Demonetisation

DEMONETISATION
Demonetization of Currency - Merits and Demerits

Demonetization of currency means discontinuity of the particular currency from circulation and
replacing it with a new currency. In the current context it is the banning of the 500 and 1000
denomination currency notes as a legal tender.
The governments stated objective behind the demonetization policy are as follows; first, it is an
attempt to make India corruption free. Second it is done to curb black money, third to control escalating
price rise, fourth to stop funds flow to illegal activity, fifth to make people accountable for every rupee
they possess and pay income tax return. Finally, it is an attempt to make a cashless society and create
a Digital India.
There is a background to the current decision of demonetization of 500 and 1000 rupee notes. The
government has taken few steps in this direction much before its November 8, 2016 announcement.
As a first step the government had urged people to create bank accounts under Jan Dhan Yojana.
They were asked to deposit all the money in their Jan Dhan accounts and do their future transaction
through banking methods only.
The second step that the government initiated was a tax declaration of the income and had given
October 30, 2016 deadline for this purpose. Through this method, the government was able to mop
up a huge amount of undeclared income.
However, there were many who still hoarded the black money, and in order to tackle them; the
government announced the demonetization of 500 and 1000 currency notes.
The demonetization policy is being seen as a financial reform in the country but this decision is fraught
with its own merits and demerits.
Merits of Demonitisation
The demonetization policy will help India to become corruption-free. Those indulging in taking bribe
will refrain from corrupt practices as it will be hard for them to keep their unaccounted cash.
This move will help the government to track the black money. Those individuals who have
unaccounted cash are now required to show income and submit PAN for any valid financial
transactions. The government can get income tax return for the income on which tax has not been
paid.
The move will stop funding to the unlawful activities that are thriving due to unaccounted cash flow.
Banning high-value currency will rein in criminal activities like terrorism etc.
The ban on high value currency will also curb the menace of money laundering. Now such activity can
easily be tracked and income tax department can catch such people who are in the business of money
laundering.
This move will stop the circulation of fake currency. Most of the fake currency put in circulation is of
the high value notes and the banning of 500 and 1000 notes will eliminate the circulation of fake
currency.
This move has generated interest among those people who had opened Jan Dhan accounts under
the Prime Ministers Jan Dhan Yojana. They can now deposit their cash under this scheme and this
money 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.
Even though deposits up to Rs 2.5 lakh will not come under Income tax scrutiny, individuals are
required to submit PAN for any deposit of above Rs 50,000 in cash. This will help the income tax
department to track individuals with high denominations currency.
The ultimate objective is to make India a cashless society. All the monetary transaction has to be
through the banking methods and individuals have to be accountable for each penny they possess. It
is a giant step towards the dream of making a digital India. If these are the merits, there are demerits
of this policy as well.
Demerits of Demonitisation
The announcement of the demonization of the currency has caused huge inconvenience to the people.
They are running to the banks to exchange, deposit or withdraw notes. The sudden announcement
has made the situation become chaotic. Tempers are running high among the masses as there is a
delay in the circulation of new currency.
It has deeply affected business. Due to the cash crunch, the entire economy has been made to come
to a standstill.
Many poor daily wage workers are left with no jobs and their daily income has stopped because
employers are unable to pay their daily wage.
The government is finding it hard to implement this policy. It has to bear the cost of printing of the new
currency notes. It is also finding it difficult to put new currency into circulation. The 2000 rupees note
is a burden on the people as no one likes to do transaction with such high value currency. Some critics
think it will only help people to use black money more easily in future.
Further, many people have clandestinely discarded the demonetized currency notes and this is a loss
to the countrys economy.
Conclusion
Economists are busy in listing out many more merits and demerit of this policy. The government is
saying that there are only advantages of demonetization policy and this will be seen in the long term.
Former Prime Minister Manmohan Singh who is a noted economist, former RBI governor and former
Finance Minister of the country, dubs the demonetization move as an 'organized loot and legalized
plunder'.
However, if we compare the merits verses demerits, it will be safe to conclude that the former
outweighs the latter.
Even though there is suffering and agony among the masses right at the moment but the forecast is
that its benefits will be seen in the long run.
The government is taking all the necessary steps and actions to meet the currency demand and soon
the trial and tribulations of the people will be over with the smooth flow of the new currency.

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DEMONETISATION

Demonetization of Currency - Merits and Demerits

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