Prime Minister Narendra Modi announced cancelling the
currency as a legal tender on November 8th 2016. All Rs.500 and Rs.1,000 banknotes of
the Mahatma Gandhi Series were demonetized with effect from the above mentioned
Demonetization policy by PM
Narendra Modi has been seen as the greatest financial reform that intent to
curb the black money, counterfeit currency notes corruption.The government wanted to cease the usage
of illicit and counterfeit cash to fund illegal activity and terrorism.
November 8 2016, is being marked as “anti-black money day,” by the
government and the BJP.
This announcement was abrupt and impulsive. On November
8, 2016, there was a live television address at 8PM. After demonetization, India
confronted severe cash shortages with huge negative effects across India. Those
who wanted to exchange their bank notes had to stand in lengthy queues.
As the cash shortages grew in the weeks following the
move, the demonetization was heavily criticized by prominent economists and by
world media. Demonetization has actually acted as a catalyst for mobile
money and other forms of electronic fund transfers. The usage of digital
financial services has drastically increased even since demonetization.
Economic, Social, Reputational and
Institutional damages were caused, decelerating GDP of the Indian economy. The
weaker sections of the society and business had a huge impact. The Indian
economy has slowed considerably since demonetization, 5.7 percent was the
country’s growth which is the lowest compared to last three years. The current forms of currency would be
taken out of circulation and would be replaced with new notes and coins. The
currency unit would be taken off of its status as legal tender.
are various reasons as to why India went through such a regime. The very first
reason can be stated as to combat corruption and crime, which includes
counterfeiting, tax evasion and so on. Other reasons being to discourage a cash
dependent economy, combat inflation.
Indian government had demonetized
its notes even before as well. First it was done in 1946 and then in 1978.
During both the years the aim was to combat tax evaded money. The Janata Party
coalition government had demonetized banknotes of 1000, 5000 and 10,000 rupees,
with the hopes of curbing counterfeit money and black money.
Reserve Bank of India had given fifty days’ time to deposit the demonetized
banknotes as credit in their own bank accounts. Due to demonetization, scarcity
of cash was there leading to chaos and anxiety among people.
holding old banknotes faced huge difficulties in exchanging them due to long queues
outside banks and ATMs across India. It has led problems to the old and aged. Not many bank branches were equipped with
sufficient cash. During the time of sowing season, the farmers couldn’t get
their loan disbursed. It led to huge miseries of the farmers leading to a weak
were running out of cash after a few hours of being functional, and around half
the ATMs in the country were not functioning. After the news was announced sporadic
violence was taken place in New Delhi, but there were no reports of any serious
injury, people attacked bank premises and ATMs.
in the month of April 2017, which was five months after the demonetization,
there was a huge cash shortage. A survey was conducted and was found that the
situation was as pathetic as 83% of people being unable to withdraw money in Hyderabad and in Pune being 69%.
rushed to buy gold as a result the demand increased and prices also increased.
There were times where a 60% premium was to be paid. The government made it
mandatory to furnish PAN (Indian Permanent Account Number) card details on
RBI kept a limit for Cash withdrawal which made life even more ruthless for the
people in India. The RBI even had a rule of daily withdrawal limit. The limit
was really low that life was getting harder to sustain.
limit was Rs.2000 per day till 14 November and increased to Rs.2500 per day
till 31 December. Then after this limit was increased to Rs.4, 500 per day from
January 1, and again to Rs.10,000 from January 16, 2017 Cash
withdrawals were limited to Rs.10,000 per day and Rs.20,000 per week per
account from 10 to 13 November 2016. By 14, November 2016 this limit was
increased to 24,000 per week.
were placed on the following accounts, starting from Current accounts/ Cash
credit accounts/ Overdraft accounts stand withdrawn with immediate effect. Then
after RBI improved the withdrawal limit of the Savings Bank account to Rs50,000
from the previous amount being Rs24,000 on February 20, 2017. By March 13,
2017, RBI had removed all the withdrawal limits from Savings Bank Accounts.
was a huge hash tag Campaign named ‘Live ATM Alert’. It was started by a group
of youngsters from Facebook. The location and details of ATMs that were live
and dispensing cash were being shared which helped them in gathering
information and to broadcast it.
