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Advantages and Disadvantages of Demonetization policy


The evening of November 8, 2016 will probably be remembered as a turning point in our country's history, when Prime Minister Narendra Modi declared two of India's highest currency denominations to be invalid from the stroke of that mid-night. Indian citizens, who were used to promises and half-hearted efforts from the government took quite a while to stop thinking of it as a joke.

The reasons that make this move so hard to believe lie in the impact that it can cause in the lives of every individual, irrespective of their standing in the economic or social hierarchy of the country. The impact can be felt most in the economic standing of India due to a heavy reliance of its business class on currency and a "parallel economy" (black) which made a mockery of the Indian taxation system (In some rare cases, even the justice system). India's growth rate is expected to take a heavy hit due to the move. However, the impact seems to be of a temporary nature and India is expected to bounce back even harder in the future.

The political impact, speaks of a completely different scenario. NDA government won the 2014 elections by gaining a strong support from the youth, worker and small business class of people. Demonetization made the business owners run for their money, since it didn't matter if the money was legal or illegal. The cash flow from banks was shunted, making it extremely hard for them to sustain themselves and their businesses. Every citizen loves their country, but it would be foolish to expect no consequences for making them leave their work and responsibilities to stand in queues for days. Few people have the belief that such temporary struggles are for the greater good. Few people don't decide a country's leader, the silent majority does (The election of Donald Trump). Most people do not express their honest views in the fear of being labelled by the extremely vocal supporters.

The social impact might seem to be a really positive one on the first look. Looking deeper provides details that could possibly make every person question the desperation behind such execution of the move. Since the effects of the move were not completely thought through, new modifications were brought in regularly every day, making it harder for the people. The government had been bragging about the increase in the use of plastic currency and supporters have been lauding the move showing those figures. Such a result can be obtained in every field with this kind of a move. Example: Banning every other noodle manufacturer would make Maggi's sales grow through the roof. In short, society wasn't directed, but forced by the government towards accepting plastic currency. However, in the end it would be a positive change if people start accepting cashless transactions. The only problem would the nature of banks, which were joyous to accept liquidity, but showed extreme reluctance when proposals were made for increasing the cash reserve ratio and when a request was made by the government to relieve customers of the transaction costs by the banks considering the hugely increased value, along with the number. Such moves will most likely lead to the people reverting to their old habits once things settle down.

To conclude, Demonetization as a policy shows completely opposing pictures when viewed from different perspectives whose impact will remain a subject of multiple debates for a long time to come.

- Karthik Goud