Home Facts What is demonetization and its advantages and disadvantages

What is demonetization and its advantages and disadvantages

by Sudhir kumar

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What is Demonetisation and its Advantages and Disadvantages in hindi Before 8 November 2016, the common people of India might have been unfamiliar with this word. The reason for this has been the almost non-use of this word in everyday life. Yes, students of economics, teachers and then the knowers of economics must have been aware of demonetisation, but they might not have even thought about whether it can be implemented in India. However, the way Narendra Modi’s government of the country was active in curbing black money for the last two and a half years, it was speculated that he could take some big and unprecedented step to destroy black money. Huh. Finally, while addressing the nation on 8 November 2016, he announced the demonetization of high denomination notes i.e. 500 and 1000 notes from midnight of the same day. After this announcement, the notes of both the above denominations became legally illegal and there was no value of those notes i.e. currency. Prime Minister Modi discontinued 1000 and 500 notes.

what-is-demonetisation

What is demonetisation? (What is Demonetisation in hindi)

In short, it can be said that “Demonetisation is the process under which the government of a country legally bans any currency (note) of its country. After the ban, that currency has no value. Any kind of purchase, sale, transaction and accumulation of that currency is also considered a crime. After the ban on currency, the government sets a time limit, within which people can exchange the banned notes in banks and replace them with existing notes of another class of similar denomination or newly issued notes. If the banned currency is not exchanged or deposited in the bank within the stipulated time limit, then all those notes become pieces of paper or junk.

Why is demonetisation done? (Why demonetisation is necessary)-

There are many reasons for the government of any country to ban a particular class or classes of notes of different denominations prevalent in the country. The most important thing about this type of ban is that generally the ban is imposed on the notes of large denomination. For example, 500 and 1000 notes were banned in India, which were the largest denomination notes among the notes in circulation in the country. The main reason for demonetization is The destructive role of black money and counterfeit currency in the country’s economy. When people in a country start doing more cash transactions for the purpose of tax evasion, then hoarding of currency increases and then this hoarding gradually rises in the form of black money as a parallel economy in that country. Is. In such a situation, black money gets out of the mainstream of the country’s economy, which creates the problem of cash crunch. With the exit of currency in the form of black money from the mainstream of the economy, not only harms the economy of that country but it also becomes a challenge for the security of the country. This black money becomes the main source of terrorism, Naxalism, crime, hawala business and smuggling in the country. At the same time, under the guise of this criminal activity, the enemy countries conspire to cripple the country’s economic system by dumping a huge amount of counterfeit currency in the country.

For all these activities hoarding is done in notes of large denominations. If we look at the data released by the Reserve Bank of India (RBI), it becomes clear that a huge empire of black money had been established in the country. According to the data, as on March 31, 2016, notes worth Rs 16.42 lakh crore were in circulation in the country, out of which Rs 14.18 lakh crore were in the denominations of 500 and 1000. That is, the share of 500 and 1000 denomination notes out of the total notes was 86 percent. But RBI data says that only 24 per cent of these large denomination notes were in the market. That is, the remaining 76 percent of the high denomination notes were hoarded and converted into black money.

On the other hand the Indian economy was also plagued by the increasing number of counterfeit notes. It was estimated that before demonetisation, there was an influx of counterfeit notes worth about Rs 400 crore in the country’s economy. That is, there were 250 fake notes per 10 lakh notes. Not only this, the stock of these counterfeit notes was also increasing by 70 crores every year. Of these counterfeit notes, more than 50 per cent were notes in the denomination of 1000 only and the rest were in the denomination of 500. In such a situation, the hollowing of the Indian economy was bound to happen. Ultimately, it was necessary that the government should take such a step, which could hit the game of black money and counterfeit currency which is becoming a scourge for the economy. The decision of demonetization taken by the present Narendra Modi government of the country can be called a successful effort taken in this direction.

History of Demonetization in India (Demonetization history in India)-

It is not that the decision taken by the present government of India on demonetisation is the first one. Even before this, the whip of demonetization has started in the country. Notes of 500, 1000 and 10,000 denominations were demonetised for the first time in the year 1946. In the days to come, the Wanchoo Committee, set up to investigate Direct Taxes, had advised the government to demonetise in the 1970s to bring out and destroy black money. But by the time the government took the final decision in this regard, even before the government’s plan to demonetise was exposed and black money holders became alert. The then government eventually had to cancel the plan of demonetisation.

In 1977, after the lifting of the Emergency, the Congress had to withdraw from power and the Janata Party government was formed under the leadership of Morarji Desai. This government demonetized the 1000, 5000 and 10,000 denomination notes in January 1978. However, IG Patel, the then Governor of the Reserve Bank, did not support this move of the government. Morarji Desai Biography Read here.

