1st Anniversary of DEMONETIZATION:- How things changed in INDIA

Nov. 8, 2016; the day when world's eyes on US Election results Indian Prime Minister Mr. Narendra Modi comes on television from the middle of nowhere and announce Demonetization and declare the world's largest democratic Country's two biggest currency notes Rs. 1000 and Rs. 500 will not be a legal tender from midnight and steals the world's attention towards INDIA. And in few matter of seconds 86% of country's currency becomes just a piece of paper. Prime Minister called this step as the Surgical Strike on Black Money.

Today it's been a year from Demonetization and here we are going to discuss about the purpose behind Demonetization and what's the effect of Demonetization in 365 days.

Demonetization was planned 6 to 10 months prior to launch but very selected people know about that. Even cabinet ministers, opposition, RBI officers as well as high profile government officials have no idea about it. Printing of new notes started from May 2016. Prime Minister informed the cabinet just few hours before declare it officially.

Prime Minister choose the perfect time to declare Demonetization 20:00 IST. All the notes was valid till midnight. So, government gives very short time to those people who are holding Black Money which is the main purpose to identify Black Money and their holders. As a result country goes in a deep shock without an earthquake. Nobody discuss about who wins the US elections Hillary Clinton or Donald Trump. Government gives 50 days to the people to exchange or deposit old currency notes in the banks and post office. People rush to the ATM to withdraw the money as well as to the petrol pumps to change old currency notes. As a result long ques were seen both places and most of the ATM run out of cash across the country before midnight.

At the time of Demonetization roughly Rs. 15.44 trillion ($240 billion) currency notes are in the circulation across the country in the form of Rs. 500 and Rs. 1000 and to replace this Government announce new Rs. 2000 and Rs. 500 currency notes. In the annual report Reserve Bank of India stated that 99% of demonetized notes were deposited or exchanged to the new currency notes.

Demonetization gives both good and bad effect to the economy of the country. The purpose behind demonetization is to identify the black money and its holders, decrease the corruption, identify and stop the fake currency circulation, stop terror funding, promote digital transactions, promote cashless economy, boost the GDP in long run etc. Here we are going to discuss about them in detail.

PURPOSE OF DEMONETIZATION:-

BLACK MONEY:-

The main purpose of demonetization is to fight against black money and find the people holding it. Mostly black money is holders are businessman's, corrupt government officers, builders and property investors, jewellers, and people promoting terrorism. Generally, they keep their black money in the form of cash, gold or property. Less than 1%(nearly Rs. 15,000 crores) money is identified as black money while experts estimated that country has 2 to 3 lakh crores (Rs. 200,000 crores to 300,000 crores) in the form of black money. Someone says this figure is about even more than 500,000 crores. Black money holders finds various ways to convert it into white like buy gold higher than market price, buy foreign currencies at higher price, backdate transactions etc.

So, the bottom line is that Government fails to identify Black Money as their holders finds various loopholes. However, The Finance Minister Mr. Arun Jaitley said government identified more than 200,000 shell companies which are just present on papers and no any transactions done from last 2 years but after demonetization such a huge transactions were done by them. Government is taking actions on them.

CORRUPTION:-

Prevent corruption is also one of the main purpose of Demonetization. Government takes various steps to stop corruption by promoting digital transactions and remove the chain system. As a result of Demonetization, more and more people declare their income. Income tax filing increase 25% and advance tax collection rises 41.8%. Thus, Government treasury increases dramatically. Corruption is still there and nobody knows that Demonetization increases or decreases corruption and at what level.

TERRORISM AND FAKE CURRENCY:-

Terrorism is funded by hawala system. As Prime Minister described Demonetization as Surgical Strike. It breaks the spinal cord of terrorism. All the money which promote terrorism inside as well as outside the borders was freeze immediately.

Level of fake currency before Demonetization is very high. As Rs.500 and Rs.1000 notes were replaced by new notes of Rs.2000 and Rs.500 having advanced security features its not possible to make duplicate notes as a result the fake currency is stopped now. As per one report 0.0007% fake notes deposited in banks out of which 0.0002% was Rs.500 and 0.0005% was Rs.1000. which shows government clearly failed to identify fake currency.

EFFECTS OF DEMONETIZATION:-

ON PEOPLE:-

After Demonetization declared, the shortage of cash arises because just 14% of total currency notes remains as a legal tender. Such a long queues were seen at ATM, banks, petrol pumps, post offices and many other places. People literally stands for hours and hours in a queue to exchange their notes with new one. All the businesses were stuck due to shortage of cash. Few people also died or hospitalized while standing in a queue due to several reasons. Also, irresponsible and disrespectful behavior of bank staff comes out at couple of places. People struggles to buy food and other routine necessary household items. By the way, bank staff works more than their potential to solve this problem as early as possible. And also people learned new word “DEMONETIZATION”.

ON ECONOMY:-

Due to the shortage of cash, businesses were stuck and production & manufacturing drops in all the sectors as a result GDP falls.  Country’s quarterly GDP falls below 7% for an entire year for the first time since June 2011. GDP falls nearly 2% for the fiscal year compared to estimated before Demonetization which is exactly predicted by the Former Prime Minister Mr. MANMOHAN SINGH back in Nov. 2016. Former RBI governor Mr. RAGHURAM RAJAN is a also against the Demonetization.  Purchasing power as well as industrial output and exports drops. Unemployment rises. Income tax collection rises dramatically at both national and local level. Even though despite of that IMF, WORLD BANK, GOLDMAN SACHS, MORGAN STANLEY, WORLD ECONOMIC FORUM and many other International organisation stands this decision strongly and said that this is just short term effect and still INDIA has ability to reach 10% GDP. IMF said that country is going under structural reforms which are needed by the time.

ON STOCK MARKET:-

On the next day of Demonetization when market opens BSE SENSEX drops 1,688.69 points or 6.12% and NIFTY 50 drops 541.30 points or 6.33% in early day trading session as a combined effect of Demonetization and US election results as Donald Trump wins the election. But this is just a short term effect. From that day both SENSEX & NIFTY given 29% return.

Somehow, Prime Minister Mr. NARENDRA MODI succeed to convince people. It clearly shows that MODI MAGIC is still there in the country. It's such a big deal to convince 1.3 billion people.

At last, fun fact is that 7 months earlier on 1st April, an article published in a Gujarati Newspaper named “AKILA” under the title of "Demonetization of Rs.1000 and Rs.500 notes". The editor says it's just a April Fool Prank. But who knows that Prank comes true after few months. Also, the article have many similar details to the actual announcement of it including creation of new Rs.2000 notes!!!