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Advantages and Disadvantages of Demonetization policy


Demonetization is the act of stripping a currency unit of its status as legal tender. In the recent Indian scenario, it meant that the Reserve Bank of India had withdrawn the old Rs 500 and Rs 1000 notes as an official mode of payment to tackle black money and eliminate fake currency. As every coin has two sides, this ideology too does.

Since time immemorial, black money has been used for illicit deals like terrorism funding, gambling and money laundering. Demonetization enables the government to keep track of people who have a large amount of unaccounted cash and defaulters of income tax payments. This would boost tax revenues which would be used for the betterment of the nation. Moreover, the bureaucrats cannot anymore ask bribes in cash as there would not be any flow of unaccounted cash. The Educational mafias cannot ask hefty donations for admission in school and colleges. No eligible bridegroom would dare to ask for dowry as it is against the law. Putting an end to such a circle of illegal activities would help in eradicating corruption.

There would be a major push to e-wallets and the recently launched Unified Payment Interface, an inter-operable system launched by the RBI and NPCI which allows peer-to-peer and peer-to-entity payments. Therefore, ease of business is ensured as all transactions turn digital.

Increased liquidity will make sure that banks and financial institutions will be flushed with money. Interest rates will reduce drastically. Capital will be available at cheap rates thereby making Indian goods cheaper.

On the other hand, it will cause a lot of inconvenience in the initial days of exchange, deposit and withdrawal. Only 40% of the ATM machines have been calibrated to the new currency which would lead to reduced money circulation. Even if people did withdraw cash by standing in large queues all day long, exchange of 2000 cannot transact in local shops.

Some of the people have seen this as an opportunity to induce corruption. The banking personnel illegally exchange currency for a particular commission. Small shop owners act as brokers by helping currency conversion from black to white by charging a minimum commission of 15%. People make more money by acting as agents by offering their bank account as a means to enable transactions.

As more money will run through banks it will surely increase GDP of India in upcoming time. It will surely attract foreign investment in the country as seeing the fair accounting of money and as there will be more cashless economy more investments will fall under India. It will increase the digital empowerment as more peoples will become aware of digital banking and surely will increase IT start-up in a country which will create more employment in India and increase the standard of living.

Furthermore, currency destruction has added a loss to the economy. The government also has to bear the cost of printing of new currency and its circulation. As ordered by the government, replacing all the 500 and 1000 denomination notes, has cost the RBI around 12,000 crores.

93% of the respondents in the Modi App have voted in favor of demonetization. Hence, I would like to conclude by saying that demonetization is a sign of good governance and its implementation in spite of its disadvantages still makes sense as its limitations are negligible when compared to its high end and long term benefits. The government is taking all the immediate steps to meet the currency demand and ensure the smooth flow of new currency. I personally congratulate the entire government and all those hidden brains of our democracy, who have envisaged of a corruption free country.

- Neha P Asrani