Demonetization: A Monetary Shock

Demonetization: A Monetary Shock

This policy has a phenomenal effect on the growth & development of the country.

As we are familiar with the word “demonetization” because the policy launched by the Govt. of India created chaos in the Indian banks to exchange money as well as to promote the policy. This policy has a phenomenal effect on the growth & development of the country. Many economists & policymakers judge the policy according to their rationale & decision-making.


What is Demonetization?

It refers to the withdrawing of the legal tender rights of any denomination of currency. It generally means withdrawing the rights of the legal tender of any currency. It is also essential to change the old currency of money with the newer currency. This has been done many times in India.

This is also better for the developing economies as the black money ceases the potential of the country. Governments have to take this type of decision secret because if the tax evaders get to know before the announcement they will clean up their money.


Why Demonetization is necessary?

Demonetization is essential due to various reasons. Some are listed below:

1. Increase in the GDP: Government as well as the policymakers believes that the demonetization will outweigh its short-term impacts due to its long-term impacts lead to the phenomenal rise in the GDP.
2. Emphasizing online transactions: As we know that the goal of the current government is to promote the cashless/digital economy. More and more cash-less transactions will increase the collection of direct taxes. Electronic modes of payment will increase with the help of demonetization.
3. Black Money: Demonetization is necessary for India due to the prevalence of black money in various sectors it can lead to hampering the growth of the economy.
4. Fake currency rackets: With the help of demonetization. Fake currency notes will be get destroyed. In the border areas as well in the different parts of states there are many prevalent rackets.


Sectorial Impacts

1. Real estate & Property: This sector has been severely damaged mostly those businesses who do their transactions in cash mode. In this sector, there is high involvement of cash in comparison to online transactions.
2. Banks: They proved that they are the backbone of the demonetization process. And they are the biggest beneficiaries of this process in comparison to any other sector.
3. Media & Industry: This sector also gets adversely affected due to the involvement of cash in the industry. Viewers continue to fall and they are mostly from lower-middle-class groups.
4. Retail: Cash availability is necessary for the sector and the sudden decision of the government leads to a severe fall in the demand of the consumers for the products.
5. Agriculture: As we all know that sale, marketing, distribution affects the agriculture and there is more involvement of cash in these activities. Sudden takeaway leads to the collapse of the agricultural system.


Benefits 

  • Demonetization leads to large-scale prevention of black money and helps to identify the black money holders in India.
  • A breakthrough for the people involved in illegal activities like terror financing, hawala transactions, and illegal currency holders.
  • Contributed largely to the economy by eliminating the black money and the infusion of them, money in the banks & financial institutions.
  • Helps in protecting the interest of the taxpayers.


Negatives

  • As we know that the sudden shock of the demonetization leads the country to chaos and rush on the roads. Line outsides the banks mostly consist of the laborers, middlemen, etc.
  • A decrease in the GDP also denoted in this period as the removal of cash reduces the demand & supply in the country and shut down many industries.
  • It also leads to the liquidity crisis as taking almost 75% of cash from the developing economy in India.
  • It also led to a drastic change in the consumption behavior of the people as it leads to the shortage of cash.


Final Say

The move of the Government of India has taken the country to surprise. The main goal behind this is to curb illegal black money, hawala transactions, counterfeit currency, terror funding, etc. But the timing was not right as it leads to a severe burden on the middle class of the economy and continued them in a deep state of crisis. Many people died while exchanging notes. The work of banks is noteworthy in these times. The policy also leads to the declination of the GDP.


Edited By Team CLIQTAX
 

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