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173 IMPACT OF DEMONETIZATION ON COMMON MANDr. Satish Kumar Upadhyay
Associate Professor, Political Science, Government Degree College, Pathardeva, Deoria After few days of demonetization, in Goa,
Prime Minister NarendraModi spoke about demonetization and state that “We took a key step to help the honest citizen of India defeat the menace of black money. The suffering is for 50 days; After cleanliness, not even a mosquito can fly; People in 2G scam have to stand in queue for Rs 4,000”.1Prime Minister Narendra Modi on November 8, 2016 announced a ban on old Rs 500 and Rs 1,000 notes. The reasons for demonetization are to control counterfeit notes that could be contribute to terrorism, and to undermine or eliminate the “black economy”. The demonetization policy is being seen as a financial reform in the country but this decision is fraught with its own merits and demerits. Demonetization is a generations‟ memorable experience and is going to be one of the economic events of our time. Its impact is felt by every Indian citizen.
According to Oxford dictionary, the word Demonetization means “The withdrawal of a coin, note, and precious metal from use as legal tender”2. Demonetization is the act of stripping a currency unit of stripping a currency unit of its status as legal tender. It occurs whenever there is a change of national currency. The current forms or forms of money is pulled from circulation and retired, often to be replaced with notes or coins. Sometimes, a country completely replaces the old currency with new currency3.
India has pulled select demonetizations of its currency twice before. The first was when Rs1, 000, Rs5,000 , Rs10,000 notes were taken out of circulation in January 1946 . All three notes were reintroduced in 1954.
1http:mtimesofindia.com/pm-modi-on- demonetisation-10-key-
quotes/listshow/55398214.cms
2http://en.oxforddictionaries.com/definition/demon etiization
3http://www.investopedia.com/terms/d/demonetiza tion.asp
Secondly, The High Denomination Bank Notes (Demonetization) Act, instated on January16, 1978 deemed the Rs1,000 , Rs5,000 and Rs.10,000 notes illegal for the second time.4On International level, The Coinage Act of 1873 demonized silver as the legal tender of the United States, in favor of fully adoption the gold standard.
In 2015, the Zimbabwean government demonetized its dollar as way to combat the country‟s hyperinflation, which was recorded at 231,000,000%5
The impact of Demonetization on common man is not only economic but political and socially too. The government‟s stated objective behind the demonetization are as follows:
1. It is an attempt to make India corruption free.
2. It is done to curb black money.
3. To control escalating price rise.
4. To make people accountable for every rupee they possess and pay income tax return.
5. Finally, it is an attempt to make a cashless society and create a Digital India.
The demonetization on November8, 2016 put lot of problems in front on cash dependent economy (some 78% of all Indian customer transactions are in cash).The long lines formed outside ATMs and banks, which had to shut down for a day. About 115 people died standing in queues to withdraw money from their bank accounts. The new rupee notes have different specifications, including size and thickness, requiring re-calibration of ATMS: only 60% of the country‟s 200,000 ATMs were operational. Small businesses and households struggled to find cash and reports of daily wage workers not receiving their dues surfaced. The rupee fell sharply against the dollar. However, the World Bank said the Indian economy appeared to have recovered from the temporary disruptions caused by
4http://qz.com/india/831674/rupee-currency- demonetization-a-brief-history-of-india-pulling- bank-notes-from-circulatiuon/
5Http://www.investopedia.com/terms/d/demonetiz ation.asp
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174 demonetization and the introduction ofthe GST. The World Bank said the country was projected to grow by 7.3 % in 2018 and 7.5%in 2019 nut pointed out that despite growth, India was not creating enough jobs.6
Gabriel Chodorow-Reich, Economic Professor at Harvard University and his colleagues Gita Gopinath, now Chief Economist of the International MonetaryFund, wrote in a paper along with Goldman Sachs Group Inc.‟s Chief India Economist Prachi Mishra and the Reserve Bank of Abhinav Narayanan:7
1. It was comparable to a 2- percentage point tightening in the key policy rate and reduce economic activity by at least 3 percentage points in the month immediately after.
2. However, the decline in output was relatively smaller and wasn‟t fully seen in national gross domestic data, given that these numbers don‟t completely India‟s vast informal economy.
3. They called for deeper evaluations of the long-term consequences of demonetization.
According to the 2013 report from the Reserve Bank of India, approximately 99.3% of the demonetized bank notes, or Rs. 15.30 lakh crore (15.3 trillion) of the Rs. 15.41 lakh crore that had been demonetized, were deposited with the banking system. The bank notes that were not deposited were only worth Rs.
10,720 crores (107.2billion), 8leading analysts to state that the effort had failed to remove black money from the economy.910The BSE SENSEX and NIFTY 50 stock indices fell over 6%on the day
6http:www.google.com?amp/s/indianepress.com/art icle/india/demonetisation-secxond-anniversary- congress-bjp-5437069/lite/
7https://m.economictimes.com/news/politics-and- nation/world-steps-up-to-study-indias-cash-ban- whilw-modi-looks-away/articleshow/67224114.cms
8Dutta ,Prabash K.(30 August 2018)
“Demonetization ;what India gained, and lost” India Today . Retriever 12 October 2018
9 “India demonetized failed to purge black money Financial Times . Retrieved 31 August 2017“
10 “India rupee:Illegal cash crackdown failed-bank treport”BBC News 30 August 2017-via www.bbc.com
after the announcements.” The move reduced the country‟s industrial production and its GDP growth rate.11 IMAGE 112
The Congress had marked the first anniversary of demonetization as a “black day” against the NDA government, while the government celebrates November 8 as
“anti-black day”. Demonetization is not a big disaster like global banking sector crisis of 2007; but at the same time, it will act as a liquidity shock that disturbs economic activities. The following are major sectors on which the impact of demonetization on common man affects much:
1. Real Estate - Real Estate is expected to be one of the most affected sector. The numbers of buyers are dropped around 50% in three months from the date of demonetization and consequently low demand will bring about lower prices in the short term.
