Demonetization refers to withdrawing of legal tender from the market. It has happened three times in India with the latest being on 8thNovember 2016. The first two times were in 1946 and 1978.
The purpose of the demonetization was to clean the economy with black money and to keep a regular check on the flow of currency.But as per the latest RBI report, there was very little black money as 99% of the withdrawn currency returned.
This shows the failure of the government if the objective is to clean the economy of black money, because just for 1.04% black money, people had to face many difficulties , economic GDP also came down from 7.1% to 5.7%, as the unorganised section of the economy is highly dependent on cash.
If we talk about the losses due to demonetization, then the problem faced by the masses was more when compared to just 1.04% of the black money.
The small scale manufacturing sector, the unorganised sector, the hospitals especially the private ones who denied taking old currencies, the waste of productive time of productive people in standing in long queues, all this directly or indirectly led to loss of the economy and in some cases took lives of people.
The purpose of demonetisation is multi-dimension, though the black money in the market was not there, yet there are other objectives which found its way through demonetisation that is the economy is trending towards digital economy with the objective of the government being to make India a cashless economy.
The growth of net banking, e-commerce websites for shopping, point-of-sale machines at shops, use of mobile wallets, all this shows that the economy is moving towards less cash.
Another important achievement is that the tax base has been broadened. More people has come under the tax net which is good for India to improve the tax to GDP ratio.
There are now various schemes promoted by the government to increase the dig
It is not only India but other countries in the world which have regularly resorted to demonetisation, the purpose being to regularly withdraw big currencies from the market so that there is no possibility of a parallel economy in the country.
Though this was a great move by the government of India, yet there needs to be some preparation done before demonetization. India still has approx 11% cash in the market. There needs to make a robust digital infrastructure, with high security especially when there has been a world-wide cyber-attack of ransomware which included India too.
There were also data theft of debit cards which affected 32mllion debit cards in India. All this needs to be kept in mind when moving to digital transactions and moving digital in delivering the services.
India being a country with 70% of the people are in agriculture and the unorganised sector, there needs to make arrangement at the lowest level for digitisation of money flow , and digital literacy of people like digital dakiya scheme in Madhya Pradesh and similar initiative in other states before making Indian economy a digital economy.
his move of demonetisation can be hailed as a partial success for the government as it served the purpose of making the economy less cash and as a regular check for black money.