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Advantages and Disadvantages of Demonetization Policy

Prime Minister Narendra Modi took the nation by surprise on the night of November 8 when he, in a television address announced demonetisation of Rs.1000 and Rs.500 notes with effect from midnight rendering these illegal. It was surely a major shock therapy for black money owners. Modi ji acted like a hero who tried to sweep all the black money in a single shot. November 8 2016 will perhaps go down in history as the day India ushered in the most comprehensive finance sector that transformed the country as never before. It was a better chance for the opposition to jump into the game of accusing this policy to be the greatest scam ever in the history of India and spreading restlessness among people. But it was expected because the word �corruption� was unheard since the last two years during the Modi regime.

It was a master stroke on Black Money to make India �Swachh Bharat�. PM�s sweep shot on corruption is the biggest exercise launched anywhere in the world to broom and clean up the economy which was growing at the fastest clip among the global peers yet yielding low results for the common people. Demonetization marks the beginning of transparency in public spending and end to splurge and vulgar extravaganza of a few at the cost of the rest. Those opposing the move in the name of the suffering of the people have not produced a single coherent argument to support their dissent. All agree that corruption has to be fought. They also agree that black money is the biggest source of corruption. The fact that Kashmir has been peaceful for over ten days with 100 % attendance in schools for exams and the stealth wealth of Maoists has been reduced to mere paper bolster the purpose of the surgical strike. If the concern is the welfare of the people, demonetization is the most people friendly step ever taken by any government ever in history.

The stock of the black money which constitutes a major part of the GDP is significant. Even if 50% of this amount is withdrawn, the kind of relief that RBI will get on its liabilities and the sort of deposits commercial banks will get lead to a rise in the deposit and later on there will be decrease in lending rates plus fiscal deficit. As more money runs through banks it will obviously increase the GDP of India in upcoming time. It will attract foreign investment in the country as seeing the fair accounting of money and with cashless economy more investments will fall under India. There will be a giant improvement in the digital empowerment with more awareness among people about digital banking. It will lead to a hike in the IT start-ups in our country which will create more employment and increase the standard of living. It will give a boost to digitisation and people will become habitual of using e-wallet and paying through cards rather than cash. It will improve the environment for ease of doing business.

Consumer goods are reported to have dropped by one-third. Trucks are at a standstill. Farmers have difficulty buying seeds and fertilizers and selling crops and perishable produce. The fishing industry is close to collapse. It is estimated that demonetization-driven cash crunch will result in GDP growth crashing to 0.5% in the second half of financial year 2016-17. Cashless banks and ATMs seem to have given some life to the opposition parties looking for an issue to pin the government down. Sectors that have a larger cash component in their transactions will be hit harder such as real estate, movie production etc. Reports say that the government has changed the rules 59 times till yet as they themselves have no concrete idea about their move. The reality is that the layman is forced to go out in the chilling cold atmosphere and struggle to get his money by sacrificing his precious time. Economists have argued that this move has left the biggest chunk of black money untouched in Swiss banks.


If substantially implemented this will send a strong signal about India�s anti-corruption drive and is very likely to improve the country�s reformist stance. The Prime Minister has struck the chord with the poor. India�s poor are the happiest today. They feel they have found a leader who really cares for them. This explains why despite of so of hullaballoo, the country continues to function in a quiet atmosphere. It is a period of transition and everybody wants to at the right side. We hope that this move really curbs corruption from its roots.

- Ritwik Mehta

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