Raghavapudi Avinash

For the first time ever probably most of us would have come across the word demonetization. Demonetization is an act on taking back the status of legal tender to currency notes.

As a part of Governments move towards cashless economy, abolishing black money, corruption the government of India on 8th of November 2016 has taken a call for demonetization of Rs.1000/- & Rs.500/-.This would be in effect from 9th of November 2016. The government has granted relief from demonetization to Hospitals, railways, government services & petrol bunks.

Thus W.E.F 9th of November 2016 has withdrawn the legal status of Rs.1000/-& 500 currency notes.

It’s not for the first time government has abolished the legal status given to currency status. The government has earlier has abolished legal status given to Rs.10000/-.

The government move came after a long time ever since the demand for demonetization of higher currency notes began. Many surveys have clarified that most of the Black money in the form of higher currency denomination. The government has not carried out demonetization in isolation but rather as a series of steps starting from:

1. Asking for opening of zero balance bank accounts named as Jan Dhan Yojana.

2. Government subsidies in the form of gas etc. are directly remitted into the bank accounts of beneficiaries.

3. Providing an opportunity for black money holders in the form of Income Declaration Scheme 2016.

In this process it’s very important to acknowledge the advantages of demonetization at the same time not undermine the disadvantages of demonetization.

Before discussing about the advantages, disadvantages of the same it is important to know that black money may in the form of currency notes, gold & other jewelry, real estate properties etc.

Advantages

1. Black money in the form of high currency notes will now be unearthed. People will have to ensure that they either declare their black money & pay tax on the same or leave them untouched reducing their value to Zero.

2. The banking sector which is a cash crunch position for the movement has felt a sense of relief with deposits from customers coming in huge numbers.

3. Consequently after demonetization & cash crunch situation in the economy people are moving towards cash less transactions thereby leading towards paper less economy.

4. Since black money is mostly used in funding terrorist activities, money laundering, betting, gambling, inflating prices of real estate properties. Demonetization will reduce this to a low level or nil level for a short period of time.

5. As a result of unearthing black money government has got an opportunity of taxing the black money thereby increasing the taxation revenue.

Disadvantages  

Just as a coin has two sides similarly every aspect of any issue has advantages as well as disadvantages. Ever since demonetization many new problems have dwelled upon far beyond as expected. Some of these are narrated as under.

1. The demonetization will result into a cash less economy which will drastically effect the cash based economy like India in the initial phases of demonetization.

2. India is basically & traditionally agriculture based economy. Agriculture contributes to GDP nearing about 20% .Demonetization will in effect have a drastic effect on rural economy & agricultural sector. This could be well from the latest review GDP estimates for the F.Y 16-17 where GDP was reduced.

3. Economic transactions have come to stand still position hence as a cost cutting measure employers tend to cut down the numbers of employees leading to unemployment.

4. It takes a period of time for new currency to replace the old currency notes & get the new currency circulated as a result general inflation in the market reduces.

5. India is a big market not only for domestic producers but also for international exporters. Ever since the demonetization the buying power of consumers has reduced because of non-availability of cash.

6. Cyber security is a matter of concern for customers as confidential information has the risk of been hacked or tapped during the transaction. A recent example of a similar issue has arisen where severalbanks were forced to Issue new credit & debit cards as customers information was subject to hackers.

7. Demonetization is not ‘’only a measure’’but is a part of ’’several other measures’’ to eradicate black money. As said above Black money may not be necessary in the form of Currency notes. Thus demonetization in result has a minute effect on Black money market.

  1. Demonetization has the effect of increase in Non-Performing Assets (NPA) because most of mortgaged assets are in the form of real estate assets or other immovable properties whose market value has reduced to drastically low level.

Government still has to go a long way forward for eradicating black money. Demonetization is still a first move towards ‘What we dream of a Black money free India’.

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One response to “Demonetization – Move or Break”

  1. Krishna sabat says:

    Good article

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