Airo International Research Journal ISSN: March, 2017 Volume IX

Transcription

1

2 Demonetization- A Big Masterstroke K. Rakhi Assistant Professor, Vidyadayini College of IT & Management, RCI Main Road, Mallapur,Balapur, Hyderabad, Andhra Pradesh , India Abstract: Demonetization is the withdrawal of a particular form of currency from circulation. Through demonetization the old currency is replaced by the new currency or a currency circulation is blocked. Demonetization is an established practice in monetary policy to tackle black money. On November 8,Indian Prime minister NarenderModi announced in a broad cast to the nation that Rs 500 and Rs1,000 currency notes would no longer be recognized legally as currency. This step is considered as the biggest cleanliness drive against the Black money in the history of Indian economy. With the fake money destroyed, Indian economy will see a big boom. If unaccounted or black money is not obliterated, it would make the rich richer and the poor poorer. An attempt has been made in this paper to study about impact of Demonetization on common people and it has given an overview about pros and cons of Demonetization. The study is purely based on secondary data collected from published articles, various journals, news papers and Websites. Keywords: Demonetization, Impact, Effect, Common man, Advantages, Disadvantages Introduction: Demonetization refers to discontinuing of current currency units and replacing those currency units with new currency units. It is a major decision and it impacts all the citizens of the country because overnight all the money you have become a piece of paper which has no value if you do not exchange it with new currency units or deposit it in the banks. On 8 November 2016, India s Prime Minister Narendra Modi announced the Government of India s decision to cancel the legal tender character of 500 and 1,000 banknotes with effect from 9 November He also announced the issuance of new 500 and 2,000 banknotes in exchange for the old banknotes. The government has implemented a major change in the economic environment by demonetizing the high value currency notes of Rs 500 and Rs 1000 denomination. The move by the government to demonetize Rs.500 and Rs.1000 notes by replacing them with new Rs.500 and Rs.2000 notes has taken the country with surprise. The move by the government is to tackle the menace of black money, corruption, terror funding and fake currency. This step is considered as the biggest cleanliness drive against the black money in the history of Indian economy. At the stroke of the hour on midnight of 9 th November 2016, India lost 86% of its monetary base. The print, electronic and social media has been praising Prime Minister s masterstroke by which he has reportedly destroyed the base of corruption in India. In this single move, the Government has attempted to tackle all the three issues affecting the economy i.e. a parallel economy, counterfeit currency in circulation and terror financing. In the present economical situation, black money has inflated prices in real estate, gold and a few other

3 sectors, making it a challenge for a common Indian citizen to invest. However the government s attempt to curb black money will significantly lower the prices in such sectors. Counterfeit money is one of the main sources of funding for activities related to terrorism. Also, corrupted government officials and politicians who have earned in illegal ways will have no other option to put that money into usage. The proposal by the government involves the elimination of these existing notes from circulation and a gradual replacement with a new set of notes. In the short term, it is intended that the cash in circulation would be substantially squeezed since there are limits placed on the amount that individuals can withdraw. In the months to come, this squeeze may be relaxed somewhat. The reasons offered for demonetization are two-fold: one, to control counterfeit notes that could be contributing to terrorism, in other words a national security concern and second, to undermine or eliminate the black economy. With the fake money destroyed, Indian economy will see a big boom.the things shall be cheaper. Indian Currency shall get respect at the international market. There shall be a great check on the terror-related funding and therefore on terrorist activities. Corruption shall be down to a great extent as people will stop the tendency of accumulating money using wrong means. It will bridge the gap between the haves and the have-nots. However, there may be some difficulties for a couple of months. But this inconvenience shall be temporary and for short-term. If unaccounted or black money isn t obliterated, it would make the rich richer and the poor poorer. Reasons of Demonetization: Corruption and black money are the major obstacles in our country. It is weakening the efforts to remove poverty. Our country is rapidly increasing in terms of growth and we are in No.1 position in terms of growth but we are ranked 76 in Global Corruption Perception ranking. It clearly shows how corruption and black money have spread their tentacles. Need: The need for demonetization are twofold: one, to control counterfeit notes that could be contributing to terrorism, in other words a national security concern and second, to undermine or eliminate the black economy. If unaccounted or black money isn t obliterated, it would make the rich richer and the poor poorer. Objective: The main objective of this paper is To study about the impact of Demonetization on common people To study about how the Demonetization is effecting common people more than Black money holders. To identify Pros and Cons of Demonetization The impact of this move on the common man includes: The demonetization, by removing 86 per cent of the currency in circulation, has resulted in a very severe contraction in money supply. This contraction, by wiping out cash balances in the economy, will eliminate a number of transactions for a while. The decision to demonetization of currency was a hasty decision without adequate planning and the strategy for its smooth implementation. This has created a crisis for the entire economy, the markets and for the common people. `One single decision of the prime minister Modi has turned the common people to beggars even as they were well heeled people but standing for days together in queue in banks to withdraw or change the currency notes, Demonetization creates panic among the common man. Local traders and

