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Effects of Demonetization on people and Indian economy is a topic which will explain demonetization, its need and effects.
What is Demonetization and its need?
Demonetization is a process, in which government of country can ban the current currency in the market and replace it with new currency. There could be several reasons for that,
- Increase of Black Money
- Increase in fraud currency
- Increase in Terror Funding
- Do not have knowledge of cash flow in market etc.
On 8th November 2016, government of India took decision to demonetize. In this 500/1000 INR became illegal in the market but with caution to give time of 53 days. That is 31st December 2016. After the decision took effect, people of India had been given 53 days’ time to deposit all of their currency to bank and exchange it with new currency. As per the stats, there were 85% of the total currency available was in the form of 500/1000. So new currency of 2000 INR released to control the economy. This decision was taken with surprise so that no person could convert his/her black money to materialistic things like real state or luxury.
Effects on the People
Many people were thinking that it is unplanned decision by government, but it was properly planned. We have seen that in 2014, government asked everyone to open account and there is Jan-Dhan account for poor people with zero balance. Then, they asked to link Aadhar card with account. On 1st November 2016, “Benami Sampati Law”(Any person cannot have property in the city where he/she never lived in lifetime). Therefore, it is clearly visible that it was planned decision. Demonetization was due since 1980, but because of political benefits, government of that time did not take decision.
Options for People
Following are the options given to people during demonetization:
- Limit of 2 lacs: People who were depositing 2 lac or less, were not asked any question and they could easily deposit in their account. If the people were depositing more than 2 lac then they had to give proper justification.
- Exchange of Currency: People could exchange their currency with the new currency up to 4000 INR daily. That was for the people who did not have bank account and were working on daily wages.
- Marriage Expense: People who were getting married during that time and need cash for them there was provision that they could get up to 5 lac INR from bank after showing valid proof of marriage. This option could be availed by the people who were main organizers like Parents of Bride and Groom or Bride/Groom.
- Unlimited Online Transaction: There was no limit on the online transaction. This was to encourage electronic transaction and discourage cash transaction. Because of demonetization, so many people learnt online transaction and PayTM got the major benefit as it was only recognized Mobile transfer option available during that time.
- Limit in cash with-drawl: There was limit of cash with-drawl up to 2500 INR because of lack of currency available. As we knew that 85% currency was demonetized so to balance the economy would take time.
- Valid in various places: Although, government made 500/1000 currency invalid post 8th November 2018, but then too there were various places where these currencies were valid like petrol pumps, post offices, water bills, electricity bills etc.
Effects in Indian Economy
Before demonetization, the share of tax payers was 2-3% but after demonetization, this share increased to 7%. As per RBI (Reserve Bank of India), 99% cash came back to banks. People were saying that there was only 1% black money. But, it was not the case. Banks put hefty fines like 40% on the amount, which did not have proper explanation. Government of India gave time to people till 30th September 2016 to pay their due taxes but if people did not follow that, they had to pay hefty fines and got 60% or less of their amount. After that, there were a lot of raids and recovered almost 7000 crore INR as per the news. This helped the economy of the country, during that time economy went down because of unavailability of cash flow but that was only for time being. People learnt online transaction and small vendors like Pan Shop, vegetable hawkers etc started taking electronic money. I, myself taught hundreds of people about online transaction.
“If anybody asked about demonetization, I personally feel that it was very much required and benefit the entire country. Thanks to the Government to take this tough decision. Big transformation needs small sacrifices and kudos to the people of country who took it positively. Biggest example is my father who is working in bank and 10th Nov was his birthday and he told that he was blessed to have this opportunity before his retirement.”