Demonetisation: The move that crippled India On November 8th 2016, as the world was busy following the US elections, Indian Prime Minister Narendra Modi, made a historic announcement. The sudden declaration to withdraw 500 and 1000 rupees notes came as a rude shock to all Indians.

Frantic citizens rushed to banks with hope of change their notes only to find them closed. Labourers skipped work as they feared they might be paid with the banned notes. Businessmen shut their shops as no one wanted to deal with 500s and 1000s.

Transactions and business came to a standstill as the most circulated currency notes in the country was rendered useless. The country was plunged in to chaos.

Why was demonetisation required?

there are several theories on why demonetisation was announced. When Narendra Modi was sworn in as Prime Minister, he had pledged to bring back black money, stashed overseas by several Indians. he had also promised to take a harder stance against terrorism. When he made the declaration, Modi reiterated these points. He mentioned that the sudden move was deliberate, so that people would not have time to change unaccounted money. Any one attempting to change notes must disclose their identity. Also their wealth must match their source of income. Any mismatches at this stage would result in investigations. Modi went to say that since these notes are now useless, border infiltration will decrease as terrorists will not have enough money to conduct activities.

But experts have other ideas. They believe this strategy is a stepping stone for Modi to secure a foothold in Uttar Pradesh, which will hold elections next year. The belief is that with the cash crunch that has gripped the nation, political parties (which collect illicit cash), will find it difficult to fund their campaigns next year. For Modi, wining the UP elections is crucial as it is the largest state and his party has a minority there.

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How has it affected people?

For the most part, demonetisation caused inconvenience to people with the old notes as they had to queue outside banks to get their notes changed. The limit on the maximum amount that can be withdrawn, added to the problems. Besides this, many businesses that relied on cash, were severely affected. Traders, grocers and fishermen lost out on sales as customers did not have legitimate notes. Many small businesses do not use credit/debit card systems and they suffered the most. Other sectors like real estate, dining and fashion faced setbacks. Labourers skipped work fearing they might not be paid their daily wages. A few companies laid off employees as well.

(Image source: The Blockchain)

Will this help in retrieving black money?

The country has suffered a lot since 8th November for reasons mentioned above. The bright side of this is the expectation that black money holders will have to ditch their stash. As the old notes will be useless post December this year, people hoarding money not explained by their incomes will surely lose out. There is however, a fear that people might disguise themselves as farmers to deposit in banks, as income from farms is tax free. Also a lot of wealth is held in form of gold and property. Getting hold this will be difficult.

Modi's vision is to create a cashless, digital economy where payments would be made by debit/credit cards. While this would certainly reduce black money to a great degree, it is not something that is feasible by all. The country is still reeling from the ill effects of this so called demonetisatoin -- which in reality is just replacement of old notes with new ones. Notes of lower denominations is not yet available in abundance and experts are uncertain on how long it would take for the situation to return to normal.

Created By
Debanu Das

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