Effects of Demonetization on Indian Economy
Indian Economy is termed as the one of the Fastest Growing economy in the world. It became world fastest economy by surpassing the Chinese economy. However the emerging economy seems to have slowed down after demonetization effect. Recent released figures from central statistical office hints at a slowdown in the Indian economy. Demonetization is a counter attack to eradicate corruption, terrorism and black money in the country.
The term demonetization is not new thing to Indian economy. According to Reserve bank of India demonetization is introduced in the year 1946 and again in 1978. According to data less than 5% of population of India has access to such currency. The decision was taken to reduce the illegal use of high denomination currency.
However with demonetisation affect more than 80 percentage of India currency was nullified which was aimed to wash off black market and cash supply to black market and counterfeit notes out of economy. In order to reduce sudden fall in economy and demonization effect a 50 day period given to exchange their cancelled cash for new currency.
Cash is the most preferred mode of transaction in India. Only not more than half of the population uses banking system for monetary transactions. After demonetisation there is continues increase in use of banking system for monetary and financial transactions.
Pros on Demonetisation
One of the biggest benefits of demonetisation is that it is going to drastically affect the corrupt practices and people who are holding black money will not be able to exchange as they would be in fear of penalties by Indian government.
Banking system will be getting a boost as entire black money would be flooding into system and it will also results in increasing use of banking system.
This will results in reducing the risk of cash handling as e money is safer than hard money. The old currency will become worthless for those people who won’t disclose their actual income through filing of income tax returns.
It will also results in reducing tax avoidance cases. Authorities will keep track of major cash deposited or exchanged during the demonetisation period. Especially sectors like jewellery and real estate. Search and seizure activities of the income tax department will rise to stop malpractices.
Cons of demonetisation
Demonetization will results in negative impact across the certain sectors with high level of cash transaction like restaurants, jewellery, retailing, logistics, consumer durable and luxury bands. All the companies with high level of debt will face more pressure.
One of the main cons of demonetization is replacement cost of currency. New currency notes has been introduced into the system which cost a major amount to government in order to print the same. We cannot ignore the increased cost of operating and maintenance of ATM it will be huge burden on the banks. During initial months of demonetization it would be very difficult to make cash transactions of higher amount.
The decision of demonetization was not taken in a single day or two this plan is the result of efforts of prime minister towards a fight against corruption. Prime minister has also signaled that the demonetization was a first step against tax evasion and corruption in the country. Further property documents will be digitalised as well these digitalised documents will be used to identify individuals who has been registering assets on other people and helping poor people who don’t have their own houses, thus this measures helps in moving country towards great future.