-Abhishek Dhawan
Demonetisation is the act of removing or replacing an already existing currency with a new one. In other words, this means the removal of the status of legal tender of an old currency or a part/ unit of the currency which is being demonetised. A little over a year ago, on November 8th, 2016 the Narendra Modi led Government in India introduced demonetisation which saw the withdrawal of country’s two highest currency notes (Rupees 1000 and 500). Later new notes of domination 500 and 2000 rupee were circulated country-wide, however, the interim phase witnessed certain difficulties due to lack of warning and planning by the government. There are multiple reasons why a country opts to demonetize its currency like to fight against inflationary trends, to combat corruption and crime, to put a stop or halt at the growth of the black or illegal market, to fight against tax evaders and lastly, to discourage a cash-dependent economy.
The initial introduction to demonetize 500 and 1000 rupee notes by the Modi-led Government in India garnered a large amount of criticism and warnings of chaos amongst people who were seen running helter-skelter in order to exchange their old currency or to withdraw new currency. Some blame the movement as unstructured and unsystematic stating that the government could have provided with more notices as compared to the little information. Some complained as to how they were made to wait in line for hours outside banks and ATMs which itself lacked the new currency. Soon after the announcement, people rushed to buy gold, a demand that drove the prices up to 60% premium at some places. The sudden introduction of this policy created havoc across the country be it at shopping malls or grocery stores, highway tolls to pay & park, delay in receiving salaries to strict daily withdrawal limits. There was an inadequate supply of new notes which directly affected the citizens. Small business and households struggled to find cash whilst the rupee fell sharply against the dollar. In smaller districts and villages, it was very difficult for people to actually comprehend what had struck them if at all they were aware of the occurrence of demonetisation. Many of these villagers did not even have an account with a single bank. There were many instances that affected families badly, for instance, a daughter was not in the position to stand in long queues in order to withdraw money for her ailing. In another instance, we hear how a young bride is killed for bringing in old currency to the house of the husband. The husband and his father call it a suicide but the victim’s father has alleged this as a dowry killing. Note ban severely affected the labour-intensive sectors that deal mainly in cash be it in the form of purchasing stock, paying rent or daily wages to workers.
On the other hand, however, the government’s goal was to pierce through black money, fight tax evasion, combat against money laundering and terrorist financing activities. Companies and individuals would have to take their tax information with them to banks in order to convert their large sum of old currency thereby identifying tax-evaders and charging them the penalty on the same. Had prior notice and time been given then these goals and results would not be possible to achieve. This decision would undoubtedly cause a slowdown in the economy and hamper trade & GDP however, any slowdown was believed to be short-lived once the systems adjusted themselves. According to the estimates made by RBI, there was more than 3 Lakh crores worth of black money that was deposited in black amounts thereby uncovering large sums of hidden money. The demonetisation drive has definitely put a halt if not a stop to the entire black money circle which was being used for illegal activities, gambling, terrorist activities so on so forth. The aim of the government was to stop such activities that which are now expected to be reduced for some time at least as it would take years to generate that amount of black money once again. The more obvious benefits of this drive was that the hidden money or the real money was now being disclosed by people in form of their income and being deposited in banks and thereby increasing the revenue for the government which would be utilised for the betterment in society in the form of better infrastructure, better education, healthcare, roads etc. A large number of shell companies were identified, the number of taxpayers has increased and the economy has witnessed close to 20% decline of currency in circulation. Lastly, this move was able to further another goal of the government, that of creating a cashless economy and promoting digital means for making transactions.
Demonetisation was a nation-wide effort that was undertaken so as to fight against black money, tax evasion, money laundering and its connected activities so as to make it a better place to live in for one and all. There was definitely huge amount of difficulties that the countries citizens had to face almost immediately but at the same time it was a risky step taken on behalf of the government because the deconstruction of an old currency and printing of new currency involves costs that may or may not have been more than the derived benefits of the demonetisation drive.