Demonetization: Pros and cons

November 23, 2016 Finance Talk Valli Sarvani No comments

After the government’s sudden announcement of banning ₹500 and ₹1,000 on November 8, 2016 Indian economy went through several ups and downs.

Many people are not aware of what actually happened with the demonetization of higher denomination currency notes in the country though some might know that black money will be eradicated from the country.

It is good to know about the pros and cons of demonetization in the present situation. The sudden attack of PM Modi on black money holders not just caused a shock to them but a huge loss in monetary terms. Many rich people are seeking ways to escape from the law. But it will be known with time how much money will be saved with their attempts.

Demonetization also fights against fake currency since majority of the fake currency notes are ₹500 and ₹1,000. Another merit with this move is to stop terrorist funding. Due to shortage of funds, they cannot fund their activities. This is clearly visible from the day of demonetization. The stone pelting on Indian soldiers in the Indo-Pak border regions used to be very frequent before this.

Demonetization puts an end to huge donations that are unaccounted. It hits the real estate sector hard where black money plays crucial role. It improves transparency and pushes the country towards a cashless economy. Cashless transactions also reduce tax evasion.

Several people with drinking and smoking habits agreed that the sudden banning influenced their habits as they reduced smoking cigarettes and consuming liquor.

However, the sudden move also has some negative effects especially on small and micro enterprises in the unorganized sector. Most of the people in rural areas are not aware of online banking or using cards for their daily needs. In some villages, where there are no banks, people are majorly suffering.

Another demerit with this move is banks are witnessing a huge rush. Cash crunch is commonly seen in the country now. The sudden shortage of cash flow in the country created cost-push inflation in the short-term. It may be set right with time when the conditions are back to normal in the country. Farmers who want to buy seeds, people who have weddings in their homes and senior citizens are majorly suffering.

Yet, experts say that these cons are short-term and a good time is ahead for the country. All honest Indians are hoping the same and are bearing this with patience.

Image Credit: F1Digitals (Free for commercial use)