DEMONETIZATION IN INDIA

14th December 2016

 

Bangalore, India

 

Bonjour les amis,  its me again to publish an article about one of the ongoing debates in India – demonetization.

Before we start it is important to first clarify the precise definition of a broad term such as this. So what is demonetization?? Investopedia defines it as the act of stripping a currency unit of its status as legal tender in order to fabricate certain changes that the government wishes to make. This alteration in currencies consequently impacts the economic status of a country .

In India, this act was passed with a sole motive of eradicating black money stored in cash and take the first steps against money laundering as a whole. The issue of black money has been an arch rival to India’s economic growth ever since independence was first observed and this has only gone onto become a more sizeable issue over the passing decades. Economists have often introspected about their causes and removal but not many actions have been taken by governments majorly dominated by Congress leaders. Then ,why is there so much opposition to demonetization which can be looked at as a mere first step taken for combating  money laundering??? The answer to this is deep rooted and a diverse set of aspects must be considered before a conclusion is reached. In the following few paragraphs I will speak as an economist presenting facts rather than an Indian citizen supporting or criticizing the policy.

This policy has taken a serious toll on trade and the equilibrium of demand and supply in markets. With lesser monetary flow, demand has gone down due to which manufacturers have stopped creating more goods which in turn had brought down the supply. I personally feel that for a developing country like India these kind of situations can hamper economic growth and depreciate our economy. This ideology is heavily linked with the timing of imposing this policy and the government perhaps could have waited a few more years before doing so. In addition, black money is stored in other forms such as gold, properties and in bank accounts so demonetization does not address the major issue. When we observe the policy on a macro scale it offers quite less and has more drawbacks. When time period is considered; when we think of it on a long term basis it can be of great advantage but the short term consequences cannot be undermined. Also, the micro economical situation needs to be observed.

India has a rural population of a staggering 67% of the total population many of whom are not exposed banks and e-wallets. These people are heavily reliant on solid cash which is why the controversies surrounding demonetization have rose. In the eyes of a rural citizen every note of money carries a substantial significance and their deficit can have grave implications and can directly affect their lives. With a shortage of currency, people are  thronging banks to receive their share of cash. Due to this, some people are unable to pay for themselves even during emergency scenarios.

Taking advantage of this situation the opposition parties have sympathized with these people and have created raucous in the parliament and are desperately trying to turn this whole situation into a fiasco. This political battle have raised doubts in the minds of the people because of which the merits of this policy are overshadowed by their drawbacks and people no longer see the bigger picture. The prime minister has pleaded with the people to bear with him for a few months and promises a drastic improvement in the situation.

On one side, the government has announced that more policies will follow shortly to put a full stop to the long lasting crisis of money laundering and black money. However, on the other hand these policies affects the people in adverse ways and may have serious repercussions in the future. Also, there are various political parties who act as hurdles and stand between the government and the people to prevent them from achieving their goals.

It is challenging to decide what is right and what’s not but all that can be said is that no government in India’s history has taken such a stern decision and addressed a major problem such as this. There may be inconveniences but I feel it is the role of every Indian citizen to respect this decisions and believe in the government. If the policy is a success then his will go down as one of the best decisions probably in the history of Indian economics but for now a sense of hope is all that we people have.

 

signing off……….Akarsh

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