Demonetisation is a generation’s unforgettable involvementand is going to be one of the monetary events of our time. Its influence isfelt via each resident as it affects the budget through liquidness state.initially, demonetisation is frequently used as a tool to cut down HyperInflation. The reason for this move is easy as the department of financeappealed that 500 and one thousand rupees are getting used to fund illegal drugincome, finance terrorism, gasoline the black market and pay bribes which areimmediately growing the corruption inside the use of a.
This so known as “blackmoney” has rapidly reached the epic proportions, so the top minister of thecountry Narendra Modi has imposed a ban on 500 and a thousand-rupee forexnotes. these ceased to be the criminal tender from November eighth 2016. peoplehave been given time to exchange the notes which had been held by them byDecember 30th 2016, From January 1st 2017 the banned notes could be invalid andit wouldn’t be accepted by any banks. Demonetisation can be stated as “surgicalstrike” on black cash, terrorism, fake currencies, unorganised trading, actualestate, etc. With this bold step Made by the Indian government the economicsystem of India had many affects and possibilities in it. Introduction:This isn’t always the first time Demonetisation took placein India, in 1978, foreign money notes of Rs.
A thousand, Rs.5000, Rs.10, 000were banned by using government. And again after 38 years on 8th November 2016government has taken considered one of the biggest steps, one of the maximummomentous decisions, “A surgical strike on black money”.
Demonetisation affected livelihood of people of the USA likeIndia where ninety% of the transaction are done in cash, unexpected eliminationof 86% coins has put burden on economy.people, who deal in black, don’t keep it in coins. or evenpeople who had coins got it recycled. So the people who suffered were low andmiddle class citizens of united states of America.
Demonetisation has severally hit the economy of peasantelegance along with farmers, labours, companies and small scale people.After 8th November, Devastation across the country iswitnessed as some distance as rural financial system is considered. there hasbeen a crash in fees. “post demonetisation, farmers in Una-Himachal Pradesh aredealing with 50% decline of their sales.” earlier than demonetisation, the charge was Rs.20/-according to kilogram, however proper after declaration, it fell to Rs.5/-“In fact, demonetisation is the third yearof drought to us” –Devender Kumar, food and agriculture policy professional.huge and small farmers alike faced large losses.
Theycouldn’t even cover their value of production because of unexpected chargefalls. And for six months, there has been no other supply of income besides ifthe farmer has taken up the employment thru MNREGA or worried any non-farminterest. usually, they may be so dependent on their crops for earnings. whilst farmer’s profits drop via 60%-70%, the effect is feltat the whole chain.as an example, this chain response may be found exactly inUna, Himachal Pradesh. From thousands of kilo potatoes rotting at bloodlessstorage plant, to the 70% drop in income at nearby, to the 50% drop inpurchases at the fruit dealer, at each level the enforced liquidity crunch hadcreated a dip in livelihood. however, the worst off are each day salarylabourers and this ‘wasn’t restricted to simply agriculture’.”Agra’s shoes industry is facing a ninety% of decline inproduction” – Indian express “70% of the hosiery factories in Ludhiana have shut down” As business has taken 50% hit.
shops had stocks piled upbecause they may be unable to promote it, new products have been now notdisplayed as there aren’t any consumers, as a result no new orders andsubsequently no work for greater than half of of the team of workers. therefore,worker’s livelihood has taken a success. Demonetisation has also created most important problems forthe half of rural populace as majority of them has no get entry to bank bills.because of lack of financial institution facilities farmers who had beendepending on casual money lenders had to face many issues due to non-availabilityof coins.on the other hand, rural populace nevertheless non-stoptraditional way of depositing money as cash correctly in their homes afteryears of collection.
This outcome in commencing of hundreds of more financialinstitution bills in rural regions. Demonetisation brought adjustments in financial system infar off areas by way of beginning and developing higher banking machine forrural areas in future. Impact on Economy:The immediate effect of demonetization on economy wouldprobably be short lived.
However, the long term effect will drive the Indianeconomy to new areas of growth in the coming times with its impact not justonly on black money, terrorism and corruption but also in improving taxcompliance, better fiscal balance and lowering inflation.Though the contraction in GDP by 0.5% cannot be ruled outdue to fall in economic activity, growth in demand will start gaining momentumonce the economy moves out of the transition stage of demonetization toremonetisation. Impact on Businesses:Demonetization drive has impacted the Indian businessesdirectly or indirectly in terms of impact on demand but the impact ofdemonetization is majorly seen on small businesses as these are highly drivenby cash transactions. The labour intensive sectors mainly agriculture andconstruction sector have been impacted since a major portion of transactionsinvolve cash for the purchase of raw materials and payment to daily wagelabourers. MSMEs sector has been impacted significantly as the sector ismajorly driven by the contractual and daily wage work force and most of themobile work force doesn’t have their bank accounts at the place of theirworking.
