and awareness among the masses which resulted in panic across economy and resulted into more cons than pros.
- Tax reforms and effective monitoring of suspicious transactions could be a viable alternative for resolving the issues that the policy-makers sought to fix through demonetisation.
- Another benefit is that digital transactions have become more common. But financial savings in the form of currency notes have also increased, which means that people still value cash. To conclude in the words of the ex-RBI governor, Raghuram Rajan, “the demonetisation is not a well-planned or well-thought-out, useful exercise”.