What were the objectives of Demonetisation? What were the positive and negative effects?

To stop the circulation of black money in the market. To help in reducing the interest rates of the prevalent banking system. To help in creation of cashless economy. To formalise the informal Indian Economy.

The stated objective of Demonetisation was-

  • Reduction of Black Money
  • Achieving lower cash/ GDP ration
  • An attack on fake currency
  • To stop terror funding
  • Increasing digital transactions
  • Increasing tax network

Positive effects of Demonetisation are as follows:

  • The number of tax fillers have increased.( Additional 9 million)
  • The transactions made amounting to Rs 3 lakh crore are under Income tax department Vigilance
  • Over 2 lakh shell companies have been deregistered.
  • Demonetisation has able to put a hold on unregulated Real estate sector.
  • Anonymity with the cash transactions is reduced.
  • The whole process has brought more accountability.
  • Formalization of economy- a step toward

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Foreign Trust: Transparency is always welcomed, especially in business. It is the most important gradient for foreign investors. Everyone likes to have their money in safe hands. Black money is a major factor in India which inhibits the rapid growth in private sector.

  • When a company decides to invest in a product they can calculate almost every kind of expenditure they will have to face except bribe.
  • Ratan Tata has shown his irritation about corruption and bribe many times. So decreased black money will surely help Indian government to gain trust from foreign investors.

Lubrication in Circulation: Money is the lubrication that makes the market economy possible. A large portion of this lubricant was immobilized in the form of black money. Rs 500 and Rs 1000 share a major part.

  • Due to this immobilization government is bound to circulate more currency notes in the market to keep it running.

Negative Effects

  • Allow withdrawal from ATM is upto Rs. 2500 and from bank its Rs 10000 only. Long queues will not allow a person to get money on time. It will be a little difficult for a family person to survive with this amount.
  • The Average Population per Bank Branch (APBB) as on 31.3.2013 stands at 12,100 (source). Government has given us 50 days to deposit all our cash money into our bank accounts. Let’s say 40 days are working out of 50. It means, on banks have to deal with average of 300 people daily.
  • Yes, I agree that this number includes every living human being (children, senior citizens and women), so you can say that this number will reduce on practical scale. But wait, what about people who will come along?
  • What about people who will come repeatedly or I can say, daily? What about people who have to come again due to closing time or any other reason? This number will surely exceed. Believe me, public dealing is a very tough job and when you have 300 hassled brains in front of you, it becomes horrible.

Running out of Money: Though, everyone needs new currency notes, it is very hard to provide cash on time, even by RBI. Because, there is a limit on printing currency notes Government just can’t order RBI to print new notes as per requirement.

  • There is a regulatory system which guides RBI and Indian government how much new currency notes should be printed other country has to face some serious issues like, inflation. So, government will not be able to provide enough money to banks to pass on to consumers. It will create uncertainty.

Empty ATM’s: Same as bank branches, queues on ATM’s will also have to face same fate. Standing in long queues and returning with nothing will not please anyone.

  • Patients: Government hospitals have been allowed to accept old Rs 500 and Rs 1000 notes. According to National Family Health Survey-3, the private medical sector remains the primary source of health care for 70% of households in urban areas and 63% of households in rural areas. So it’s easy to understand that what will be the effects on these 63% and 70% patients.

White into Black: As Indian, we do believe in cash. Even if our money is purely white, we go to bank, withdraw some money and go for shopping. Cheque and ATM swipes are not available everywhere. Like, if someone in family is hospitalized or, have marriage in house, we do withdraw our cash and feel comfortable.

  • So, whatever the reason is, if someone has withdrawn a decent amount from his account then it will create a huge problem for him to prove himself innocent. So, in this case, instead of converting black money into white, a person has accidentally converted his white money into black.

Patience of People: Considering all of the above points (and many more in the line), it will need a superman effort from a common man to keep his patience in balance. Any outburst in the tolerance of people will make the situation more terrible.

  • Though, for now, people are more in favor of respected PM because right now they are not suffers. But when they will face hurdles in their routine jobs due to shortage of money then it will be their patience which will make these historic moves a success story.

Downfall in Economy: Though, it will be a very temporary effect, but for the next few months, there will be a visible effect on economy due to the decreased purchased capacity of consumers. Worst effects will be on startups and medium sized companies and firms.

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