Unorganized builders will be most affected and the sector also along with it. The real estate market long term may see decrease in speculative buying and selling, an increase in transparency, payments through banking systems and price correction will lead to genuine buyers entering the market. The market will witness an expansion in
11 “Thanks to Demonetization and GST , India‟s GDP growth hit a 4-year low at 6.5per cent” India Today . Retrieved 2 October 2018
12 Image 1 source-
https://www.google.com/amp/s/www.financialexpr ess.com/opinion/demonetisation-rbi-data-shows- no-impact-in-most-places-due-to-ban-on-rs-500-rs- 1000-notes/811523/lite/
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175 demand of affordable real estatedriving growth in the sector.
2. Agriculture - The most affected were the marginalized farmers having negligent landholding as this segment of society is not socially connected and is completely depend on credit system. Cash is the primary transaction mode in the sector and the agricultural dependent states like Uttar Pradesh, Punjab, Madhya Pradesh, Maharashtra, Kerala, Odisha and Gujarat where Cooperative banks extend finance to the farmers during the sowing season, were debarred to take deposits or exchange the demonetized currency Thus, they were the worried lot that their kharif crop would perish for want of buyers without any cash in hand.
3. Healthcare Sector – In the healthcare sector, the worst is the medical tourism industry, since patients had come from outside India and were unable to get their treatment done due to financial cash crunch. Even the pharmaceutical industry has been affected due to transactions which are done on the basis of cash.
4. Travel and Hospitality Industry- Most of the hotels showed a drop of 60% in hotel booking as most of the mode of mode of transaction in cash. Associated Chamber of Commerce and industry of India [ASSOCHAM] has reported a 65%
drop in Christmas and New Year vacation booking in 2016.13
There are many other sectors like education institutions, banks, Automobiles, shopkeepers etc. who faced a lot in demonetization. However, Initiatives such as interest waivers on home loans, the government‟s push for affordable housing through Pradhan Mantri Awas Yojana (PMAY) and the
„Housing for all by 2022‟ mission have come to the forefront over the past one year. Various policy initiatives, amendments and reforms aim at making
13 International Journal of Latest technology in Engineering , Management & Applied Science (IJLTEMAS) Volume VI ,Issue IV, June 2017 Issn 2278-2540
the real estate sector more transparent, organized and fundamentally stronger.14
Only a small portion of black money is actually stored in the form of cash. Usually, black income is kept in the form of physical assets like gold, land, buildings etc. Hence the amount of black money countered by demonetization depend upon the amount of black money held in the form of cash and it will be smaller than expected.
IMAGE 2 15
The Reserve Bank of India‟s second annual report since demonetization puts to rest any illusions about the Modi government‟s grandest financial gesture.
On November 8,2016. Prime Minister Narendra Modi announced that all Rs.500 and Rs.1000 notes comprising 86% of the total value of the currency in circulation at that time would no longer be recognized as legal tender. Nearly two years later, the central bank says, about 99.3%of the notes sucked out of circulation has been returned. Besides, the value of bank notes in circulation has increased by 37.7% over the year, reaching Rs.18,037 lakh crore by the end of March2018. Meanwhile, the country‟sbanks reportedly detected a 480% jump in suspicious post demonetization. The Reserve Bank reports a huge jump in fake Rs. 2,000 notes,
14www.mbauniverse.com/extempore-speech- topics/impact-of-demonetization
15 **Image 2 source-
https://img.etimg.com/photo/msid- 55969659/graph-1.jpg
VOLUME: 08, Issue 01, Paper id-IJIERM-VIII-I, February 2021
176 which were introduced afterdemonetization.16
On the positive side, Demonetization will help the government to track the black money as the unaccountable cash will now flow no more and the amount collected by means of tax can be better utilized for the public welfare and development schemes. This will help India to become corruption free. This move will stop funding to the unlawful activities that are thriving due to unaccounted cash flow. Money laundering has become difficult us the activity can easily be tracked and the money can be seized by the authorities. Demonetization has helped in stopping the running of parallel economy due to circulation of fake currency. The ban on high value currency will also curb the menace of money laundering and circulation fake money.
Banks which were reeling under deposit crunch bad were running short of funds have suddenly swelled with lot of money which can be used for future finances and loans. The people who opened the Jan Dhan Accounts can now use their accounts and become familiar with banking activity. The money deposited in this account can be used for the developmental activity of the country. The demonetization policy will force people to pay income tax returns. Most of the people who have been hiding their income are now forced to come forward to declare their income and pay tax on the same.
On the whole, the maximum affected segment of the society was the middle class and rural areas of the India.
The move will hence “short term pain” but growth gains in the long term. It is beneficial for both Indian economy and commonman. To sum up, this move will lead to sustained economic growth, improved tax compliance, better fiscal balance, lower inflation, control corruption and assist in eliminate of fake currency.Demonetization has driven the country towards a cashless society. Lakhs of the people even in remote rural areas have started resorting to use the cashless transactions. The move has promoted banking activities. Now even the small
16https://scroll.in/articles/892428/the-daily-fix- rbis-latest-report-is-clinching-evidence-that- demonetisation-was-a-failure
transactions have started going through banking channels and the small saving have turned into a huge national asset.
However, Economic Activities have slowed down and it is feared that it will take time for GDP to take a good growth. It requires to be given
