Demonetization is a legal process in which specific specified currency units are devalued, and their value is reduced to zero.
The Modi government was not the only government in India to demonetize currency. India had a long history of demonetization.
In the year 1946, the first demonetization of currency happened which was by the British India government. The 1,000 rupees notes were demonetized.
Later in 1954, 1,000 rupees, 5,000 rupees and 10,000 rupees notes were reintroduced which again were demonetized in 1978 by Moraji Desai government.
Finally in November 2000, the 1000 rupees notes were officially back.
On 8th November, 2016, Prime Minister Narendra Modi announced demonetization of 500 rupees and 1,000 rupees.
Well the main motive of the government was to clear out the black money, tax evasion, reduce cash circulation, tackle corruption, promote cashless transactions and to prevent terror funding.
It is true that there is no one solution for big problems like black money and corruption. In such big battles, achieving complete success, even with noble intentions, becomes challenging. But was demonetization the right way to tackle these problems? Were we able to achieve the objective for which the whole country went through a financial crisis?
Why was Demonetization a failure?
No Clearance of Black Money
The government expected that around 5 lakh crore notes would not be deposited in banks, that is 20% of the currencies were expected to be black money but according to RBI’s report in 2018, 99.3% of the bank notes were deposited in the bank. The government’s plan to clear out the black money was brutally defeated.
This happened as many people found illegal ways to make their black money white. They forcefully exchanged the demonetized currencies with the poor. In dishonesty, these people were fully supported by some unscrupulous bankers, who deposited money by doing accounting in a blatant manner.
Additional Reprinting Cost
Dimensions of all the notes were changed due to which all ATM’s cassettes were to be modified. This required extra cost and labor.
The cost of reprinting the notes was huge.
In the year 2015-16, RBI spent 3,241 crore rupees on printing notes, which in 2016-17 increased by 7,965 crore rupees and in 2017-18 it reached 4,912 crore rupees.
Overall, 4000-5000 crore additional costs were there due to demonetization.
Huge Impact on Agriculture Sector
The Agriculture sector was hit hard by demonetization, as most of the transactions from seeds to pesticides and fertilizers are done in cash. In view of money laundering, RBI had also banned deposits and withdrawals in co-operative banks, which are the backbone of the agriculture sector.
The GDP growth rate fell from 7.5% in September 2016 to 5.7% in June 2017.
Job Loss across India
According to the Centre for Monitoring Indian Economy Pvt. (CMIE), many people across sectors lost jobs. From September- December 2016, the number of employed people was 406.5 million whereas from January- April 2017, the number of employed people was 405 million. Which means around 10.5 lakh people lost their jobs.
Effect on unorganized sector
The unorganized sector had the most impact of demonetization.
According to the All India Motor Transport Congress, 8 lakh truck drivers and conductors were affected by cash shots, and four lakhs trucks across India got stuck on major highways.
This was because the toll plazas did not accept old currency. The government could not overlook this problem so it suspended toll collection till 2nd December which led to unimaginable loss to toll companies.
Even after 7 years, the demonetization of currencies by the Modi government is still a matter of debate. Some people actually found it better for the future of India whereas some criticize it as the government did not overlook all sectors of the society.
Well, if we think deeply about it, it might have been a great success if everything happened as the government expected it to be. Sometimes things don’t go as expected but still it did make a positive impact like transparency of transactions, tax evasion and cashless economy but the question still remains, “Was demonetization the right way to tackle these problems?”
Written by- Radhika Agarwal
Edited by- Akshita Bist
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