4 shopkeepers are facing problem. It also includes a) Financial/business impact b) Social impact: People with large amount of black money are using unscrupulous means to convert it into legitimate currency. A taxpayer has to stand in queues to withdraw his hard-earned money. Online companies are having the last laugh as most of the white income class is resorting to online. Small/medium sized businesses relying on cash transactions are seeing a total demand collapse. Gem and Jewelry business will be hard hit. Real estate prices will fall and the transactions volume will drop. Second-hand car market will crash badly. CAs will be having a time of their lives. Banks will be having a tough time. They will be flooded with cash Low-income people have been impacted as their payments are delayed. Some people may commit suicide. Cashiers and bankers will get due respect in society. Marriages to become cheap. Death of dowry. All medicines in white money. Big blow to gambling. Death of drug mafia and terror networks. People now know moral status of their peers and neighbors better. c) Impact on Indian economy: GDP will be impacted as consumption will fall, Indirect tax collection may be lower and Disorganized work to move to organized sector. With the fake money destroyed, Indian economy will see a big boom.the things shall be cheaper. Indian Currency shall get respect at the international market. There shall be a great check on the terror-related funding and therefore on terrorist activities. Corruption shall be down to a great extent as people will stop the tendency of accumulating money using wrong means. Demonetization is affecting common people more than black money holders While millions of common people have been stressed over queuing up outside banks and ATMs for their regular transactions, which still continue to allow them to withdraw only a limited amount at once, the exact opposite is happening on the other side of the coin. The corrupt, the black money holders, the ones who allegedly fund terrorists are still in the free, filling stacks of new and old money safely and sometimes getting caught in the process. 1. For the rich: While common people struggle to get their own hard earned money withdrawn, cash leaks in huge stashes are coming into open. MPs and MLAs party have been getting plenty of the new notes while common people are still bound to a meager limit of Rs

5 2500 per account in a day, after even a month from demonetization. 2. Corruption continues: If the demonetization drive was to fight off corruption, then it is definitely proving its inefficacy in just a month. Banks are supposed to function according to government orders of keeping up with the limits but they are ones behind the big leaks. This shouldn t have come as a surprise either, had they been better prepared. Mismanagement on the side of the government is evident here. 3. Negligence: If the government hadn t anticipated this would happen after demonetization, it definitely rushed into the drive with no homework done. Had there been stringent measures to keep money laundering in check, people wouldn t be suffering from shortage of cash even after an entire month of demonetization. 4. Small businesses: People who run small businesses and have lived a life unaware of digital banking are ones that are facing the biggest of trouble. Some small businesses across cities and towns are known to die down at the wake of demonetization. Cash crunch has led to a drastic fall in the sale of roadside goods and goods from small stores. 5. Safe passage for black money: The November 29 bill ensured that black money gets easy passage. Those that have stacked black money are being invited to pay half of it to the government and the half of it they are welcome to have as white money. They could lock the half into a government bond for four years and they are free to go. So the black money holders get to keep half of the black money which gets converted into white, while people with no black or white money for that matter gets to face consequences that disturbs their life like nothing else before. 6. Cashless banking consequences: So the poor who only earn enough to hardly meet their daily needs were inspired and started depositing small amounts in their bank accounts. Shocking reports of the money vanishing from their accounts started coming from various regions. The bank people are so busy that they are hardly available to assure these people that it is technical mistake and would be corrected. 7. Digital India: It is not hard to see how the cover up of black money promises is done are in the name of Digital India. Yes, a cashless economy is likely to be less vulnerable to corruption.

