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Demonetization in India: Decision is more appreciated than criticized
On November 8, 2016, the Prime Minister of India, Shri Narendra Modi announced the demonetization of all Rs.500 and Rs. 1,000 denomination banknotes of the Mahatma Gandhi Series.
The demonetization announcement made the use of Rs.500 and Rs.1000 banknotes invalid past midnight of November 8. It was announced that the new Rs.500 and Rs.2000 banknotes of the Mahatma Gandhi new series would be introduced in exchange for the old banknotes.
The objective of demonetization as claimed by Government of India was to curtail the black money running as shadow economy and to stop the use of counterfeit cash to fund illegal activity and terrorism.
The sudden nature of the announcement—and the prolonged cash shortages in the weeks that followed—created significant disruption throughout the economy, threatening economic output. The demonetization move was heavily criticized as poorly planned and unfair, and was met with protests, litigation, and strikes.
The announcement was sudden and unscheduled. It was a live television address at 8PM on November 8, 2016.
In the days following the demonetisation, the country faced severe cash shortages with severe detrimental effects across the economy. People seeking to exchange their bank notes had to stand in lengthy queues, and several deaths were linked to the inconveniences caused due to the rush to exchange cash. As the cash shortages grew in the weeks following the move, the demonetization was heavily criticised by prominent economists and by world media.
The very next day of announcing the demonetization, the BSE Sensex and NIFTY 50 stock indices fell over 6%. The severe cash shortages brought detrimental impact on the economy. People trying to exchange their bank notes had to stand in lengthy queues causing many deaths due to inconvenience and rush.
Many Economists are of the view that Rs.2000 currency note will be much easier to hide and can be used to store black money in shorter space.
Entire opposition stood against demonetization and has called this decision a draconian law.
Demonetization Appriciated despite odds
Despite facing lot of problems post demonetization, people appreciated the move as its objective was to curb the black money, stop the use of counterfeit currency, bring more economic development avenues by reining in the black money through banking channels.
The economic growth of India is predicted at 7.6% during 2018-19 which is considered higher than Global economic growth rate.
The long term benefits of demonetization are more than perceived while the check on the terrorist activities and huge turn-out of money into banking channels prove that the move is a right decision. The demerits of demonetization are only short term and have already started fading away in a limited time period of few months.
Right decision for Indian Economy
Demonetization policy of the Government has been termed as the greatest financial reform that aims to curb the black money, corruption and counterfeit currency notes.
All the people who are not involved in malpractices welcomed the demonetization as the right move.
Demonetization will help India to become corruption-free as it will be difficult now to keep the unaccounted cash.
Demonetization will help the government to track the black money and the unaccounted cash will now flow no more and the amount collected by means of tax can be better utilized for the public welfare and development schemes.
One of the biggest achievements of demonetization has been seen in the drastic curb of terrorist activities as it has stopped the funding the terrorism which used to get a boost due to inflow of unaccounted cash and fake currency in large volume.
Money laundering will eventually come to halt as the activity can easily be tracked and the money can be seized by the authorities.
Demonetization will stop the running of parallel economy due to circulation of fake currency as the banning of Rs.500 and Rs. 1000 notes will eliminate their circulation.
The unaccounted cash was allowed to be deposited in the Pradhan Mantri Garib Kalyan Yojana after paying 50% tax. The money remains deposited for 4 years with the bank without incurring any interest. However, after 4 years the amount will be returned. This amount can be utilized for social welfare schemes and making the life of low income groups better.
The Public Sector Banks which were reeling under deposit crunch and were running short of funds have suddenly swelled with lot of money which can be used for future finances and loans after keeping a certain amount of reserve as per RBI guidelines.
The people who opened the Jan Dhan accounts can now use their accounts and become familiar with banking activitiy. The money deposited in these accounts can be used for the developmental activity of the country.
The tax collected due to launch of demonetization policy will be put to developmental activities in the country.
Demonetization has driven the country towards a cashless society. Lakhs of the people even in remote rural areas have started resorting to use the cashless transactions. The move has promoted banking activities. Now even the small transactions have started going through banking channels and the small savings have turned into a huge national asset.
Demonetization has checked the high rising price pattern and inflationary trends which the Indian economy was facing. Now the post demonetization era is making the living possible for low income groups.