Positive and Negative effects of demonization of Rs.500/1000 notes on Indian economy - NEWS SENTRY


Sunday, 20 May 2018

Positive and Negative effects of demonization of Rs.500/1000 notes on Indian economy

  • Sd. Bulbul Jamanur Hoque 
Now this is the mother of all headlines. PM Modi has just addressed the Country and announced that Rs 500 and Rs 1000 notes will be ceased to legal tender from the midnight ( 8 Nov, 2016). It means, these notes will not be accepted in legal transactions. Black money holders baldly busted. Nature of repel in the water is, it spreads in both the direction. It is a law of nature. In the same way, every action has both negative and positive aspects. But its up to us to decide what is more important. Human brain is more creative in focusing on negative aspects at first. Its not bad as it keeps us alert for the possible adverse conditions. So let us discuss the negative effects first. 

Negative Effects: 

  1. As government has announced it in a hastiness, it may effect its execution. 
  2. Allow withdrawal from ATM is upto Rs. 2500 and from bank its Rs 10000 only. Long queues will not allow a person to get money on time. It will be a little difficult for a family person to survive with this amount.
  3. The Average Population per Bank Branch (APBB) as on 31.3.2013 stands at 12,100 (source). Government has given us 50 days to deposit all our cash money into our bank accounts. Lets say 40 days are working out of 50. It means, on banks have to deal with average of 300 people daily. Yes, I agree that this number includes every living human being (children, senior citizens, women), so you can say that this number will reduce on practical scale. But wait, what about people who will come along? What about people who will come repeatedly, or I can say, daily? What about people who have to come again due to closing time or any other reason? This number will surely exceed. Believe me, public dealing is a very tough job and when you have 300 hassled brains in front of you, it becomes horrible. 
  4. Running out of Money: Though, everyone needs new currency notes, it is very hard to provide cash on time, even by RBI. Because, there is a limit on printing currency notes. Government just can’t order RBI to print new notes as per requirement. There is a regulatory system which guides RBI and Indian government how much new currency notes should be printed other country has to face some serious issues like, inflation. So, government will not be able to provide enough money to banks to pass on to consumers. It will create uncertainty. 
  5. Empty ATM’s: Same as bank branches, queues on ATM’s will also have to face same fate. Standing in long queues and returning with nothing will not please anyone. 
  6. Patients: Government hospitals have been allowed to accept old Rs 500 and Rs 1000 notes. According to National Family Health Survey-3, the private medical sector remains the primary source of health care for 70% of households in urban areas and 63% of households in rural areas. So its easy to understand that what will be the effects on these 63% and 70% patients. 
  7. White Into Black: As Indian, we do believe in cash. Even if our money is purely white, we go to bank, withdraw some money and go for shopping. Cheques and ATM swipes are not available everywhere. Like, if someone in family is hospitalized or, have marriage in house, we do withdraw our cash and feel comfortable. So, whatever the reason is, if someone has withdrawn a decent amount from his account then it will create a huge problem for him to prove himself innocent. So, in this case, instead of converting black money into white, a person has accidentally converted his white money into black. 
  8. Patience of People: Considering all of the above points (and many more in the line), it will need a superman effort from a common man to keep his patience in balance. Any outburst in the tolerance of people will make the situation more terrible. Though, for now, people are more in favor of respected PM because right now they are not suffers. But when they will face hurdles in their routine jobs due to shortage of money then it will be their patience which will make this historic move a success story. 
  9. Downfall in Economy: Though, it will be a very temporary effect, but for the next few months, there will be a visible effect on economy due to the decreased purchased capacity of consumers. Worst effects will be on startups and medium sized companies and firms.  
Positive Effects: 
  1. Foreign Trust: Transparency is always welcomed, specially in business. It is the most important gradient for foreign investors. Everyone like to have their money in safe hands. Black money is a major factor in India which inhibits the rapid growth in private sector. When a company decides to invest in a product they can calculate almost every kind of expenditure they will have to face except bribe. Ratan Tata has shown his irritation about corruption and bribe many times. So decreased black money will surely help Indian government to gain trust from foreign investors. 
  2. Lubrication in Circulation: Money is the lubrication that makes the market economy possible. A large portion of this lubricant was immobilized in the form of black money. Rs 500 and Rs 1000 shares a major part. Due to this immobilization government is bound to circulate more currency notes in the market to keep it running. In simple terms, say, government gives you 100 potatoes to distribute in the market. Instead of distributing all, you circulate only 80 pieces. Rest you preserve for your own benefits. Now for the fulfillment of the requirement, government will provide you 20 more potatoes, out of them you circulate only 16 and this keeps going on. Government have to invest more to fulfill the need and you will eat more as compare to others. Here, ‘you’ refers to market. This cause inflation. Now imagine, somehow government raids on you and liberates all the stored stock of potatoes. Surely stock will be huge which will help government to fulfill the need without any expense. It can distribute the extra potatoes to those who require the most. Now, replace potatoes by money and imagine the outcomes. 
  3. Hard Money to Digital Money: Though, it is the first of its kind, but we may have to face these surgical strikes on black money in the future too. This will give some time to people to understand the need of digital money in the current era. We have seen some inspiring pictures where vegetable seller is accepting money via PAYTM. India is changing. 
  4. New Hope: Black money was a key agenda for BJP during election campaigns. But people were disappointed when there was no major step taken by the current government. Now when PM Modi has declared the demonetization of Rs 500 and Rs 1000 notes, a positive vibe has been spread through out the country. 
  5. Zero Counterfeit Notes: In India, the circulation of fake Indian currency notes (FICN) has been on the rise, according to the Reserve Bank of India’s (RBI) annual reports. The year 2014-2015 saw a steep rise, with 594,446 FICN detected, up from 488,273 in the year 2013-14. When it comes to the type of notes counterfeited in 2014-15, RBI data showed that counterfeited Rs 500 notes were most common, with 273,923 recorded. Rs 100 and Rs 1000 notes were the second and third most counterfeited bills, respectively (source). 
  6. Most of the FICN are printed in Pakistan. Major transit points include India’s neighboring countries Nepal and Bangladesh. Other transit routes includes Dubai, Thailand, Malaysia, Sri Lanka and China (source). Now all this FICN is equal to ZERO.
  7. Rein on Terrorism: The ISI has been making a profit of 30-40% on the face value of each counterfeit Indian note produced in Pakistan, according to the report. The cost of printing a Rs 1,000 counterfeit note, for instance, is Rs 39 (the RBI spends Rs 29 to print a Rs 1,000 note), but it is sold at Rs 350-400, according to the report. It is a measure source of funding for these terrorist groups. Now all these funding will be equal to ZERO. 
  8. Increased Income Tax Revenue: It would be an exaggeration to say that all black money holders will deposit all of their stored cash into bank accounts. But they will also not let their hard-earned cash to become worthless paper. And whatever they will do it will convert their black money into white, at least for once. Someone is surely going to pay income tax on that amount. It will drastically increase the revenue generated from tax. 
  9. Deflation: Deflation refers to situation, where there is decline in general price levels. It increases the real value of money and allows one to buy more goods with the same amount of money over time. All of the above mentioned points will lead to the decrease in inflation which will automatically increase deflation rate. Goods will be cheaper and facilities will be in the range of poor people. Here is an example. 
  10. If we somehow try to manage short-term discomfort which we all are going to face in the coming days then positive aspects are really great to consider. 
Everything is fair in love and war. 
Its a war against Corruption and love for our Country.

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