Demonetization in India- A Boon or Bane

Demonetization is a move not new to the Indian scenario. Infact the wider scope of demonetization can be understood when the respective countries of European union (EU), were replaced by the Euro, but in its present state of demonetization the Indian government still retains its legality of the old notes. On 12th January 1946 and 16th January 1978, a period of pre and post-independence era, the Indian currency was demonetised to serve similar requirements similar to the present move, which included objectives of checking black money circulations, tax evasions and further to add printing of counterfeit currency which are used to fund terrorism and anti-social activities.

The rationale for the present move also includes, improving financial inclusion, preventing stashing of money, improving the gross domestic product (GDP), increase social welfare like Swachh Bharat (Clean India), Jan Dhan Yojana (Prime Minister Money Scheme), building a pathway towards a cashless society and improving India’s position on transparency & corruption in the global stage. The question arises with so many good reasons why is there a negative criticism? Comparison with previous demonetization effects, this one has had an impact on the 86 percent of currency circulated to the previous one where 3 percent was included therefore not affecting the aam janta i.e. the common
man.

The present move has further good implications in reference to increased bank deposits which in turn lead to higher credit to small scale medium enterprises (SSME) and reduce interest rates, favouring the masses and balance on government spending which will reduce fiscal deficit & inflation in the short term, and improve infrastructure & GDP.

Critics some of who are leading economists & experts also share their views on the negative impact of this move, some questioning this very move as an act against democracy for which India stands as a beacon to the rest of the world & other adding that it is a “Monumental Management Failure & organised loot” and it would negatively impact the agricultural sector, small businesses and the informal sector, and that GDP would see a decline of 2.5 percent. The effect of demonetization has had a crippling effect on expatriates. For many Indian nationals working and living in abroad have had difficulty in remitting money to their families due to the availability of cash. Families of blue collar workers depend on instant money transfer which facilitate money collection in remote areas of their home country and this shortage has added to more woes to such families who have had emergencies like marriages and hospitalization. It has also prevented the expats from taking advantage of the low exchange rate with the dollar. But companies like the Western Union and some others have facilitated direct to bank account services to allow their clients to receive money via account payee cheques.

There are other options too, which can fulfil the objectives of the present demonetization. 

•Only 1 percent of India’s population pay taxes and therefore more officers can be trained to identify the reasons and focus on curbing tax evasions. Lower tax rates, elimination of loopholes and strider punishments for defaulters can be looked into.

•As 90 percent of transactions are cash based, perhaps extra charges can be levied on all cash transactions will reduce the impulsion of people in the long run to stash currency, and adopt digitalization.

•With the people at the bottom of the pyramid keeping their money as cash while the rich have spread theirs in benami names and overseas accounts and real estate, shares and gold, it would be better to introduce stricter regulations in these markets (bullion and real estates ) to check black money.

The authors are only trying to show a balanced view of this bold move which has caused several of her countrymen to come out of houses, abandon work and business and queue up banks and ATMs to claim their own money. With prices of consumer goods sales fallen by one third trucks are at standstill, the Bollywood film industry hit by 35 percent, and the RBI not reducing the interest rates till date, farmers facing difficulties, fishing and construction industry hit significantly, with workers not receiving wages, & tourism sector facing the wrath of this move are some outcomes of this policy.

Only time will indicate in the long run the rationale behind demonetization. Till then we can console ourselves that this move has given us innovative practices to adjust like ‘I owe you’ cards/envelopes adopted by families in marriage ceremonies or the barter system way of business, which show the never die attitude of the masses who will to overcome any hurdle as quoted by the Noble Laureate Prof.Sen “Good Policies sometimes cause pain, but whatever causes pain- no matter how intense-is not necessarily a good policy”. 

Demonetization a boon or bane still remains to see.