Introduction to
Demonetization
Demonetization happed on 8th November,
2016 when the Indian Government declared that the Rs.500/- and Rs.1000/-
currency notes were not longer legal tenders. The move was sudden which stunned
the Indian Economy where there is a parallel cash economy operating at all
times. It is estimated that 86% of the currency was pulled out of Circulation.
The Government claimed that this was a necessary step to curb Black money and
rampant counterfeit currency which was used to fund illegal and dangerous
activities like terrorism. The suddenness of the scheme had huge side effects.
Impact
of Demonetization on Indian Economy
Economy. It largely did not deliver its promises. No fruitful gain was observed
for the Indian Economy. Demonetization adversely affected small operations and
businesses so much so that many of the businesses were not able to recover and
were forced to shut down. The entire operation and implementation was extremely
ill timed and planned.
People lost work
hours because they were forced to stand in long ques outside banks to either exchange the old currency that
they had or procure new currency. 86% of the cash currency was pulled out of
the system resulting in the industry to come to a grinding halt. There was a
sudden dip in GDP of the country. Many economists claimed that it will take
at least 2 years for the economy of the country to recover. The Government was not prepared to tackle the
situation.
The new currency was way short in supply as compared to the demand.
The cost of withdrawal of the currency and printing and issue of new currency was
greater than the benefits claimed. The Government has till date not quantified
or published data for the benefit of the public to clarify the benefits derived
from demonetization.
Advantages of Demonetization
Advantages of Demonetization ‘claimed’ have been removal
of black money and breaking the back of Terrorist and illegal activities in
India. There is no substantial proof of this being achieved by Demonetization.
However, the citizens of the country have moved towards cashless economy.
During the initial period inflation rate went down with the prices of
commodities declining.
Banking operations have become stronger, their lending
portfolio has increased from MSME’s and small businesses. People are better equipped
with handling virtual money instead of paper currency. Also, the month of
November, 2016 saw maximum collections by the Government, Municipal and Civil
bodies in terms over due and advance taxes and utility bills. Example: The
Greater Hyderabad Municipal Corporation reported collecting about 160 crores in
cash payments of outstanding and advance taxes, within first four days of
demonetization.
Down side of Demonetization
There was a definite slow down of the economy. Many
sectors were hit hard like real estate and automobile. Agriculture sector was
worst hit because it is 80% cash based. Resentment was there because of the
poor planning and implementation.
According to RBI 99.3% of the
currency which was in the market came back into the banking system which is
interpreted as either there was very little black money in the market or the
entire exercise was futile as all the black money has been laundered and is
back into the system. Many are also of the view that the newly introduced Rs.2000/-
currency note will increase the presence of black money because of ease of
storage and hoarding.
Conclusion
According to the Industry
Professionals, Demonetization was a step that should have been avoided since it
had negative impact on the Indian Economy and did not reap any substantial
benefits.
