Demonetization - A Success or A Failure

Demonetization - A Success or A Failure

Introduction

• Demonetization refers to the process of stripping the currency unit from the status of it as the legal tender. If any change is occurred in the national currency, the current forms of money are pulled out from the circulation and new currencies are introduced. 
• This condition is known as the demonetization. India also faced demonetization in 2016 in which the Rs. 500 and Rs. 1000 currency notes were completely replaced. Soon after that, the new currency notes of Rs. 500 and Rs.2000 were launched. Recently the new currency notes of Rs. 200 (For the First time) and Rs. 50 are also launched by the RBI. 

Reasons behind Demonetization in India:

Demonetization in India was no doubt a bold step taken by the Government. The Prime Minister of India Narendra Modi declared the ban on the use of Rs. 1000 and Rs. 500 on the evening of 8th November, 2016. There are various reasons due to which the process of demonetization took place in India.

• Black Money- The black money, that is stored in the form of Rs. 500 and Rs. 1000 currency notes illegally in and outside of India, is harmful for the Indian Economy. It was expected by the Government that the Demonetization can recover approximately Rs. 4.6 Lakh Crore of the Black Money.
• Terror Funding- Various foreign organizations used to provide fund the terrorist groups in many states like Jammu and Kashmir, Naxal-hit stages and North-eastern states of India. The network of fake currency notes created by the foreign bodies can be abolished by the demonetization process.
• Illegal Money Flow by the Political Parties- Before election, the political parties of India indulge themselves in illegal transaction of money in the form of donation as the part of cash management. The decision of demonetization affected the election policy of the parties.
• Encourage the use of Digital Payment System- The demonetization process must encourage the people to use the digital or online payment systems like Paytm etc. as there must be a crisis of currency notes.

Advantages of Demonetization:

• The Demonetization process has widened the Tax-base and also there is a growth of 41.79% of the advance tax collection over the corresponding period of the financial year 2016-2017.
• Also there is an increase in the percentage on the collection of the self assessment tax over 2016-2017. 
• There must be a decrease in land price and various commodities due to demonetization.  
• Various “Benami” Properties are identified. The tax authorities have also identified high-risk real estate deals and unmatched tax profiles.
• Large numbers of Shell farms are identified and their registration gets cancelled.
• The high value properties, those do not file income tax returns, are identified.
• Approximately 18 Lakh people are identified who are indulged into the suspicious transaction of huge amount of money.

Disadvantages of Demonetization:

• Due to this entire process, the GDP growth of India has fallen down from 7.9% of last financial year to 6.1% in the current financial year.
• Though the Government had expected the Rs. 4-5 Lakh Crore recovery of Black Money after demonetization, in reality only Rs. 16, 050 Crore money were recovered. According to RBI, almost 99% of old currency returned to banks.

Conclusion:

Though the demonetization could not meet the expectation; However, it was considered as a bold step to bring back the black money. Infact As per RBI Data 99% Currency notes of Rs. 500 & Rs.1000 was returned back to RBI.