Demonetization and its Impacts

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“As the 1000 rupees note burnt into ashes, the 100 rupees note, basking in the glory of new found fame!”

On November 8, the Indians and the Indian Economic policy were startled by the historic decision of Modi Sarkar. It was Demonetization. The high denomination notes i.e. Rs. 500 and Rs 1000, then in circulation would cease to be a legal tender. Demonetization isn’t anything new. It has happened twice, earlier; but didn’t have the impact like the recent one.

The various Impacts of Demonetization are as under:-

1. Bank Deposits and Interest rates: – The growth in bank deposits has seen an upsurge ever since the demonetization has announced. Given the huge surge in liquidity post demonetization, major banks like SBI, ICICI, HDFC etc. have lowered their interest rates. Consequently, a reduction in lending rates was on cards.

2. Tax Revenue: – Any abnormally high deposits will be scrutinized and will be subjected to 200% penalty. This, in turn, increases the government revenue and hence reduced the budget deficit.

3. Black Money: – The decision choked the stack of black money in the system. Either the black money was deposited in the banks with a heavy penalty or destroyed. And the black money seized so far is estimated to be Rs. 3 Lakh crore.

4. Eliminate Counterfeit Currency: – Counterfeit currency devalues the real worth of Indian currency. It is nothing but the fake currency notes which are in circulation in the country. Demonetization helped in eliminating the size of Counterfeit Currencies.

5. Use of Digital Money: – The limitation on cash withdrawal has forced many Indians to move to alternate forms of payment like digital transactions, eWallet, Net Banking and Plastic money. The eWallet firms and other eCommerce platforms have noticed a surge in their business. To promote digitization further, the government has announced certain incentives on electronic payments using the debit card, the internet, mobile phones.etc.

No Doubt, demonetization will fix various loopholes of the system. But, this alone cannot cater to the needs of the Aam Aadmi. The move needs to be followed up with ensuing actions to remain effective. The actions relate primarily to structural changes to make the system more lawful, make the tax system simple and transparent etc. Obtaining long-term benefits for an economy like ours may be difficult. But Yes, it is certainly possible!

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One Thought to “Demonetization and its Impacts”

  1. Ambika

    well presented bhawani ji :)))

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