Demonetization in India: An Analysis!!

It is very hard to find a single man on the earth who is not fascinated about money. even if you put a small coin in front of a small child you can see a smile on his face. as we become more educated and civilised this is going to capture us. it’s very hard to imagine the things which can be done without money. though some idealist may have the notion that we can love even if we don’t have money but I afraid even that is not true. so money has a 360 degree surveillance over us.

when ever anything becomes so useful that we can’t imagine anything without that then it is bound to be misused. same is the case with the money. which brings the a new term in the picture the “Black money”. what is this black? is this the money that comes from the black people or the money has a black colour on it? if that’s the case the it would be very hilarious but that’s not the case. lets try to understand what is black money:

Black Money:

any financial transaction kept out of the purview of the authorities, to evade tax, is black money. it can be done for simply hiding one’s income to save more, or to indulge in actual illegal activities like terror, human trafficking, drugs and narcotics, corruption and financial crimes. this is what makes black money truly dangerous, and even the most corrupt of politicians realises this ugly side of the hydra-headed monster. remember, a lot of black money is not unethical but need-driven as the micro-stores of cash with mothers and wives of India prove.

this disease is most prevalent in the developing countries and unless it is eradicated they will remain so. India’s efforts to curb the money money has a very long history but never came any bold which somehow could be able to hunt the beast.

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in the wake of so much burning discussion going on to curb the black money, the Indian prime minister Mr. Narender Modi came with a bold decision of demonetization of higher dominion notes i.e. Rs 500 and 1000 on the night of 8th November 2016. from now they were not going to be the legal tender anymore. this sudden move of Mr. Modi surprised the whole country and this news was in every year within the few hours of the announcement. and all the people stated the sting operation on their level.

from this very night onwards all vendors, shopkeepers and retailers refused to accept 500 rs. and 1000 Rs notes. it brought different type of problems for the people of different strata. the bigger parties were worried about converting the back money into white money due to which price of the gold were doubled and stock market came down drastically. these were the few things which were going on that night.

 

Here is the full speech of Mr. Modi over Demonetization.

now lets be little bit technical and try to understand the economics of demonetization.

Concept of Demonetization:

demonetisation is the legal act of rendering existing currency notes invalid, and replacing them by new currency notes of same or different denominations. it is a shock therapy intended to destroy accumulated illegal cash(which is not legal wealth) and restore the faith of honest taxpaying citizenry. India has witnessed demonetization in 1946, 1978 and now in 2016. but given the 132 crores+ population of India now, and massive scale of the cash economy, it is glaringly apparent that the ATM refilling operations were simply ill-planned, ill-execute and grossly mismanaged. the real danger is not this- it will be when crores of fresh white economy entrants- paying taxes out of hard earned revenues and incomes- will start demanding good quality government services from all the departments and ministries, central and state. are we anywhere close to that revolution in government-efficiency???
History of demonetization in India:
first round: it happened on January 12, 1946- for rs 1000 notes- done by the high denominations bank notes(demonetization) ordinance, to destroy illegal wealth accumulated during second world war.

second round: it was done on January 16, 1978- for all notes above rs. 100 i.e. rs. 1000, rs. 5000 and rs. 10000 notes- done by the high denominations bank notes(demonetization) act, 1978 by janta party government to destroy black money of smugglers and mafia(rs. 1000 notes were brought back in 2000-01).

third round:this was carried out on late evening November 08, 2016- for rs. 500 and rs. 1000 notes done through a TV announcement by Pm Modi to break the backbone of corruption, illegal election funding, terror financing etc.
though I do think that it is a positive move by the indian government to curb the illegal activities which are directly linked to the accumulation of black money. but as we all know whether the government does sth or not it has to face the critisim. sometimes constructive and other times destructive. leyts see what are differenrt vies on the demonetization.

here is some account of totally unbiased criticism:
1. techanically not solid: critics say Modi has pitched a patroitic than the economic line-” there comes a time in the history of a country’s development when a need is felt for a strong and decisive step”. Modi asked the ordinary person to “put up with difficulties for some days”. critics say if this is all he plans, he may be wrong. why? it had been done earlier too but it ws not executed effectively and nothing changed but the hardships for the common man.

2. move is incomplete: building on the first point, people remind that sinha said at that time- ” I am sure that the root cause for illegal transaction lies not in the notes of high denomination but elsewhere.” on sunday november 13, 2016PM Modi made an announcement to tackle that ‘elsewhere’ place, relieveing those who thought he was wrongly advised and that the present pain was pointless.

3.new black economy rising: Media outlet http://www.thewire.in says that ” knowingly or unknowlingly the modi government has pushed the country into something resembling the soviet era. the whole country is quieing up for hours in front of ATMs in search of few thousand rupees. the unpreparedness has exposed the gross inefficiencies of the indian banking system. with $217 billion(86% of the total currency valuein circulation) currency out of the system, markets are deserted and economic activities are at a bare minimum. if the present chaos continuesfor some more time, there is a danger of parallel black economy. if people continue to exchange in old curriency notes with the faith thatit will be accepted at least within the black economy, it may become a permanent feature of the indian monetary system.”

4. general citizens complain: the government has made our cash useless without any alternative system in place. shopkeepers and those providing goods and services do not accept cheque due to fear. credit cards have nearly fees and most of the banks do not sendstatements in time and the holder of the card is made to pay 24% interests on late payment. even shopkeepers charge 2% extra for accepting credit cards. if a debit card is used, there are charges on every transaction. there are other portals through which payment can be made, but they take service charges. thus, alternative methods which cost extra money and unnecessary expenditure are needed.

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people queued up for money exchange

5. diversionary tactic: finally, bitter critivs are making surprising claim that government had no choice but to carry out this dramatic attack on black money which will kill multiple birds with one shot, as otherwise major promises were not being seen as getting trully fulfilled, nor were achche din visible round the corner as jobs, employment, manfucturing are all not vibrant.
but the government is not merely watching. rather tweaking and improvisations are happening daily.
here is a list of stream- release- measures announced on 17-11-2016.

1.Farmers in Rabi season: to help farmers in rabi season, now farmers can withdraw up to Rs. 25000 per week from the payment they receive for agriculture produce in the form of cheques or RTGs.

2.crop insurance payment: the time limit for payment of crop insurance premium is increased to 15 days.

3. mandi traders limits enhanced: registered traders at Landis can withdraw up to Rs. 50000 per week to meet labour costs. all the accounts of the farmers and traders must be Know Your Customer(KYC) complaint.

4. happy marriages: the father or mother in a family having a marriage ceremony can make a one time withdraw of Rs. 2.5 lakhs.

5. Exchange limits reduced: perhaps to balance this extra outflow, the counter exchange of old Rs. 500/1000 notes can now only be Rs. 2000 rather than Rs. 4500.

whether a particular step will succeed or not that is also dependent on the fact that how much the citizen of that country  supports the government. this is among few of the incentives where we all need to support the government. it has brought some hardship to the common people but fruits will be sweeter. it will take some time. no revolution happens overnight.

let’s know what are your views on this very crucial issue!!!

 

Sources:

Bodhibooster and various newspapers and magezines.

this post is written in response to indiblogger’s event IndiSpire

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