6 Advantages of Demonetization: The major decision which is made by the government will help us to eradicate black money, corruption to some extent. Due to lack of funding there will be no arms smuggling and all the terrorist activities will also be choked. The government has proposed the new limits on ATM withdrawals being restricted to Rs.2000 per day, withdrawal from bank account is Rs a day and Rs a week. It indicates that card transactions will slowly replace the cash transactions in our daily prone activities. Financial Intelligence Unit will track all details of the transactions from the banks. So now it is really difficult to get rid of the black money. Real estate industry is totally corrupted and now by this stringent decision the real estate sector will bring in more transparency. Almost End of Fake currency racket initially :- If implemented correctly and effectively then it will result in end of fake currency racket as most of the fake notes are of Rs500 and Rs1000 but later criminals will make fake Rs2000 note. Reduce in corruption for few months:corrupt traitors will find other methods but it will take some time. Like in other countries bit coins, online loopholes are used for corruption money but it will take some time. Will Increase the inflow of the money in the economy: As people have to put their money into bank, which will result in huge increase of inflow of cash in to the banking system thus, into the economy. Will Increase the GDP: Indian Govt. is expecting to get 10 trillion to be deposited in the banks after this move, which will very positively impact the Indian economy and which can improve the GDP by at least 1.5 %. Increase in Public expenditure: Govt. will collect more tax, which will give leverage to the govt. to spend more on Infrastructure, Health and education. Increase in Job opportunity: As Govt. will increase the public funding, the job opportunity will increase in the country, People will get job in health sector, education sector and Infrastructural sector and banking sector majorly. Poor People will get benefited: As govt. will work on the upliftment of poor, they will get huge benefit from the govt. Disadvantages: The main disadvantages of Demonetization are: It will cause great inconvenience to common man who will start running to bank to exchange Rs.500 and Rs.1000 notes. It will be very difficult for half of the population who are not well versed with the card transactions. The major problem is that big fishes will be left out whose black money is in the form of foreign currency, gold and property. Problem in exchanging notes Currently 80 % of the total money in the economy is 500 and 1000 notes. So govt. and people is to exchange 80 % of the money, which itself a huge task & requires great detail of planning. It will be a tough task for govt. as well as for people. Public Inconvenience It might be very inconvenient for public, many people have medical emergency and health issues, there is weeding season is around the corner. So it is very inconvenient situation for common people. Lack of Banking structure Current banking structure, especially in rural India is not that sounds, which can support this huge economic transition, at least 50 day s are very less for it.

7 Findings: Will hit economy for two quarters at least As 90 % of the Indian economy is on cash, this crunch of the cash situation will hit economy for two quarters at least if not more. 50 % of the revenue comes from service sector, which will be worst hit by this cash crunch. Will hit agricultural sector This is the high activity period for agricultural is concern, farmers this time does not have a cash to buy seeds, fertility items. Which may hit the production of many important items, Which will further impact the economy. May see a return of Inflation Ideally inflation should go down after demonetization, But/if the farmer production gets hit by this. If availability of cash does not get normalize in 2 weeks. Then we may see a less production across agricultural product, which will further result in inflation and high price. Small farmers, sellers, merchants, daily wage laborers and traders are suffering because of lack of proper planning, intelligence and foresight such as recalibration of ATM machines. People are facing problems because the limit of withdrawal has not been kept at a higher level. If announcement and time would have been given, this step might not have been successful in controlling black money and counterfeit currency in circulation. There may be some difficulties for a couple of months. But this inconvenience shall be temporary and for short-term. denomination notes in the market before taking this step. The idea of demonetization is good but it has to be taken into consideration that most of the black money is kept in the form of land, buildings or gold or kept abroad. Government need to take all the necessary steps so as to ensure that there will be a smooth flow of currency exchanges. It would turn into chaos if government takes no necessary steps to circulate money correctly. Conclusion: Demonetization is a fairly common practice but its sudden onset has massively destabilizing effects. There may be some difficulties for a couple of months. But this inconvenience shall be temporary and for short-term. The advantages are much dominating and it will be in the long term interest of our country comfortably outweighing the disadvantages. It is a masterstroke by Modi and its success highly depends on its implementation. With the fake money destroyed, Indian economy will see a big boom. If unaccounted or black money isn t obliterated, it would make the rich richer and the poor poorer. This step is considered as the biggest cleanliness drive against the black money in the history of Indian economy Reference: 1) WP_2016_182.pdf 2) Sample Essay For SSC CGL Descriptive Paper- Demonetization in India 3) The Big Picture- Impact of Demonetization INSIGHTS 4) A Short Essay, Article on Demonetization and its Impact 5) Pros & Cons of Demonetization of Big Currency Notes Bank Exams Today 6) What are the pros and <bold>cons</bold> of demonetizing Rs.500 and Rs.1000 notes? - Quora Suggestions: There was need to pile up enough 100 Rupee notes and other smaller