DEMONETISATION- Was it worth the pain |
Posted: October 4, 2017 |
Demonetisation is term coined in Indian economy so massively for the first time in Indian history, on November 8th 2016 at 8 PM in the evening. Everyone was in panic stricken state. No one had clues, why did it happen and how will the course of action take place. Long queues were witnessed outside the banks, few number of death were also witnessed during the period of 8th November-31st December ’16. But the question arises, is demonetisation worth the pain? Has it resolved the issue for which, it was brought into the picture. What was the major reason for coining the demonetisation in the Indian Economy? Reasons being the ones that were pulling our economy down and was not putting it in par with other global economy. First reason being the black money, demonetisation focus on curbing the flow of black money in the economy and reduce the movement of hard cash in the economy. The other reason which backed the role of demonetisation was the integration of formal and informal economy. Post demonetisation, if we look at the growth of the economy, it was definitely dis appointing as it slowed to the level of 7.1% for 2016-17, which grew at a rate of 7.5% in 2015-16. Further the recent Q1 for 2017-18 grew at a rate of 6.1%, it further plunged down to the level of 5.7% for quarter2, of the recent financial year. Slow down in the growth story was attributed to the non availability of cash in the manufacturing and real estate sector. Many small factories were shut down, as it was getting difficult to pay to the workers, and this weighed heavily over the growth factor of the economy. However, we could take it as knee-jerk reaction of demonetisation. When everything will fall in system, growth will be back in track, which may not happen overnight, but will certainly happen in a year or two to come. Demonetisation played a major role on curbing the terror story of Kashmir and also other terrorist activities. It was reported, post demonetisation, there was noticeable reduction in terror activates and stone pelting activities in Kashmir. How successful was demonetisation in curbing the black money in the system? Reports are to be believed only 6% of the black money is kept in hard cash, which has also been further converted to white by taking advantage of innocent people during the Jan dhan yojna accounts. Further, to get away with the black money, people bought luxury products over night, which included high end watches, jewellery, gold and diamond. Smart individual paid the employees in advance. All these measures taken by individual, to get rid of their black money, had put an axe on the purpose of the ace economy strategy of demonetisation. However, masses believe that effect of demonetisation can be seen, as cap on black money will reduce the prices of real estate and jewellery, which however remained near about at the same level post the policy. At present demonetisation, might have put a cap over black money and illegal activities, but it will be difficult to control such activities taking birth in future. Issuance of new currency notes of 2000 and 500 denominations, will make it easier for the black money hoarders, to deal. One thing which was got real time boost was the digital transactions and process. Masses learned to use digital medium to make payments instead of hard cash. Rate of digital transaction increased on exponential basis over night. Use of digital wallet increased by 300%, however the important point to note here is the base no. against which the rise of use of digital wallet is being compared. Demonetisation, did have some positive effect, but one need to understand, it won’t have a long term effect on the economy, it is not sufficient to get everything fall into system. This policy has led to hardship for the common passes, however, even after such tightening, black money hoarders have managed to convert their black money to white money. TO know more: www.advisorymandi.com/
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