On 8th November 2016 at around 10 pm, Prime Minister of India, Mr. Narendra Modi discontinued using Rs. 500, Rs 1000 and Rs. 2000 notes which were in circulation at that point of time. The entire nation was in a state of shock for nobody had the slightest hint something like this was coming up. As soon as the news broke out, everybody was perplexed at the idea of what was to be done with the cash in hand. People all over the country began surfing sites and reading the news as to figure out what exactly happened.
It was to curb the growing black money in the market. RBI estimated nearly 15 billion notes of 500 denomination and 6 billion notes of 1000 denomination. Black money is earned from illegal sources. It is not disclosed to the government to avoid paying the income tax. RBI also estimated 0.2 million notes of Rs. 500 and 0.15 million notes of Rs. 1000 were fake.
Was this the first time?
Demonetisation as a step to reduce the flow of black money has been taken many times before. The first one took place in 1946 wherein the denominations of Rs. 1000 and Rs. 10,000 were discontinued. Followed by the one which took place in 1978, the denominations of Rs. 1000, Rs. 5000 and Rs. 10,000 were discontinued. It is the third time something like this is taking place. The only difference is in the GDP then and now. GDP in 1960 was Rs. 400 and in 1978 it was Rs. 1722. However, today, it is Rs. 103,000.
Why was this kept as a secret?
Prime Minister Narendra Modi is well aware of India’s political groups and the masterminds residing within them. Demonetisation was planned in secret and executed by a small trusted group. He knew that if by any chance, even the slightest hint something like this is going to take place comes across; the entire purpose will get ruined. It would have become easy for people with black money to get the money exchanged overnight. It was the reason Indian citizens were given a period of just 50 days to exchange the old denominations.
How was the common man affected?
The step made the lives of those with no black money miserable too. Demonetisation hit the banks too due to the unavailability of new denominations. Sectors like agriculture, fishing and informal markets dependent fully on cash were shut down. People stood in long queues to get money exchanged. There was not enough supply for the demand. Though there was enough in the market, there was not enough money with the buyers. People were unable to pay for the local transport. But, these were just some short-term miseries coming across. Mr. Narendra Nodi had an entirely new future planned ahead. After 30-35 days of sheer chaos, some positive changes could be seen setting in. Illegal activities including terrorist and real estate were enormously hit. Many political parties which were left with a huge chunk of illicit money too came out in the open. In addition to this, the country for the first time followed the concept of cashless transactions with Paytm, free charge etc. The impact on the market of black money is temporary for now. Long-term benefits may or may not be seen.
Time for the pros and cons!
A mixed reaction was seen country-wide. On one hand, the black money holders were worried about the old denominations they possessed. On the other, daily wage workers were left with no job because the owners had no money to pay. It is said that closer we get, the more loopholes we find. Two sides of the story-
It will help in the tracking of unaccounted money transactions. People with hidden money will be required to show income or PAN for every valid financial transaction. Those with high currency notes will be affected as well. They will be left with no other option but to pay income tax on the income or destroy the cash. Instances like people destroying huge piles of cash on the street could be considered an after effect of demonetization.
All the illegal activities doing the rounds will come to a stop. With the money involved in the business bearing no value, the business will have no value left either. This is because black money is only used for funding of illegal activities and terrorism. The income tax department is determined to track down fraudulent officers.
Another benefit associated is those businessmen who have been hiding all along are ready to pay tax as the income of current year. They will come forward to declare their income and pay tax on the same. For transactions above Rs. 50,000 the citizens are required to submit PAN. This has helped track people with high denominations.
People have also started to deposit cash in their Jan Dhan accounts which can be used for the prosperity of the country.
People need to move to and fro between ATMs and banks to get money exchanged. If there is a delay in the availability of new currency notes, it can also lead to a chaos. People with weddings coming up are given a higher withdrawal limit by the government.
People are coming out on the streets and destroying the old currency notes. As a repercussion, the government must bear the cost of printing the new currency notes.
What did we learn from demonetization?
The benefits of demonetization are long-term. Mr. Narendra Modi being a political leader himself has played a masterstroke against all Mulayams and Mayawatis of the world. Common man too is in sync with their prime minister and ready to bear the adversity. Benefits as of now too are outweighing the drawbacks. Rest only time will tell.