Now once again the present Narendra Modi government of the country has made a big attack on black money by demonetizing the notes of large denomination. This time the Reserve Bank is also with the decision of the government. In this context, Reserve Bank Governor Urjit Patel has described the government’s move as bold. However, there is no consensus on this move of the government in the economic world. Many experts are saying that demonetization is good for the economy, while many believe that the intention of the government to remove and destroy black money will not be fulfilled by it. The opposition parties of the country have also termed the demonetization move of the government as unfair. However, in view of the support and criticism on demonetisation, let us look at the benefits of it.

Advantages of Demonetization –

  1. crackdown on black money The worst hit of demonetisation has been on the black money kubera. It was estimated that around Rs 3 lakh crore is kept hidden as black money in the country. These money were being used indiscriminately in hawala business, smuggling, terrorism and criminal activities. Black money was also playing a major role in the ongoing violence in Kashmir. Black money has been an issue in the politics of the country for a long time. Finally, when it was attacked by demonetization, it is believed that the black money will not be completely destroyed, but it will definitely have an effect of about 80 to 90 percent on the empire.
  2. Injury to terrorism, Naxalism and criminal activities Due to the impact of demonetisation, terrorist groups, Naxalite groups, drug dealers and other illegal activities have been hit hard. Its clear effect is being seen in Kashmir. While the bundles of notes deposited by these groups have turned into pieces of paper, their activities have come to a standstill due to the lack of new notes.
  3. Increase in tax collection While giving relief to those hiding black money before and during demonetisation, the government had said that they can come into the mainstream by disclosing their money and paying taxes as per rules. It had its effect. Many people took advantage of the relief and the whereabouts of many of those who remained hidden were raided by agencies and caught and cash was confiscated. According to the government report till now, there has been an increase of 14.5 percent in tax collection after demonetisation.
  4. growth in the economy After demonetisation, it is estimated that this move will bring about Rs 3 lakh crore to the government account. Also, 65 thousand crore rupees are also expected to come through various taxes. It should be noted that these figures are only approximate. These can be much more than expected. With such a huge amount coming, the government will invest in infrastructure, which will accelerate the economic growth of the country.
  5. Interest rate will be cheaper After demonetisation, deposits in banks will increase due to a large part of black money coming into the mainstream of the economy. With sufficient amount of cash in hand with the banks, they will increase the flow of credit. In order to increase the flow of credit, it will be imperative for banks to cut interest rates on loans. When this happens, where business activities will pick up, there will be a boom in the realty sector, which has been hit by recession for the last two years. As a result, with the increase in the sale of houses, the dream of a cheap house is also expected to be fulfilled.
  6. Expenditure on public welfare schemes – After demonetisation, the government will increase the scope of public welfare schemes with the amount received in the share of the government and will also be able to increase the budget of the already running schemes. The government has also given its indications. Under the Pradhan Mantri Awas Yojana, the way the financial assistance given for the construction of houses has been increased with the fixed target of construction of houses and with less interest, the intention of the government towards the future is clear. Prime Minister’s Housing Scheme Read here.
  7. Increase in employment After demonetisation, the government’s Mudra scheme will get a boost. This ambitious plan of the Narendra Modi government was not getting full support from the banks yet. The reason for this was the cash crunch with the banks. But now that the flow of cash has increased in the banks, the banks will increase the flow of credit in business activities. This will increase industrial activities and as a result employment generation will increase.
  8. Moving towards cashless economy The shortage of cash during demonetisation gave a big lesson to the people of the country and that was the compulsion of cashless payment. Today the same compulsion is speaking over the heads of the people in the country. Till yesterday, the people who wanted to pay in cash, today the same people are advocating for digital payment. If this trend picks up in the country, then the IT sector will benefit tremendously here. On the other hand, in the cashless economy, the possibilities of black money can also be controlled to a great extent. Cashless Payment Methods Read here.

It is also not that demonetization has only advantages, it also has side effects (Disadvantages of demonetization in hindi)-

  • The country’s tourism industry has suffered a major setback in the era of demonetisation. During that time, foreign tourists had to face a lot of difficulties due to the lack of local currency in the country. In view of the problem, tourists coming to India had canceled their tour. As a result, the country’s tourism industry fell into the grip of recession. It is being said that this period of recession can go on for some more time.
  • The side effect of demonetisation is also being feared on the country’s GDP (Gross Domestic Product). It is natural for this to happen. Demonetisation was like a sudden earthquake in the country’s economy. Due to this, slowdown in the economy is also natural. But this stay is for a short time. A little loss doesn’t matter for a better future.

Overall, it can be said that demonetization brings only long-term benefit to the economy of any country, not any particular loss.

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