The stock indices such as BSE SENSEX and NIFTY fell
over 6 percent on the day after the announcement. The country faced severe cash
shortages with severe detrimental effects across the economy. People seeking to
exchange their bank notes had to stand in lengthy queues, and several deaths
were linked to the rush to exchange cash.
Around 33 deaths were reported as a result of demonetization.
problem was faced mostly by people having low income and people working for
daily wages as they did not own a bank account. Even giving fifty days’ time wasn’t
enough and they were struggling with the limited education and resources to
open a new bank account
worst part was these old notes were not even accepted in hospitals, a child
died in the hospital as the parents had old notes which were of no use and they
didn’t even have time to exchange the notes in an emergency situation. People collapsed
waiting in the lengthy queues. Some people even committed suicide as they were
unable to feed and look after their family.
country and people faced a huge income loss, as customers and employers had no
cash to pay to the workers. Demonetization had effects in many industries, such
as farming, retail sector etc. An angry farm protest broke out in Madhya
Pradesh and Maharashtra. The problem of liquidity remained as a question mark
as huge problems were faced while transacting amounts.
The Economy that suffered the most was the rural and informal economy as
most of their transactions were cash-based. A huge decline was seen in the
prices of perishables such as fruits and vegetables as well as some of the
pulses. A Decline was seen in the Two wheelers and cars sectors also.
The real estate and property market too had its huge
impacts. It badly disturbed the property
market as black money was mainly utilized in this sector. Even though
sales increased there was huge overhang of unsold inventory.
The RBI itself had to face a huge trouble as the domestic earnings had
declined. It had to pay interest of Rs17,426 crore even after it wiped up the excess
liquidity in the banking system following demonetization. The central bank in
its previous year had earned an interest of Rs506 crore in its liquidity
management operations. RBI’s printing costs also escalated due to this.
Though it was a disorderly
move by the government, demonetization itself failed as nearly 99 per cent of
the recalled bank notes were deposited or exchanged. Though the Indians
illegitimate wealth remains politically popular, it had huge impacts in
than 97% of the demonetized bank notes have been deposited into banks. A total
of Rs.17.97 Trillion ($220 billion) demonetized. The government’s initial
estimate of Rs.15.4 trillion was demonetized in the form of Rs500 and Rs1000
trillion was pumped back into the economy in the form of Rs500 and Rs2000 bank
notes of the Mahatma Gandhi New series. They recalculated it as of 10 January
2017 which was two months after the demonetization.
Arun Jaitley, the Finance
Minister of India said that this demonetization was meant to have a cleansing
effect for the whole economic system. He told that it would increase the size
of economy and the revenue base. He even stated that demonetization along with
the upcoming Goods and Services Tax (GST) as “an attempt to change the
spending habit and lifestyle of the Indian Economy.
Another aim of this was to have a bank
account for each and every citizen, the banking scheme for the poor was not
fully in action, demonetization has led many people especially people from poor
background to have an account and make everything a cashless transaction.
Government wants every citizen to be
monitored online not to poked their nose in their privacy but to check
everything on money bases goes abiding by law , a cashless economy is not just
convenient for citizens but also for the government. Making every transaction
in India to be online so it can be easily tracked and taxed. Using of debit
card and credit card has gone up, and also the use of Paytm has struck a
Demonetization has helped to check counterfeit
notes which were been in the economy in bulk and for many years. Now fake notes
have been removed from the system and new counterfeits will difficult.
It is a break down on terrorism and naxalism
also as they run counterfeit notes coupled with black money.
Terrorism and naxalism have been severely hit
as their funds have dried up. This is the first step of eradicating them from
Corruption we as Indian citizens are tax
payers and patriotic, corruption is something which cannot be tolerated and to
bring some change to it demonetization was a big start. It bought a drastic
downfall to black money holders and tax evaders.
This Demonization was
meant to be a key structural reform measure that PM Modi had in his vision. He
wanted to the pervasive corruption and tax fraud in India to be reduced. There has
been a debate regarding this as to whether it’s a success or not and whether
the Indian public agrees with him on his vision.