Demonetization. What's the difference?
In a move to eradicate black market’s cash supply and purge counterfeit notes from India’s economy, the unprecedented decree to demonetize notes of large denominations, was given by Prime Minister Narendra Modi on 8th November 2016. It is certainly one of the most audacious steps taken by him that not only took the entire nation by surprise but also sent shock waves to the whole world. This decision to make the 500 and 1000 currency notes invalid has created a massive stir amongst the people of the nation. After the conclusion of his 40-minute speech, all the unaccounted currency notes became chaff. It’s not the first time that this idea has come up. There were voices raised in US and Europe to annul currency of larger denomination but the measures were never implemented.
It is obvious that the following day would be a day of long queues, shortage of cash, mayhem, memes and tweets. Black money holders are one of the primary targets behind this. According to the World bank, black money contributed about 23% to India’s GDP. Among other speculations, are corruption, tax evasion, terrorist funding, counterfeit currency rackets, and hawala transactions, would be dealt with. It would usher India movement towards a cashless economy,. It will also discourage huge donations to private institutions, healthcare, real estate, etc, as it is easy to track digitized money.
The government has limited the withdrawal amount and is strictly scrutinizing people’s deposit patterns. People have to show their ID proof while depositing money, which makes it very difficult for black money holders to deposit the huge sums that they had been accumulating since the years. Unaccounted money would incur a 200% penalty on normal income tax amount. Corruption had become a menace to the Indian democracy. It was impeding the development of the nation, but with demonetization in force, it has become difficult to perform “under the table” transactions as they would have to use bundles of smaller denomination notes which is tedious. Demonetization has also retarded inhumane activities of Naxalites, Maoists and other antisocial organizations. The private institutions, who were previously enjoying by taking large donations, are now pushed to the corner and are out of their ways to augment their wealth. The entire counterfeit currency market is now in ruins. On the other hand m-commerce platforms like Paytm, Freecharge, etc have suddenly come to limelight, thus, marking the transition of economy from legal tender to digital money.
Even the moon has a dark side, so how can demonetization be any different. The adverse effects started with the Sensex losing 1600 points and NIFTY 50 crashing for 2 days. The scarcity of cash led to widespread pandemonium. Travellers were the worst sufferers following the proclamation, they had left their city with hard cash but arrived at their destination only to see it become a pile of trash. A great rush is seen near banks and ATMs even though notes could be exchanged from post offices, railway stations, petrol pumps, etc. Vendors, farmers, costermongers and other small traders are in a lot of trouble as they rely on hand to hand cash transactions on a daily basis; their means of livelihood was cut off in the make-do. With some people clandestinely destroying their money to avoid penalties, the economy of the country is going down. Critics predict that the introduction of 2000 rupee notes could increase the counterfeit currency circulation in the future. It has also become inconvenient for common people who are generally not habituated with using such large denominations, moreover, getting change for Rs.2000 is another struggle. Something worth noting was the temporary presence of decadent dealers who took advantage the situation by exchanging 500 notes with a lesser amount of change at crowded places like bus stands, railway stations, etc.
Demonetization has caused many hiccups, but according to Finance Minister Arun Jaitley, the execution couldn’t have been better as it didn’t create any major fiasco in the country. Although most of the population might term it as spontaneous, it is essential to figure that there’s more to it than meets the eye. It wasn’t an immediate action, but a result of months of practice by astute economists who were working under the shadows. Leakage of the information in any form prior to the declaration could have made it less effective, hence it was divulged after the preparation was complete. Considering the introduction of Jan Dhan Yojana to promote future transactions through banks, and the 30th October as the deadline set by the government for declaration of the income, the sagacious could guess that it would be followed by demonetization.
Abatement of corruption and ebbing away black money should be the rationale behind demonetisation. Government should consider establishing infrastructure to track large financial transactions in key sectors, create a robust mechanism to identify and apprehend tax evaders and moreover, the government should direct its efforts towards penetration of the banking infrastructure into the remote parts of the country or in other words, towards inclusive financing. Phrases like ‘cashless economy’ and ‘plastic money’ are amidst conversation and the use of credit card and debit cards has increased many folds. The government is trying to reach every nook and cranny to provide financial services, as it would not only help the employees and workers but also create a transparent transaction system and thus keep tax avoidance at bay.
This policy is turning out to be a financial reformation and black money holders are having a hard time exercising their brains for finding ways around the new proclamation. However, this cannot be considered as a conclusive step even though it is an excellent move to curb corruption, it has its own share of appraisals and criticisms. There are many diverse views from different individuals because everyone addresses to a particular facet of the initiative. Demonetisation may be termed as double edged sword, thus one has to admit that perspectives depend upon individuals and accept the repercussions as necessary evil. Success and failure are both sides of the same coin and our hon’ble Prime Minister has just flipped it!