Demonetisation: Civil Services Mentor Magazine: January - 2017

Demonetisation

In a move which surprised whole country Prime Minister on 8th Nov announced that old Rs 500 and Rs 1000 notes will not be valid from the midnight of 8th Nov 2016. With this move 86% of money has been taken out of circulation. There comes a time in the history of a country's development when a need is felt for a strong and decisive step. For years, this country has felt that corruption, black money and terrorism are festering sores, holding us back in the race towards development. To some people this is one of three most courageous steps taken by any government since independence. They believe that abolition of privy purses and nationalisation of banks are the only two other steps which can be considered as difficult as demonetisation. Making 15.44 lakes crore of currency invalid which constitutes 86% of the currency was a very difficult and risky step.

There is no official estimation of the amount of black money stashed away abroad. Various non-governmental organisations and economists in the past have indicated certain estimations of illicit financial flows out of the country. Such estimations appear to be based upon different sets of facts, assumptions, presumptions, etc. leading to widely varying inferences, which lacked unanimity and reliability. The incidence of fake Indian currency notes in higher denomination has increased in recent years. For ordinary persons, the fake notes look similar to genuine notes, even though no security feature has been copied. The fake notes are used for antinational and illegal activities. High denomination notes have been misused by terrorists and for hoarding black money. India remains a cash based economy hence the circulation of Fake Indian Currency Notes continues to be a menace. In order to contain the rising incidence of fake notes and black money, the scheme to withdraw has been introduced.

The Indian economy stands badly shattered because of the huge amount of tainted money has been kept by the rich people in India. It has lead to a parallel Economy in the country, whose taxes are not giving in govts hands and this parallel Economy has the capacity to damage the formal Economy. This also leads to increase in inequality in the country, As a poor who do not have this income will go on becoming poorer while the rich go on becoming richer. Black money has serious consequences for probity and honesty in the government also. Black money is used for the bribing the officers to get the benefits for themselves. This takes away the benefits which should be given to the poor and the correct beneficiary.

Main purpose of this move is to take out the black money which has been unaccounted for a long time. Mostly black money has been kept in higher denomination notes, which is easier to store. Other benefits are also that it will make doing corruption much more difficult. It has very large other benefits also like it has removed the fake currency which is circulated in the country. This fake currency has been used in terror financing and also by other groups like left wing extremist for their infrastructure. This move will also hit hard the drug mafia's who mostly do work in black money. There are reports also which prove that demonetisation hit hard on the human trafficking menace. Noble laureate Kailash Satyarthi praised the demonetisation drive and said that it will help in controlling the problem of child trafficking.

However due to nature of Indian Economy and also the sheer size of Economymakes it highly difficult step. Indian economy mostly runs on the cash, according to some estimates more than ninety five percent of the transactions are done in cash in India. This has led to reduce in demand for goods in the market which will reduce the GDP growth in next few quarters. Due to reduction in demand for goods factories are also not taking people for the work, which as lead to removal of labourers from the factories. Demonetisation removed eighty six percent of the cash in circulation, this has created temporary problems for the normal public also. While it has been a daily struggle for lakhs and lakhs of people so far to get their money back from the ATMs or bank branches. People also faced difficulties to organise the family functions as limit of withdrawal has been fixed at 24 thousand per week. To reduce the difficulties faced by the public during the marriage season, govt allowed those who have marriage at their home to take 2.5 lakhs once for the purpose of marriage. Such big move also has social and security risks as Venezuela faced serious security challenges. However as the Prime minister said in his address on 8th Nov, these pains will be only temporary in nature and they will provide benefits to the normal public in the long run.

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