Demonetisation is a generation’s unforgettable involvement
and is going to be one of the monetary events of our time. Its influence is
felt via each resident as it affects the budget through liquidness state.
initially, demonetisation is frequently used as a tool to cut down Hyper
Inflation. The reason for this move is easy as the department of finance
appealed that 500 and one thousand rupees are getting used to fund illegal drug
income, finance terrorism, gasoline the black market and pay bribes which are
immediately growing the corruption inside the use of a. This so known as “black
money” has rapidly reached the epic proportions, so the top minister of the
country Narendra Modi has imposed a ban on 500 and a thousand-rupee forex
notes. these ceased to be the criminal tender from November eighth 2016. people
have been given time to exchange the notes which had been held by them by
December 30th 2016, From January 1st 2017 the banned notes could be invalid and
it wouldn’t be accepted by any banks. Demonetisation can be stated as “surgical
strike” on black cash, terrorism, fake currencies, unorganised trading, actual
estate, etc. With this bold step Made by the Indian government the economic
system of India had many affects and possibilities in it.
This isn’t always the first time Demonetisation took place
in India, in 1978, foreign money notes of Rs. A thousand, Rs.5000, Rs.10, 000
were banned by using government. And again after 38 years on 8th November 2016
government has taken considered one of the biggest steps, one of the maximum
momentous decisions, “A surgical strike on black money”.
Demonetisation affected livelihood of people of the USA like
India where ninety% of the transaction are done in cash, unexpected elimination
of 86% coins has put burden on economy.
people, who deal in black, don’t keep it in coins. or even
people who had coins got it recycled. So the people who suffered were low and
middle class citizens of united states of America.
Demonetisation has severally hit the economy of peasant
elegance along with farmers, labours, companies and small scale people.
After 8th November, Devastation across the country is
witnessed as some distance as rural financial system is considered. there has
been a crash in fees.
“post demonetisation, farmers in Una-Himachal Pradesh are
dealing 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 year
of drought to us” –Devender Kumar, food and agriculture policy professional.
huge and small farmers alike faced large losses. They
couldn’t even cover their value of production because of unexpected charge
falls. And for six months, there has been no other supply of income besides if
the farmer has taken up the employment thru MNREGA or worried any non-farm
interest. usually, they may be so dependent on their crops for earnings.
whilst farmer’s profits drop via 60%-70%, the effect is felt
at the whole chain.
as an example, this chain response may be found exactly in
Una, Himachal Pradesh. From thousands of kilo potatoes rotting at bloodless
storage plant, to the 70% drop in income at nearby, to the 50% drop in
purchases at the fruit dealer, at each level the enforced liquidity crunch had
created a dip in livelihood. however, the worst off are each day salary
labourers and this ‘wasn’t restricted to simply agriculture’.
“Agra’s shoes industry is facing a ninety% of decline in
production” – Indian express
“70% of the hosiery factories in Ludhiana have shut down”
As business has taken 50% hit. shops had stocks piled up
because they may be unable to promote it, new products have been now not
displayed as there aren’t any consumers, as a result no new orders and
subsequently 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 for
the 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 been
depending on casual money lenders had to face many issues due to non-availability
on the other hand, rural populace nevertheless non-stop
traditional way of depositing money as cash correctly in their homes after
years of collection. This outcome in commencing of hundreds of more financial
institution bills in rural regions.
Demonetisation brought adjustments in financial system in
far off areas by way of beginning and developing higher banking machine for
rural areas in future. Impact on Economy:
The immediate effect of demonetization on economy would
probably be short lived. However, the long term effect will drive the Indian
economy to new areas of growth in the coming times with its impact not just
only on black money, terrorism and corruption but also in improving tax
compliance, better fiscal balance and lowering inflation.
Though the contraction in GDP by 0.5% cannot be ruled out
due to fall in economic activity, growth in demand will start gaining momentum
once the economy moves out of the transition stage of demonetization to
Impact on Businesses:
Demonetization drive has impacted the Indian businesses
directly or indirectly in terms of impact on demand but the impact of
demonetization is majorly seen on small businesses as these are highly driven
by cash transactions. The labour intensive sectors mainly agriculture and
construction sector have been impacted since a major portion of transactions
involve cash for the purchase of raw materials and payment to daily wage
labourers. MSMEs sector has been impacted significantly as the sector is
majorly driven by the contractual and daily wage work force and most of the
mobile work force doesn’t have their bank accounts at the place of their
Impact on People:
Demonetization has affected the short term consumption needs
of the people basically belonging to the lower and middle class families for
whom cash is the primary mode of
payment for their day to day activities. Along with this, the direct
impact of demonetization drive is seen on those who live in remote areas of
country, having no bank accounts and no identification proofs.
