• 14 June 2024

Demonetization in India: Revealing the Advantages and Disadvantages

Jan 8, 2024

Demonetization in India was a big change in the economy. It made some people hopeful and worried others. The goal was to stop illegal money and encourage digital transactions. This had good effects like more openness in money matters and better access to financial services. But, there were also problems like temporary issues and difficulties for certain groups. People have different opinions about how it affected the country, showing that demonetization in India is a complex topic.

  1. Initiation Year: 2016
  2. Government: NDA-led Indian government
  3. Implemented Action: Demonetization of INR 500 and INR 1000 notes
  4. Global Reactions: Sparked mixed opinions on effectiveness
Advantages & Disadvantages of Demonetization

Advantages of Demonetization:

  1. Curbing Black Money: Forces disclosure of hidden wealth, enhancing financial transparency.
  2. Boosting Cashless Transactions: Encourages digital payments, reducing corruption risks.
  3. Curbing Terrorism and Counterfeiting: Disrupts funding channels for illegal activities and hampers counterfeiting.
  4. Increased Bank Deposits: Enhances liquidity with banks, reducing the tendency to hoard physical cash.
  5. Improved Currency Circulation: Extracts cash from homes, promoting continuous currency flow.
  6. Helps in Contouring Counterfeit Currency: Effectively eliminates the usage of counterfeit currency.
  7. Tracing Black Money: Makes it difficult for corrupt individuals to exchange physical black money, aiding authorities in tracking them.
  8. Downside Movement of Lending Rates: Improves liquidity, enabling banks to lend more at lower rates, and fostering economic growth.
  9. Countering Illegal Activities: Halts circulation of currency used in illegal activities like hawala and terror financing.

Disadvantages of Demonetization:

  1. Economic Slowdown: This leads to a short-term economic downturn, impacting small businesses and causing job losses.
  2. Logistical Issues: Results in long queues outside banks, ATM recalibration challenges, and delayed normalization.
  3. Ineffectiveness in Curbing Black Money: Fails to address black money stored in assets like real estate and gold.
  4. Payment Crisis: Disrupts monetary transactions, causing problems for laborers, traders, and retail businesses.
  5. Liquidity Crunch: Non-availability of adequate liquidity in the market hampers economic activities.
  6. Short-term Downfall in GDP: Causes a temporary economic slowdown due to disruptions in financial activities.
  7. Causes Panic Among the Public: Generates panic among the public, leading to inconvenience and extra effort in exchanging currency.
  8. Halt in Economic Development: Disrupts economic activities, leading to a standstill in the short term.
  9. Recalibration of ATMs: Requires significant efforts and costs to recalibrate ATMs for the new currency.
  10. Possibly Won’t Completely Stop Criminal Activities: Criminals may resort to holding assets like gold or real estate instead of currency.
  11. Can Cause Civil Unrest: Ineffective implementation may lead to public unrest as people rush to exchange currency.
  12. Costs Associated with Production of New Currency: Incurs expenses in producing new banknotes and coins.

Conclusion

In summary, demonetization in India was a big and controversial decision. It had good parts, like reducing fake money and promoting digital payments. But it also caused problems like a temporary economic slowdown and difficulties for the public. The ongoing debate shows that it’s a complex topic, and people have different opinions about whether it was a success or not.

Also, read https://thelogicalpie.com/disconnected-tracing-the-history-of-internet-shutdowns-in-india/society/

Leave a Reply

Your email address will not be published. Required fields are marked *