Demonetization in India has been one of the most discussed topics since 2016. It became the center of attention after its sudden implementation in a declaration by India’s Prime Minister, Narendra Modi, in November 2016. In simple terms, demonetization means ending the use of existing currency (in this case, 500 and 1000 rupee notes) as the legal currency of a country.
Though demonetization in India has shocked millions across the country, it has occurred before, once in 1948 prior to India’s independence and then again in 1978. In both cases, as in the current case, the goal was to prevent counterfeit and black money.
The process of demonetization in India started six to eight months before the date of its announcement. However, it was declared with no prior warning, and the Reserve Bank of India (RBI) provided a window of only 50 days for the exchange of 500 and 1000 rupee note after its declaration.
Where does India stand after one year of demonetization? What is its effect on common people as well as on the overall economy after one year? So far, the negative aspects of demonetization far outweigh its positives. However, it is important to recognize the positive outcomes:
- Since the beginning of 2017, there was an increase in the number of digital transactions. According to a report by the National Payments Corporation of India (NPCI), digital transactions spiked from 0.1 million in October 2016 to 76.96 million in October 2017. Digital transactions will help to eradicate illegal transactions and bolster tax collections.
- Due to the deposit of unaccounted money in the form of Rs.500 and Rs.1000 in cash, which increased liquidity, banks are offering home and business loans at a cheaper interest rate that will boost both the real estate and the small industry sectors, bringing new employment opportunities.
- Over 200,000 shell companies suspected of money laundering and fraud were closed.
- The steel industry and auto sector, which both took an initial blow, are performing better than anticipated and are expected to maintain their gradual upward trend.
Unfortunately, citizens like farmers, small traders and daily wage earners, who mostly deal with cash in their everyday lives, have been dealt the hardest blow. It is predicted that almost 100,000 people became unemployed due to the Prime Minister’s sudden decision. Luckily, several minor monsoons had a positive impact on agriculture, which increased income and public consumption in the rural sector.
In the midst of all speculation and controversy, many think demonetization in India has stricken the very core of corruption, and will help make major change in the nation. It’s impossible to know for sure as of yet, but with more time, there is hope that India will see long-term positive effects.
– Mahua Mitra