Demonetization in India - The history, economics and aftermath
“Demonetization” means withdrawal or removal of a coin, note or metal from use as a legal form of exchange and trading. In general terms, it means banning/prohibiting the use of a coin or note as a medium of exchange(money).
In 2016, demonetization of rs500 and rs1000 was done by the Government of India and the effect and consequence can be seen in households and Indian economy.
The purpose of demonetization-
Combat terrorism and illegal activities taking place in country.
Increasing cashless transactions (Digital economy)
Reducing use of illicit cash and removal of black money.
The History -
Before 2016, Demonetization of notes has happened previously in India - twice.
In 1946, notes of rs1,000 and rs10,000 were scrapped down by the Governor General of India.
In 1978, notes of Rs1,000, rs5,000 and rs10,000 were scrapped down by Janata Party coalition (Morarji Desai-led government).
There wasn’t much effect of demonetization on the common people as these notes weren’t accessible to them and only rich people had these notes.
The 2016 demonetization-
On 8 November 2016, at 8 pm, The GOI had announced scrap down of rs500 and rs1000 notes which meant that these notes were illegal to use as mode of exchange.
The GOI also announced that new notes of rs500 and rs2000 would be rolled down and that one needs to exchange old notes with new notes.
This led to people standing in long queues for long hours waiting for the notes to be exchanged in the bank. It also led to death of people due to standing in long queues.
A disruption in economy was seen and the downfall of GDP also started to occur, and all sectors of economy were a witness to the aftermath of demonetization.
The effects and aftermath of demonetization-
Sectors like agriculture, transport, stock market etc. were affected as the cash amount reduction took place in sudden motion.
ATMs, banks were filled with queues and people exchanging notes with bank, withdrawing new notes from ATMs.
Poor and middle class were the most affected in this situation. Many died due to standing in long queues outside exchange and withdrawal places.
Stock market crashed up with time and there were protests and campaigns against the same.
Not all black money couldn’t be removed and still rich enjoyed all the benefits
The policy completed changed the dynamics of Indian economy for lifetime.
Opinion-
The implementation of demonetization policy was done hastily and there was no advanced preparation from government’s side. It seemed that they had no idea of the effects and consequences. From economical perspective, it has created more problems in all sectors of economy (unemployment, deficit of cash) and still, the poor and middle class has to bear the brunt of the policy. This also had led to many deaths, and demonetization is now a proven failure and disaster for our country- falling of GDP by more than 5%. If there was no demonetization, the situation would have been a little different for Indian economy.
Conclusion-
Demonetization of 2016 is something from which we can learn some lessons and things on what should be done and not done so that the errors and mistakes don’t occur in future and also solutions for black money need to be found other than demonetization.
The future of our country is good, but we need to keep in mind all people of India and also the economics when implementing policies like demonetization etc.
Graphics (For reference)-
Sources -
Indian Express, ijser.org, The Hindu , Business Today , WeForum
By
Keya
A world and human citizen