DEMONETIZATION AND ITS EFFECTS

Prepared by :-Rajat and Shubham

Kasturi Ram College Of Higher Education

Meaning of DemonetizationDemonetization is the act of stripping a currency unit of its status as legal tender and is necessary whenever there is a change of national currency. The old unit of currency unit must be retired and replaced with a new currency unit.

REASONS To tackle black money in economy. Lower cash circulation in the country which “ is directly related to corruption in our country”.

Counterfeit the money used for funding of terrorism.

The move is estimated to scoop out more than Rs.5 lakh crore black money from our economy.

Glimpse Of Sectors affected by demonetization AUTO

TELECOM  BANKING

HistoryThe move to demonetize currency notes is not new. Rs1000

and higher denomination notes were first demonetized in January 1946.

DEMONETIZED/RE-ISSUED/NEW DENOMINATION

YEAR MONTH CURRENCY NOTES

Demonetized 1946 January Rs.1000,5000,10000

Re-issued 1954 ---------- Rs.1000,5000,10000

Demonetized 1978 January Rs.1000,5000,10000

New denomination 1987 October Rs.500

Re-issued 2000 November Rs.1000

Merits of Demonetization The biggest merit of demonetization is that it helps the

government to track people who are having large sums of unaccounted cash or cash on which no income tax has been paid when demonetization happens all that cash is of no value and such people have two options one is to deposit the money in bank accounts and pay taxes on such amount and second option is to let the value of that cash reduced to zero.

Since black money is used for illegal activities like terrorism funding, gambling, money laundering and also inflating the price of major assets class . Hence in this way it helps in putting an end to this circle of people doing illegal activities to earn black money.

Another benefit is that people are disclosing their income by depositing money in their bank accounts due to which government gets a good amount of tax revenue which can be used by the government towards the betterment of society by providing good infrastructure, hospitals, educational institutions, roads and many facilities for poor and needy sections of society.

Demerits of Demonetization The demerit of demonetization is that once people in the country gets to know about it than first for few days there is frenzy among public as everybody wants to get rid of demonetized currency notes which in turn sometimes can lead to law and order problem and disordered situation especially in banks and ATMs which are the only medium to change the old currency units to new currency units.

Another demerit is that destruction of old currency units and printing of new currency units involve costs which has to be borne by the government and if the costs are higher than benefits then it will become less helpful.

Another problem is that majority of times this move is targeted towards black money but if people have not kept cash as their black money and rotated or used that money in other asset classes like real estate, gold and so on then there is no guarantee that demonetization will help in catching corrupt people.

SUGGESTION Limit on cash withdrawal should be removed so that the flow of cash increases and leads to reduction of queue’s.

Workshops and seminars should be organized for people of rural areas who are not aware of net banking system.

Illiterate people should be given education about the use of debit and credit cards.

More branches of banks should be opened in rural areas where there is no banking facility.

Zero balance bank account should also be opened in private banks so that it can attract low income group or people of rural areas.

A different tribunal authority should be setup which will deal only cases of net banking frauds and online payment frauds.

Discounts should be provided for payment through debit cards, credit cards against cash payment which will attract huge amount of people.

Incentives should be provided on the usage of swipe machines by dealers.

CONCLUSIONCentral government’s decision to demonetize the high value currency notes is one the major steps towards the eradication of black money in India. The demonetization drive will affect some extent to the general public, but for larger interest of the country such decisions are inevitable. Also it may not curb black money fully, but definitely it has major impact in curbing black money to an large extent as Jan dhan accounts have seen a sharp rise in deposits and people who provide funding for terrorism by fake currency notes feel their backbone completely broken. So this move will not only help in curbing black money from India’s economy but it will also help in depletion of terror activities up to an great extent and will help to maintain law, order and especially ‘peace’ in Kashmir which is most popular place for terror activities. People are facing some problems due to demonetization but it is pain for our better time only so we should support method of cashless economy for better future of Indian economy.