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- On 8th November 2016, Indian Government demonetized 500 and 1000 rupee notes that were in circulation, and announced the issuance of new 500 and 2000 rupee notes.
- Time limit was set to exchange old notes with new ones. Using Aadhaar card no. as proof, govt can know how much currency was deposited or exchanged by individuals.
Why Indian government implemented demonetization move :-
- To counter black money. People who have black money cannot be able to deposit the old currency easily. So black money can be taken out of circulation. So, A good chunk of black money will be taken out of circulation strengthening India’s economy.
- To instill fear among the tax evaders that they are not inescapable if they follow illegal practices.
- This move is intended to be a big blow to the corruption, drug trafficking and smuggling, because all these activities are carried out with black money.
- Most of the fake currency will be out of the system.
- Old notes are allowed to be paid for utility bills. This will clear lots of outstanding bills, which will have positive impact on economy.
- With this move, owners of informal organisations are more likely to register their organisations to transform them into formal organisations. Because only formal organizations can deposit huge amounts of money showing legitimate proofs of their taxes and transactions. More formal organizations means more tax revenue for governments.
Initial support for the demonetization step :-
- When the move was implemented, it garnered a lot of support. This step was termed as innovative and people thought that this will pave the way towards corruption-less India.
- Supreme Court responded negatively to the petition asking for withdrawal of the demonetization move and said that the move is laudable.
- ‘Chattisgarh’ is the first state to pass notion supporting the demonetization move.
- International response to this move was positive.
Actual positive outcomes :-
- No. of digital transactions is increased to a great extent. cashless economy
- Though most of the demonetized notes returned to the system, government has the details of all transactions and hence can crackdown black money and tax evasioners. Hence demonetization is not a failure.
- It promoted tax culture.
- Due to demonetization move, many people declared their black money under ‘Voluntary Disclosure of Income Scheme’, and paid taxes for the same.
- At least 1% of the demonetized currency didn’t return to system, which means a small part of the black money is eliminated from the economy.
- Digitization of financial systems including banking has fastened due to demonetization move.
Why demonetization is a failure :-
- 99% of the demonetized currency notes returned to the government, as per RBI annual report 2017. With this report, it was revealed that the black money holders are not at much loss.
- The decision was one-sided. India is a democratic country. And every step should be implemented after considering public opinion. Democratic government shouldn’t take one-sided decisions like Monarchial governments.
- It caused a lot of inconvenience to common people. People were forced to stand in long queues at ATMs and banks as there was very low limit of withdrawal each time.
- Still there are many Indians, especially in the below poverty line section that have no bank accounts. They will have no other option, because one person could exchange old notes worth Rs.2000/- only. Remaining amount had to be deposited in the bank accounts.
- People who are in emergency situations such as medical emergencies and marriage ceremonies suffered a lot during the move.
- Cost of demonetization is more than its benefits. The expenditure for printing new notes and the costs to carry out denomination move were a burden on Indian economy.
- Most of the black money may not be in terms of physical cash.
- 85% of transactions in India are cash transactions. So It may not be the right move to force everyone towards cashless transactions all of a sudden.
- This move caused temporary loss to workers in informal sectors. Because most of them get wages per day in cash. Due to lack of physical cash, employers had to stop work for few days.
- World Bank estimated that demonetization move will reduce GDP growth from the earlier estimated 7.6% to 7% for the financial year 2016-17.
At first, demonetization move had both supporters and opposers. But when the RBI annual report was made public, a year after the demonetization move, it was clear that demonetization is a failure. It couldn’t stop black money from coming back to the system. Increase in the digital transactions does not mean that demonetization is partly successful. Acceleration of cashless economy can be done in a proper way without causing inconvenience to public.
Afterwords :- Do you think demonetization of old higher denomination currency notes was a good move? Did we miss any point? Express your opinion in the comment section below.
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