Demonetization : A Historical Step for Indian Economy
Dr. Vinay Kandpal
![Dr. Vinay Kandpal]()
Dr. Vinay Kandpal
Professor @ Graphic Era Deemed to be University | Post Doctorate in Finance | Recipient of Financial Literacy Award, Social Changemaker Award, Best Faculty in Infrastructure Financing Award | Researcher - Sustainability
- Today 1 year time period is complete of the announcement of Demonetization by the Prime Minister of India on 8th November 2016 scrapping Rs 500 and Rs 1,000 notes and introduction of new notes of Rs 500, Rs 2,000 and recently Rs 50 and Rs 200. The step towards demonetization was a major step to make a person’s income accountable. In a real sense this is creative accounting- magical way of rethinking. Initially the sudden demonetization caught the retailers by surprise. The move of the government was supported by a majority of citizens and retailers; however, it brought some challenges to the small traders initially. The major reason that poor people and those living in rural areas don’t faced any problem as they don’t have enough income to save. They mostly have less amount in hand.
- The retail shopkeepers witnessed a severe dip in sales but the market recovered after the initial 2-3 months. Most of the sales were on credit terms. Usage of digital mode of payment is still not there. But the majority of shopkeepers believes that they can adjust to the situation as it will have a good impact in the future and it will help to curb black money. Accountability of income is crucial for the growth of our economy and for controlling black money. We have seen peace in Kashmir as there is a reduction in stone pelting and terrorist activities. Step of demonetization was also helpful for inclusive growth or Sustainable development of all the sections of the economy. Financial inclusion is important for inclusive growth and bank have a crucial role to play in financial literacy campaign and should ensure that those deprived sections that come to exchange their old notes are properly taken care. It should be taken up by the bank as a big opportunity as demonetization move will help to inculcate banking habits among the large unbanked population in the country. Banks could make unbanked people aware about the financial instruments available with banks and the importance of saving and putting their money in these instruments. The demonetization drive could have an impact on dormant Jan Dhan accounts as it could give a push to cash deposits in Jan Dhan accounts. This step will further help the economy move from unorganized to organized sector.
- Demonetization also encouraged cashless transactions as when transactions via digital or means increases the amount of money printed decreases and thus reducing the cost of printing as well as black money circulation. Cashless transaction means financial transaction handled by means of credit cards,bank transfers,checks with no bills and coins handed from one person to another. Finance Minister as well as the Governor of the Reserve Bank of India have repeatedly emphasized that agents should be moving to the use of cashless medium where there are no problems in comparison to the cash based medium. For instance, The Hindu reported that “Reserve Bank of India (RBI) has urged citizens to switch to alternative modes of payments such as pre-paid cards, credit and debit cards, mobile banking, and Internet banking”.
- As per the recent estimates by some economists, nearly 90% of the total cash in circulation has come back into the banking system and hence, the stated purpose of the Demonetization exercise which was to “extinguish” black money and enable the RBI to lower its liabilities thereby providing the government with a huge dividend seems to have been belied. Of course, there are some who now argue that the Indian Banking System is now “flush with cash” and this has enabled the government to “nudge” the RBI to cut rates as well as to allow banks to pass on the benefit of ample liquidity to consumers by lowering lending rates. Journey from demonetization to digitalization is very hard hitting one but not impossible. Step of demonetization in India on November 8, 2016, created a lot of panic and problems in the economy initially but also paved the way to digitalization (Cashless Economy).
- Cash crunch and availability of e-sources of transactions compelled many people to use electronic modes of payment in day to day transactions. Credit cards, debit cards/RuPay card, Internet banking, mobile wallets like Paytm, Mobiwik, Aadhar-enabled payment system and so on are few popular modes of electronic transaction, which are commonly used by the citizen. Recently a new wave of digitalization is seen in the country as youth, adults and aged people are also switching to the online mode of transaction. People are keen to learn the new applications of money transfer and are opening bank accounts (Jan Dhan Yojna). Thus Demonetization has shifted its curve to Digitalization by which it can be said that nation is towards progress in area of technology.