Impact on People:Demonetization has affected the short term consumption needsof the people basically belonging to the lower and middle class families forwhom cash is the primary mode of payment for their day to day activities. Along with this, the directimpact of demonetization drive is seen on those who live in remote areas ofcountry, having no bank accounts and no identification proofs. REAL ESTATE:Real estate sector is worst affected after demonetisation ofhigh value notes because while buying or selling property payment is majorlydone in cash. Scrapping of high denomination notes will make buyersdifficult to pay in cash hence property prices are likely to fall down. Real Estate is entangled with financialsystem of the country; any damage to this sector may cause severe damage toeconomy.Banking financial system is highly dependent on real estateand home loans, if properties prices fall down then bank may force buyers topay more EMIs. TERRORISM AND CORRUPTION:Demonetisation did not just hit black money holders but italso had major setback to terrorism and Maoist insurgency.
Terrorism across the borders produced fakecurrency of Rs.500 and Rs.1000 to fund terrorist activities in India especiallyin Kashmir region. Since the ban was introduced unrest in Kashmir came down asthere is no source left to fund to keep unrest going On the other hand, demonetisation lowers cash circulationand encourages digital transaction through mobile banking, net banking, debitcard etc.
And unearthed black money after demonetisation to be heavilytaxed along with penalties thus plenty of revenue will help to bring downfiscal deficit. For example, If the black economy is 62% of the GDP, it meanstaxes are not paid on it and if you could have brought it under tax, it couldcollect an additional 24% of GDP as tax, so you are collecting 16% of whereasyou could have collected 40%. Now if you collected that additional 24%, thatcould help in wiping out fiscal deficit of 6% and then still have 18% left,which could be used in improvement of various sectors like education, healthetc. PROSPECTS:8TH November 2016, 8:00 pm “The prime minister announced one of the most radicalpolicies in the history of modern India”8th November 2016, 8:30 pm”People involved in the ‘Black Economy’ found ways tosubvert the policy and recycle their ‘Black Wealth'”.
Most gold traders inflated their prices, 10 grams of goldwas priced Rs.50, 000 and notes were exchanged for lower value like Rs.500notes for Rs.
450 and Rs.1000 for Rs.900 in small shops etc where basically oldnotes were exchanged for new notes.
People from low economy class were given money to exchangein return of small allowances in bank queues, each of them converted Rs.4500,keeping 500 for themselves and giving rest to the people involved in BlackEconomy. This didn’t happen directly butthrough lot means of people linked.So even if they had 50 people, per day at one bank, eachconverting Rs.4000 for them, that’s Rs.2,00,000.Involvement of some bank officials and gold traders inrecycling black money was widely reported.
Demonetisation didn’t have mucheffect on black money holders because their most of undeclared wealth are inform of assets like gold, foreign currency and properties.A few days into the policy, cashless became new way and itsestimated that digital payment service alone could generate 21 million, muchneeded, new jobs and adds up to $700 billion to India’s GDP by 2025. But goingcashless seems like a risky initiative when more than half the country stilldefecates in the open, doesn’t have access to electricity nor internet.On a positive note, one’s who try to be corrupt in acashless or a less cash society can easily be trailed and caught. So it is thebeginning, one step to curb corruption. May be not completely as it’s arguedit’s just ensuring that corruption is centralised in the hands of those who canafford it.
“Therefore cashless should not be equated with control ofblack economy; it should be linked to efficiency of economy”Post demonetisation, situation in India is improving; urbanareas are brought under control where as necessary needs are being facilitatedby Rural Regional Banks (RRB) and District co-operative banks (DCB’s) in ruralareas, in a way a step towards development. Pre- demonetisation, there were many unaccounted(unorganised) activities not contributing to GDP where in post demonetisationthese activities are included contributing country’s GDP. The dedication and hard work shown by bankers and postalservice staff in rendering services during critical period after demonetisationis commendable with their working hours day and night to deal with demands.As country is moving towards cashless economy, India’s sixlakh villagers are being educated and motivated to use digital currency,unfortunately pre-demonetisation, even existing holders of plastic moneyincluding senior citizens couldn’t use them because of lack of knowledge andencouragement. Hence Demonetisation itself has created awareness andwillingness to move towards more usage of digitalised economy.As some would argue that governance is about ensuring thegreatest good for the greatest number, and in that light, it seems strange thatwhen top 1% of India owns close to 60% of the country’s total wealth andtherefore black wealth, it is the other 99% who tolerate the brunt ofdemonetisation.Some lost their livelihood,Others saw decline in their incomes, All in the name of better tomorrow,A better India.