On November 8, 2016, Prime Minister announce that 500 and 1000 rupees currency note are not valid from midnight. This was such a radical and high contraversial decision at that time. Still now, people are trying to figure out weather the decision is correct or it is failure of modi government.
Why Demonitization is Done? What are their objectives?
When the policy was introduced government officials given the following objectives,
- Targeting the black money – There are thousands of rupees present into the cash. People have two options either submit it to the bank, pay taxes and face huge penalties. Or see their black money goes into the waste.
- Block Terror funding and financial terrorism – This notes were seen to utilized for extremist groups, drug cartels for illegal purpose. To make them helpless this was done.
- To remove the fake currency of 500 and 1000 notes
But as it progress, the government also shifted their goal to go to online transactions and make India cash less.
What happened after Demonitization?
There are chos and difficulties people face due to sudden banned of five and 1 hundread notes. People have no money to spent. Major issues comes to rural peoples, where banks are not easily available to replace the money. This chaos creates people suffers.
What economic impact demonitization has made?
The RBI has settled all the money and released their statement as, 99.3% of the banned notes has been successfully deposited in the bank system.
Economist thought that there will be no recovery of 3 lakh crores (about 45 billion at time). Because tax payer will fear tax penalty and punishments. In theory, they think this cash will be parmanently destroyed. But, People has not put their cash into the bed or in a house. Instead they convert that black money into the real estate, gold, foreign currency and invested into the shell companies.
People have found different ways to put the money back into the banking system via complex networks, mules and structure deposit i.e. untracable deposit across thousands of accounts.
So, on the scale of eliminating black money and terror funding it works. To eliminate black money from country it is somehow not achieve the greater results.
Impact of Demonitization
Demonitization leads people thinking towards the digital payments. Initially paytm apps originate that helps people to learn to pay online without having cash money. From that time, Digital payment takes a next step growth in India.
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