Demonetization of currency means discontinuity of the particular currency from circulation and replacing it with a new currency. Recently in India banning of the 500 and 1000 denomination currency notes as a legal tender was done.
The government’s stated objective behind the demonetization policy were as follow;
- Attempt to make India corruption free
- To curb black money
- To control escalating price rise
- To stop funds flow to illegal activity,
- To make people accountable for every rupee they possess and pay income tax return. Finally, it is an attempt to make a cashless society and create a Digital India.
There is a background to the current decision of demonetization of 500 and 1000 rupee notes. The government has taken few steps in this direction much before its November 8, 2016 announcement.
As a first step the government had urged people to create bank accounts under Jan Dhan Yojana. They were asked to deposit all the money in their Jan Dhan accounts and do their future transaction through banking methods only.
The second step that the government initiated was a tax declaration of the income and had given October 30, 2016 deadline for this purpose. Through this method, the government was able to mop up a huge amount of undeclared income.
However, there were many who still hoarded the black money, and in order to tackle them; the government announced the demonetization of 500 and 1000 currency notes.
The demonetization policy is being seen as a financial reform in the country but this decision has its merits and demerits.
MERITS
- Will help India to become corruption-free.
- This move will help the government to track the black money.
- Will stop funding to the unlawful activities that are thriving due to unaccounted cash flow.
- The ban on high value currency will also curb the menace of money laundering.
- Will stop the circulation of fake currency.
DEMERITS
- Caused huge inconvenience to the people.
- It has deeply affected business. Due to the cash crunch, the entire economy has been made to come to a standstill.
- Many poor daily wage workers are left with no jobs and their daily income has stopped because employers are unable to pay their daily wage.
- Many people have clandestinely discarded the demonetized currency notes and this is a loss to the country’s economy.
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