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Demonetization

The term demonetization in context of Indian economy shows that it is facing the problem of black
money. Therefore this term is not completely suitable for this situation because the people are
exchanging their old Rs 500 and Rs 1000 denominations for the newly introduced Rs 2000 and Rs 500
denominations. However the black money is still there and it is idle, that is, not being exchanged with a
fear of being caught. Thus the term Demonetization is just partially correct for the current situation of
Indian economy.

The concept of demonetization has brought the problem of black money to the controlled situation to
far extent, but it has not stopped properly because even the various new problems regarding the cash
crunch is being witnessed and this problem is quite common because the new denominations notes are
illegally stored by some people irrespective of various actions by our government. Thus the problem of
cash crunch prevails and currently the Indian people are facing this problem.

However, there are various benefits of demonetization being witnessed currently. These are:

This initiative was taken to resurface the black money which was in cash form and it has been
successfully addressed
It also slowly and steadily solving the problem of terror funding, counterfeit money, Hawala and so
on.
The concept of Digital India gained a boost along with the introduction of this initiative and the use
of the various digital wallets like Pay tm, Freecharge has been induced.
Demonetization gave the need for cashless economy. Even the small vendors like tea stall are using
Point Of Sale(POS) machine for their daily transactions.
This initiative was appreciated and supported by many other countries and thus it improved our
relation with other countries.
This initiative will be quite benefit for India in long term because in digital India all the transactions
are recorded and thus the problem of corruption will be solved.
The economic condition will be improved and the gross domestic product of the country will be
higher.
Accordingly, there will be positive effect upon the goods and services (GST) tax bill that is going to be
introduced from the coming fiscal year, that is, 1 st april, 2017.

However there are innumerous demerits of this initiative as well. Some of them can be:

People are facing the problem of cash crunch everyday and this has really affected their cost of living
and level of expenditure.
The sales of the fast moving consumer goods, durable goods, and automobile industry are declining
thus leading to decline in their profit for the quarter. This has really affected upon the productivity
of the companies involved in these sectors.
The life of farmers and people with low income scale has really affected due to cash crunch as the
government has not addressed the problem properly.
Many small scale industries has been closing due to lack of funds for the business.
The days following the demonetization, the banks and ATMs across the country had faced severe
cash shortages and still the problem has not been addressed.
People seeking to exchange their notes had to stand in the lengthy queues and several deaths were
linked to the inconveniences caused due to the rush to exchange cash.

Thus the government claimed that the demonetization was an effort to stop the counterfeiting of
the current bank notes allegedly used for funding terrorism, as well as a crack down on black money
in the country. The move has also described as an effort to reduce corruption, the use of drugs, and
smuggling. The initiative received support from several bankers as well as from some international
commentators. But it was heavily criticized by the members of the opposition parties, leading to
debates in both houses of parliament and triggering the organized protests against the government
in several places across India.

Thus the announcement by Indian Prime Minister Narendra modi on November 8 that 86% of the
countrys currency to be replaced with new series is really fruitful and in long term it will have the
positive impact upon the economy if it is proceeded in cautious and proper way.

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