Tag Archives: Indian Currency Demonetization

What are the advantages and disadvantages of recent demonetization of Indian 500/1000 notes

Ever since the historic announcement of Prime Minister Narendra Modi to curb all the old Rs 500 and Rs 1000 notes on November 8th, 2016, the whole nation has been taken by storm. While a certain section of people have praised the Prime Minister for this bold move against black money, fake notes and corruption, there have been others who have sharply criticized this decision to declare the old Rs 500 and Rs 1000 notes as illegal tender practically overnight. In a country that can be described as a predominantly cash-based economy, this sudden move has drastically affected business transactions all over the country. While people living in the cities have had their share of difficulties, standing in bank and ATM queues for getting new Rs 500 and Rs 2000 notes and exchanging old tenders, men and women living in rural areas had it even worse, since the banking system is not that well developed in such areas.

Amidst the controversy whether the decision to remove all black money from the country and create a predominantly cashless economy was a good one or not, it is now time to closely inspect the country’s present economic conditions after the implementation of the demonetization rules. Here are some of the ways in which the economy of the country and the life of Indian people are going to be affected by demonetization.

Effects of Demonetisation
Effects of Demonetisation

Advantages of demonetization:

  • Large hordes of cash that had not been in circulation for a long time and remained locked within just a few hands will now be unearthed.
  • Fake notes and black money can be effectively removed from the system.
  • There is going to be greater protection against possible illegal activities.
  • Common man can also afford to purchase the immovable assets.
  • It will increase the number of subscribers under upcoming tax regime.
  • Greater transparency in earnings will be achieved which is going to positively impact the government revenue in relation to the taxes.
  • It is also going to increase job opportunities for the future.
  • It will improve India’s prospects as investment destination thus encouraging business activities, reliability and better government administration system.
  • Ease of recovery with long term dues within the public sector as well as banking sector.
  • Reduced interest rates can favor small businesses and startups and help in developing India.
  • It is going to increase the number of digital transactions, thereby making India a cashless economy.

Disadvantages of demonetization:

  • Business depending on easy cash will go through a major loss since there is only limited cash circulation.
  • Black money holders will be looking for new, alternative ways to convert their cash into white money.
  • Notes production getting overwhelmingly affected, which shows that implementation was not at par with original expectations.
  • It is going to have a negative impact on the GDP growth.
  • There is going to be a high scarcity when it comes to money change.
  • It is going to severely impact daily wage earners as well as people who depend on bi-monthly cash payments such as drivers, cooks, maids, electricians, plumbers, etc. Many professionals like tea stall owners who need to run their shops all the time will hardly find time to stand in a bank or ATM queue for long hours.
  • People who do not have a bank account are going to be seriously affected by this move as they hardly have the basic knowledge on how to operate an account, let alone use debit or credit cards on a regular basis.
  • Real estate industry and construction activities are going to get badly affected.