Demonetization in India: A brief idea

                On Nov 8^th of 2016 when the whole world was waiting for the result of the USA Presidential election Indian Prime Minister Narendra Modi made a revolutionary movement by enacting a demonetization policy for India. According to the policy Indian 500 and 1000 rupees currency notes are ceased to be legal tender from the very next day.

WHY DEMONETIZATION?

              The key objectives behind the effort were to curb the black money obtained by malpractice and stop counterfeiting menace. Secondarily it was a move to control corruption, terrorism funding, usage of drugs and smuggling.

HISTORY OF DEMONETIZATION:

            This was definitely not the first demonetization in India or the world. Countries like Ghana, Nigeria, Soviet Union and North Korea has enacted the demonetization move in 90s. Government of India also many times demonetized lower value currencies and higher value currencies. Coincidentally demonetization of 10000 Indian rupees was done by the first non congress government in India by Morarji Desai led government in 1978.

SALIENT FEATURES OF THE MOVE:

•  The move was declared by PM Modi at 8:15 pm in an unscheduled television address.
•   Except for Finance Ministry and top officials of RBI no one had the knowledge about the activity. After PM Modi’s detailed address RBI declared the new 500 and 2000 rupees currency notes in a press conference.
•  places like hospitals, railway ticket counters were allowed to use the old currency notes.
• There was 50 days limit for exchange or deposit of the old currency notes.
• The move got mixed response. After the announcement most people welcomed the move. On the other hand opposition parties shook hand together against the move and wanted government to roll it back.

POSITIVE IMPACTS:

• Black money holders could not declare their money. So it kind of helped in curbing black money.
•  Unexpectedly major part of money had been declared which means it came into the mainstream and tax evasion would be reduced.
•  Illegal activities like human trafficking, Hawala operation, terrorism funding has been enormously reduced.

NEGATIVE IMPACTS:

• ·     The major disadvantages were cash shortages and long queues before banks and ATMs.
• ·        Several people have reported to have died due to the after effects.
• ·   Essential service sectors like agriculture, transportation, business and banking sectors got setback due to cash scarcity among people.
• ·     After the announcement the stock market indices dropped, GDP growth reduced and there was a drop in industrial output. But couple months later they are stabilized.

WAS GOVERMNMENT READY?

            The answer is yes and no. If we observe PM Modi led government has taken various steps for financial inclusion like opening Zero balance account under Pradhan Mantri Jan Dhan Yojana along with Rupay Debit cards, various Insurance schemes and Pension schemes. GOI has introduced Income Declaration Scheme where black money could be made white by paying higher taxes. Digital  India has also been

            On the other hand if we observe Cash shortages and Long waiting hours before ATMs and banks we can say that GOI was not prepared to fulfill peoples need(in hand cash) at the right time.

Banned 500 and 1000 notes

New 2000 rs notes

RESULTS:

            India has probably overcome the short term halts and waiting for the bigger picture. India has started to enter the new era of cashless economy.