Unwinding Demonetization

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    The outcry about the recent demonetization drive has captured the emotion and imagination of a vast nation like India to the extent that from the ultra rich to the lagging poor, everyone is taking great interests in trying to understand the effects, implications and intentions behind the relatively bold economic move from the reigning government.

    Let’s try to unwind the air around it layer by layer.

    Demonetization, as a concept of economics means withdrawing the previously used and legal tenders from the market. It is a pretty simple definition with a pretty deep effect. Everyone with even a slightest of knowledge about Economics knows that the flow of money, liquidity plays a pretty driving role in regulating the health and pace of the economy. Thus it is clear that when we try to regulate this flow by external measures then it would have certain implications on the economy as well.

    Demonetization in our country has been publicized as a measure to counter illegally hoarded ‘Black Money’ and counterfeit currency tenders floating in the market. The promise to weed out illegal money from the market has been able to gather the attention of everyone regardless of the social or financial status. While this does seems like a lucrative thing but many of the renowned economists have raised concerns regarding the intensity of the measures taken in this regard.

    Pros of Demonetization:

    demonetisation

    • Unavailability of cash as a measure of transaction can drive the people towards the more cash void means of transaction helping in creating the modern age cashless economy.
    • Use of electronic means will increase sharply because of the cash crunch that might end up enhancing the pace of the digitalization in the economy.
    • More and more people will try to have bank account in order to deposit their money, hence financial inclusion.
    • Because the traders will opt to electronic transactions, the backtracking for the sake of tax collection would be really easy.
    • As valid IDs are compulsory for any transactions hereof, the people without IDs will strive towards attaining IDs helping in financial planning and evaluation.
    • Having removed the old notes, new improved notes could be introduced into the system thus improving security against threats of counterfeits.
    • This drive can be a sort of morale accelerant for those who are willing to improve the existing ill placed system in the country.

    The above stated points are few of the most obvious reasons in favor of the step taken by the government and can be seen as the justifications for such a huge step by the government.

    Cons of Demonetization:bank-crowd

    • With more than 300 million citizens not having a valid ID card, it is quite impractical to relay a scheme that requires IDs for fulfillment.
    • Reducing cash flow so abruptly has the ability to decapitate the whole economic transaction setup.
    • The number of old currency notes which have become obsolete by this order is so large that the sheer decomposition of these will pose a grave problem.
    • The banking system is having a splurge of cash intake which would render them incapable of generating revenue which could lead to grave after effects on the whole system.
    • When a person with honest earnings has to queue in order to withdraw his own money, it is not even close to being ethical.
    • The decision has been taken without the proper channels of legislature and this type of political behavior can’t be encouraged in a democracy.
    • The level of discomfort this step has brought to the general public is just incalculable.

    It can be very easily understood from the above points that all is not green in this arena. The proper evaluation of the situation in the wake of the facts is really essential in understanding the whole scenario.

    Any government measures in order to counter the illegal practices are to be welcomed from the side of any aware citizen. But it is equally important for the authorities to understand that showing disregard to the public ease and taking whimsical measures without proper consultation and scrutiny is not a very good way to handle a democracy based nation.

    This is indeed a tough time for Indians and as the history speaks out loud, we come stronger through high tides; same will be the case this time as well.

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