Demonetization has hit the Indian economy last week on Nov. 8th, When Prime minster Modi has announced the ban on old currency notes of 500 and 1000 rs. Which was the highest denomination of the notes at that time.
Many people are still asking question, like what it is been done, what is the long term benefit of it so on.
Here we would like to present you the complete list of Pro’s & Con’s of demonetization.
Pro’s of Demonetization
- Will reduce the amount of Black money – After this move, people who have hoard black money with them,which is more then 20 % of the total economy. they will have to either abandon their money or move it to white by bringing it to system.
- Will Increase the inflow of the money in the economy – As people has to put their money into bank, which will result in huge increase of inflow of cash in to the banking system thus into the economy.
- Will Hit the business of Fake currency – Almost 80,000 crore rs of counterfeited money is been pumped by ISI and Pakistan to Indian economy. Which will be hit by these moves badly.
- Terror Funding will get reduce – Most of the illegal work and terror funding is been done through fake currency and earning from the fake currency business. As fake currency business will hit badly by this, so it will lead to stop terror funding for time being.
- Naxal funding will go in vain – Naxal and other illegal mafia has stanched huge money with them, they have hoarded the big amount with them, which they have earned by their illegal activity. That money is useless now, neither they can put it in the banks nor they can use that money.
- Will hit political funding – As almost all political parties are them self are biggest hoarders of the black money. Their economy will hit badly by this move, we may see a better election in up coming assembly in UP and Punjab.
- Will Increase the GDP – Indian Govt. is expecting to get 10 trillion to be deposited in the banks after this move, which will very positively impact the Indian economy and which can improve the GDP by at least 1.5 %.
- Increase in Public expenditure – Govt. will collect more tax, which will give leverage to the govt. to spend more on Infrastructure,Health and education.
- Increase in Job opportunity – As Govt. will increase the public funding, the job opportunity will increase in the country, People will get job in health sector, education sector and Infrastructural sector and banking sector majorly.
- Poor People will get benefited – As govt. will work on the upliftment of poor, they will get huge benefit from the govt.
Con’s of Demonetization
- Problem in exchanging notes – Currently 80 % of the total money in the economy is 500 and 1000 notes. So govt. and people is to exchange 80 % of the money,which it self a huge task & requires great detail of planning. It will be a tough task for govt. as well as for people.
- Public Inconvenience – It might be very inconvenient for public, many people have medical emergency and health issues, there is weeding season is around the corner. So it is very inconvenient situation for common people.
- Lack of Banking structure – Current banking structure, specially in rural India is not that sound, which can support this huge economic transition,at least 50 day’s are very less for it.
- May not stop the corruption and hoarding – If certain step are not followed properly like 1. Reducing a discretionary power of tax officer, Making tax policy easier, increasing the exemption limit and reduction of tax % from Rich. I am afraid people will again start hoarding money and evading tax. So this whole marathon exercise will go in vain.
- Will hit economy for two quarters at least – As 90 % of the Indian economy is on cash, this crunch of the cash situation will hit economy for two quarters at least if not more. 50 % of the revenue comes from service sector, which will be worst hit by this cash crunch.
- Will hit agricultural sector – This is the high activity period for agricultural is concern, farmers this time does not have a cash to buy seeds, fertility items. Which may hit the production of many important items. Which will further impact the economy.
- “May” see a return of Inflation – Ideally inflation should go down after demonetization, But/if the farmer production gets hit by this. If availability of cash does not get normalize in 2 weeks. Then we may see a less production across agricultural product, which will further result in inflation and high price of food grains.
So this is by far some of pro’s and con’s of demonetization done by Modi govt. My take is if the process is followed by more planned manner and concerns of different segment of people are taken care of with some strict followup step, this step could be a game changer for Indian economy. But if we carry on the way we are doing it, It could well be a disaster for growing Indian Economy.