Real estate sector is worst affected after demonetisation of
high value notes because while buying or selling property payment is majorly
done in cash.
Scrapping of high denomination notes will make buyers
difficult to pay in cash hence property prices are likely to fall down. Real Estate is entangled with financial
system of the country; any damage to this sector may cause severe damage to
Banking financial system is highly dependent on real estate
and home loans, if properties prices fall down then bank may force buyers to
pay more EMIs.
TERRORISM AND CORRUPTION:
Demonetisation did not just hit black money holders but it
also had major setback to terrorism and Maoist insurgency. Terrorism across the borders produced fake
currency of Rs.500 and Rs.1000 to fund terrorist activities in India especially
in Kashmir region. Since the ban was introduced unrest in Kashmir came down as
there is no source left to fund to keep unrest going
On the other hand, demonetisation lowers cash circulation
and encourages digital transaction through mobile banking, net banking, debit
And unearthed black money after demonetisation to be heavily
taxed along with penalties thus plenty of revenue will help to bring down
fiscal deficit. For example, If the black economy is 62% of the GDP, it means
taxes are not paid on it and if you could have brought it under tax, it could
collect an additional 24% of GDP as tax, so you are collecting 16% of whereas
you could have collected 40%. Now if you collected that additional 24%, that
could 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, health
8TH November 2016, 8:00 pm
“The prime minister announced one of the most radical
policies in the history of modern India”
8th November 2016, 8:30 pm
“People involved in the ‘Black Economy’ found ways to
subvert the policy and recycle their ‘Black Wealth'”.
Most gold traders inflated their prices, 10 grams of gold
was priced Rs.50, 000 and notes were exchanged for lower value like Rs.500
notes for Rs.450 and Rs.1000 for Rs.900 in small shops etc where basically old
notes were exchanged for new notes.
People from low economy class were given money to exchange
in 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 Black
Economy. This didn’t happen directly but
through lot means of people linked.
So even if they had 50 people, per day at one bank, each
converting Rs.4000 for them, that’s Rs.2,00,000.
Involvement of some bank officials and gold traders in
recycling black money was widely reported. Demonetisation didn’t have much
effect on black money holders because their most of undeclared wealth are in
form of assets like gold, foreign currency and properties.
A few days into the policy, cashless became new way and its
estimated that digital payment service alone could generate 21 million, much
needed, new jobs and adds up to $700 billion to India’s GDP by 2025. But going
cashless seems like a risky initiative when more than half the country still
defecates in the open, doesn’t have access to electricity nor internet.
On a positive note, one’s who try to be corrupt in a
cashless or a less cash society can easily be trailed and caught. So it is the
beginning, one step to curb corruption. May be not completely as it’s argued
it’s just ensuring that corruption is centralised in the hands of those who can
“Therefore cashless should not be equated with control of
black economy; it should be linked to efficiency of economy”
Post demonetisation, situation in India is improving; urban
areas are brought under control where as necessary needs are being facilitated
by Rural Regional Banks (RRB) and District co-operative banks (DCB’s) in rural
areas, in a way a step towards development.
Pre- demonetisation, there were many unaccounted
(unorganised) activities not contributing to GDP where in post demonetisation
these activities are included contributing country’s GDP.
The dedication and hard work shown by bankers and postal
service staff in rendering services during critical period after demonetisation
is commendable with their working hours day and night to deal with demands.
As country is moving towards cashless economy, India’s six
lakh villagers are being educated and motivated to use digital currency,
unfortunately pre-demonetisation, even existing holders of plastic money
including senior citizens couldn’t use them because of lack of knowledge and
encouragement. Hence Demonetisation itself has created awareness and
willingness to move towards more usage of digitalised economy.
As some would argue that governance is about ensuring the
greatest good for the greatest number, and in that light, it seems strange that
when top 1% of India owns close to 60% of the country’s total wealth and
therefore black wealth, it is the other 99% who tolerate the brunt of
Some lost their livelihood,
Others saw decline in their incomes,
All in the name of better tomorrow,
A better India.