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Enumerate the political social and economic impact of demonitiztion on India


Demonetization refers to the financial step of the government to declare a currency unit invalid. Usually, this is followed by exchanging the old currency for new currency. Earlier, demonetization of 1,000, 5,000 and 10,000 rupee notes was done in India during the rule of Morarji Desai as Prime Minister in 1978. There is an overall impact on various segments as a result of demonetization. Let's analyze the political, economic and social impact of the demonetization drive in detail


The political impact of the move is huge across the whole country with majority of the educated people offering support to the demonetization. The sentimental speeches against black money made by Prime Minister Modi are drawing huge crowds turning into vote banks for BJP. There is a growing support for BJP from the educated mass and especially the youth for the bold step taken to curb black money.

The opposite political parties however oppose the demonetization drive. The continuous adjournment of both the houses indicates this scenario. The ever silent Dr. Manmohan Singh, previous prime minister has said this move as unlawful and against democracy. His statement came out of the blue in the Rajya Sabha in the presence of Mr. Narendra Modi, Prime minister of India. Dr. Manmohan Singh further added that nowhere in the world, people are restricted to withdraw only 2,000 rupees from their account. Opposition parties strongly oppose the demonetization implementation process.


The information on demonetization was released suddenly and the worst affected was the common man. The social impact was drastic with marriages facing severe issues with cash transactions in marriages coming to a standstill. Currently, People conducting marriages must produce the marriage invitation to withdraw 2, 50,000 and above. This has caused great hassles among the public.

The impact on the health care sector was huge with hospitals refusing to accept the old currency. The issue was faced by the Union Minister Mr. Sidharamaiah in Bengaluru when the hospital administration refused to accept the old currency to retrieve his brother's dead body. The common man faced severe issues transacting in the hospitals with old currencies and several cases of death have been registered for not attending the patients due to demonetization

The impact on education sector was minimal and all universities and colleges have been instructed to enable online transactions in their website for the convenience of the students and parents. However, a lot of black money was retrieved from the educational institutions through income tax raids which was received as donations from students and hoarded as black money.

Salaried people faced the issue on the opening day of the month with their salaries credited in the bank account but were able to withdraw only 2,000 rupees from the ATM machines. Many salaried people have gone to the bank branch to withdraw their full salary amount with loss of pay.

Social problems in the form of road blockades and quarrels arouse with people waiting in long queues before the banks and ATM machines. People become restless spending an entire day to withdraw money. Several deaths have been registered as a result of waiting in long queue. Pensioners are worst affected with no special provisions made for senior citizens in banks.


Demonetization is viewed as a measure of sterilizing the money. RBI plays the pivotal role in this demonetization drive. All the banking experts welcome this demonetization measure. Considering the banking sector, both public and private sector banks are facing the severe issue of Non-Performing Assets (NPA) or Bad loans to the tune of 10 lac crore including the stressed assets according to RBI sources. This demonetization measure will help banks to recover some bad loans and improve their financial position.

Considering the entire economy of India as a whole, demonetization will make most of the transactions to be done through the formal banking sector. This will increase the transparency with people and corporate paying tax properly. Income Tax department has reported that only 4 percent of the individuals pay income tax while this figure has to be increased to 28 percent. The demonetization will help achieve this target of the Income tax department.

When black money within India gets curbed, it will result in the overall economic development of the nation. This was revealed in the demonetization when terror financing and other sources of illegal financing was curbed. However, demonetization does not address the black money stashed abroad and the illegal foreign transactions taking place through the participatory notes. Corruption, fraudulent practices and broker menace remain areas of concern in carrying out the mass demonetization in an efficient manner.


The impact of demonetization was felt more in the social sector and the worst affected was also the poor and the common people. Salaried class is not still able to withdraw their salaries from the banks and ATMs as a result of cash deficit. Prime Minister Modi has encouraged doing financial transactions using mobile and other electronic means. It is clearly evident that India is moving towards cash less economy. This will curb the black money to a great extent but educating the masses on the mobile based money transaction is a huge challenge. Finally as a relief to poor people, GOI has announced that black money retrieved from the demonetization measure will be deposited for four years without interest on Kalyan Yojana to benefit the poor in marriage. This will create a positive impact on the social sector in the long run.

- Chella Palaniappan

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