Impact of Demonetization on Indian Economy
With effect from 08 November 2016, Tuesday our Prime Minister Honourable Shri Narendra Modiji makes demonetization of currency 2 notes 500 and 1000 denomination. It was a strict decision of banning regular 500 and 1000 currency notes from circulation which was result of finding of 1.25 lakh crore black money within 3 days of that striking decision 35,000 4 crores rupees deposited in banks and approximate 1500 crores black money were destroyed.
According to the RBI's annual report for April 2015 to March 2016, the value of currency notes at the end of March 2016 was 16,42 trillion Indian rupees. The 2500 and 21000 currency notes formed 86.4% of the value, in one stroke the Government removed 86.4% of the currency in circulation by value. There were 6,32,926 currency notes were cancelled known as fake Indian currency notes. As proportion of notes in circulation the 2500 & 21000 notes were the highest. Nullifying this fake Indian currency notes one also part of demonetization moves.
Now we are going to discuss about how this demonetisation create impact over Indian economical sector. First economic can be bifurcated in three broad segments: -
1) Agricultural sector:- It contributes 17% in GDP. 10
2) Manufacturing sector:- It contributes 30% in GDP After demonetization all these three sectors faced negative impacts,
3) Service sector:- It contributes 53% in GDP
Meaning and concept of Demonetization
The meaning of demonetization is, withdrawal of currency by the Government
and creates new currency it. It's a crucial and important economic decision for the country. It affects all type of people as well as various sectors of
Indian economy as mentioned previously. According to the direction of the Government within a stipulated period
every public must deposit search banned currency notes in various banks otherwise it's treated just like small piece of paper.
Positive Impacts of Demonetization
1) Getting fake currency out of circulation:
As we have mentioned earlier whatever fake currency found by the Government of India, it was totally destroyed and thus we have controlled over parallel economy.
2) Controlling on inflation:-
Due to withdrawal of currencies from Indian economy then supply of money is decreased in Indian money market so that earnings/purchasing power of public is decreases so that prices of goods and services are also decreases demand of goods and services in Indian market you also decreased so that our Indian Government can easily control over the situation of inflation.
3) Tax collection:-
Due to the process of demonetization of Indian Government, the Government revenue was vastly grown up such as collection of outstanding
Goods and Services Tax (GST), Income Tax, Municipal councils/ corporations
housing property taxes and so on.
4) Improvements in deposits and savings in various banks as well as other
financial institution
With the effect of demonetization number of deposits as well as volume of savings are increased because everyone wants to capitalise the opportunity of use of banned currency.
5) To restriction on fraud and corruption activities:
With the effect of demonetization product activities as well as corruption activities somehow control by Indian Government because majority currency was out of circulation at that time.
6) Cashless transactions are increased:
During the period of demonetisation as there was shortage of currency in circulation so that our Indian Government motivates the Indian public for cashless transaction. Large number of cashless transactions are increased particularly it was executed through- UPI, Gpay, PhonePay, BhimApp, and so on.
7) Reduced in illegal as well as terrorist activities:-
With the effect of process of demonetization illegal activity that controlled by Indian Government in very well manner such as control on business of drugs, terrorist activities in Kashmir, robberies and so on.
Negative Impacts of Demonetization on Indian Economy 1) Decrease in GDP growth:-
Real GDP growth fell sharply after demonetisation through a quarter or two showed higher growth rate partly due to low base effects. Quarterly real GDP growth decreased from levels of 9% seen in 2017 and 2018 to 3% in the last quarter of 2020.
2) Very little cash is available in circulation:-
As we said earlier majority amount was withdrawn by the Government then very little cash is available for circulation of money during the demonetisation of 2016 majority Indian people were suffered from it, they were remained to stay in long que cash withdrawal before ATM's as well as Bank cash counter.
3) Inconvenience and harassment of Indian public:-
The common Indian man, farmers and businessman facing lot of problems due to shortage of currency in circulation. They could not accomplish their different types of economics and social works. It was totally inconvenience as well as big harassment for the Indian people
4) Slowdown in economic growth:
As there was shortage in the supply of currency in Indian money market, show the purchasing power of people are decreased so that they could not place their demands about goods and services in the market so that demand decreases, production decreases, sales decreases, investment decreases and in such a way Indian economic growth was also decreased.
5) Planning was failed:-
Whatever planning made by the Indian Government about growth in India economy it was totally failed due to only demonetisation. It created panic situation for the investors & they were adopting the policy of wait and watch Hence, manufacturing sector, service sector, real estate sector was totally collapsed.
6) A place for bunch of fraud and corruption: The action of the demonetization creates opportunity for many corrupt
people to comment several types of frauds and corruptions. For eg, changing of currency notes from old to new, such type of transactions was executed in real estate in several manner. It means that they had been used new currency as well as old currency both at a same time.
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