What are the Effects of demonetisation?

Anti-corruption measures turned out to be very popular with Modi. For the Indians, the belief that Modi is aggressively fighting black money is much more important than the minor difficulties they may suffer.

Demonetization in India

But the decision to demonetize the economy does it really work? “It depends on what the objectives are if it was only to attack the informal economy, it is not clear, because most of the money was deposited and is back in the system if the intention was to extend the scope of government oversight of transactions. , then yes, because when depositing, the government has a good perception of the possessions of each citizen, if it was intended to eliminate the dirty money and restrict the financing of terrorism, also, since all the tickets were replaced early November 8th, India’s Prime Minister, Narendra Modi, withdrew 500 and 1000 rupees banknotes from the market.

Demonetization Meaning

This decision is an attempt to clear India from the “gray economy ” and is part of the fight against illegally earned money and unauthorized transactions. Historically India is a country where cash transactions predominate and these two banknotes account for 86% of the currency on the market. From 8 November, the Indians have 50 days to prepare themselves for the majority of their cash “lost ” legal tender.

Impact of Demonetization

The decision to withdraw the two highest denominations of Indian rupees caused mixed reactions. According to the Indian finance minister, this also aims to reduce “terrorist financing and any other subversive activities” that potentially involve the abuse of counterfeits. The above-mentioned activities are part of infamous India’s gray economy, which is mainly driven by cash transactions and is, therefore, the largest driving force of inflation in India. However, despite these justifications, the decision to demonize has many negative consequences.

They can suffer “hundreds of thousands of ordinary citizens who legally earn money “The majority of the poorest Hindus are unfamiliar with a modern banking system, and many of these citizens are afraid of being imprisoned by government officials in the” bureaucratic network.”More specifically, the poorest citizens are worried that they will not be able to handle the transfer. Cash for cash in bank accounts Democracy critics are afraid of social repercussions and say that the economic slowdown caused by the “sudden contraction of the total money supply ” may occur.

Although there is still no data to show how the measure impacted on GDP, the withdrawal of bills affected the property market, where most transactions are made in cash and through undeclared money. The upper sectors find new difficulties to buy and sell real estate, and they guard their assets in gold, the other preferred mode of saving for illicit funds. However, it is believed that Modi will seek to reform these two markets.

In theory, Modi’s movement is feasible. It is a reasonable, next part of the new Indian monetary policy system that is supposed to fight inflation. When the above-mentioned banknotes disappear from circulation, the Reserve Bank of India will theoretically be able to “fully balance it with what economists call open market operations “.

These include the purchase of bonds and the supply of money to the markets. According to the justifications for Prime Minister Modi’s policy, the theoretical victim of demonetization is a person who has illegal cash, which must now be ” burned “”After November 8, illegal cash will no longer be undetectable, as all 500 and 1000 rupees banknotes will have to be checked by the bank before they are exchanged for new bills, so all the illegal money will be rejected by the bank. this will have several long-term effects, in addition to discouraging the accumulation of illegal funds, and the government is also aware that demonization involves the short-term ” costs of adaptation ” of the economy to these changes.

Demonetisation – Usage of Credit and Debit Cards

International commentators are pondering these horrible possible consequences resulting from the demonization of hard currency. Most people in the West can use bank accounts or debit and credit cards, but in India, the situation is a bit different, because the use of banking services is still considered by most citizens a luxury. Moreover, most Indians live below the poverty line and many of them resort to cash transactions in their daily lives. Statistically speaking, about 95% of all transactions in India are cash transactions.

Time runs inexorably. Indians, until the end of the working day on New Year’s Eve, must exchange or pay invalid rupees in financial institutions or post offices. At the same time, the government “also increased the limits for cash withdrawals “. Despite the justification presented, many citizens are still dissatisfied. Since the prime minister’s announcement of the demonization, there have been warnings of riots and there is widespread confusion, as many ordinary citizens have been forced to ” wait in long queues in front of financial institutions to find out what they should do with their banknotes “.

The shift towards digital payments

Various social media have come to the rescue, trying to dispel conspiracy theories and disseminate information on the correct procedures to be taken when going to the bank. Digital banking companies are using this opportunity to get rich on this nation-wide developmental move. Among them is Paytm, which offers e-wallet accounts, which has the possibility of radically democratizing financial transactions. Paytm is used by everyone, including stalls owners on the roadside.

A few special regions in India have not been affected by demonization. Indian banks encourage citizens to use “online and mobile banking “to help reduce the sudden pressure on other banknotes, which, according to critics, may be the reason for the economic slowdown after demonetization.

Effect of Demonetization on GDP

Demonetization will undoubtedly lead to the reduction of the gray zone of the Indian economy, as well as the circulation of illegal money, which currently account for about 20% of the total GDP of India.

Conclusion – Demonetization

According to most sources, it seems that demonization effects in India are mainly limited to the local economy. So far, what impact it will have on the relations between India and the global economy remains unclear. Because demonetization means for most Indians a violent and forced change involving the start of digital banking, India will be able to count on global benefits in the future.

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