WHAT IS DEMONETIZATION?
Demonetization is basically the act of stripping a currency unit. Demonetization becomes necessary whenever there is a change of national currency. The old unit of currency is recalled and needs to be submitted to the banks and the government offices. Demonetization results in change of denominations, structure or complete scrapping of the currency.
Recently the INDIAN government under the directions of Prime Minister of India called off 1000 and 500 notes and introduce a new denomination of 2000 and a complete new note of 500 leading to demonetization.
Other countries where demonetization occured – THE SOVIET UNION, GHANA, BRITAIN and many more.
Indian 500 and 1000 Rupee note and demonetization:
The demonetization of ₹500 and ₹1000 banknotes was a step taken by the Government of India on 8 November 2016 while the PM was addressing the nation, ceasing the usage of all ₹500 and ₹1000 banknotes of the Mahatma Gandhi Series as a form of legal tender in India from 9 November 2016.
As per the sources and media spokesperson, only six persons knew that such a thing was going to happen and the RBI governor wasn’t among them. It is said that the RBI governor was sent a letter addressed by the PM of India a day before if they were ready to do so i.e. on November 9 , 2016.
Modi declared circulation of all ₹500 and ₹1000 banknotes of the Mahatma Gandhi Series as invalid. He announced the issuance of new ₹500 and ₹2000 banknotes of the Mahatma Gandhi New Series in exchange for the old banknotes.
This is not the first time in the Indian history that the demonetization has occurred.
History of Demonetization in INDIA:
Previously too India has witnessed Demonetization.
In January 1946, banknotes of 1000 and 10000 rupee were withdrawn. New notes of 1000, 5000 and 10000 rupee were introduced in 1954. The Janata Party coalition government had again demonetized banknotes of 1000, 5000 and 10000 rupee on 16 January 1978 as a means to curb counterfeit money and black money.
Initial guidelines by the RBI
The RBI laid down a detailed procedure for the exchange of the demonetized banknotes. Following are the key points:
- Citizens will have until 30 December 2016 to tender their old banknotes at any office of the RBI or any bank branch and credit the value into their respective bank accounts.
After December 31, 2016 people would need to submit some type of affidavit stating that the money is white and varying on the amount of money submitted the person is eligible to pay a fine and may be sentenced to jail in case he is found guilty of keeping money or tax evading.
- Currently withdrawal limit from the ATM is Rs. 24000 per day but with a maximum cash withdrawal limit for a week.
- The old banknotes can be exchanged by filling up a requisition form along with a valid ID proof.
The Indian government was very clear with the guidelines as it kept on modifying these guidelines as per the need, as per the money available in ATM.
Exceptions in case of the Demonetization era of the INDIA:
Initially, Exceptions were given to petrol, CNG, and gas stations, government hospitals, railway and airline booking counters, state government recognized dairies and ration stores and crematorium to accept the old ₹500 and ₹1000 banknotes until 24 November 2016.
International airports were also instructed to facilitate an exchange of notes amounting to a total value of ₹5000 for foreign tourists and out-bound passengers.
They had to submit an affidavit after December 31, 2016proving that their money is white.
A heavy fine would be imposed on the person failing to show the submitted money as white.
- SUPPORT – Several bankers appreciated the move in the sense that it would help curb black money. Businessmen also supported the move adding that it would also accelerate e-commerce. The public too supported this move at a large-scale.
- CRITICISM – CM of West Bengal Mamata Banerjee called the new declaration “drama”. Former World Bank Chief Economist, Kaushik Basu, said that the ‘damage’ is likely to be much greater than any possible benefits. It has also been noted in the media that black money holders keep only a small fraction of their ill-gotten wealth as cash. Hence targeting this cash may not be a successful strategy.
- India’s EX Prime Minister – Dr. Manmohan Singh had said it might seem like a great step in the short-term but the results would be different in the future.
- All the opponents came together as one to fight against this decision.
- BSP leader Mayawati too had different opinions and on her birthday did a press conference.
- Reaction of the Indian People:
A difference of opinion was seen in the citizens of India. Some people stated this decision as a strong step against the black money fight which other governments before them failed to do so. A different group of people stated that the implementation wasn’t done as it was needed. It was a failure of the Modi government.
IMPACT OF DEMONETIZATION:
- Cash Rush – The scarcity of cash due to demonetization led to chaos, faced difficulties to exchange them as endless lines outside banks and ATM across India, became a daily routine for millions of people waiting to deposit or exchange the ₹500 and ₹1000 banknotes since 9 November.
- Effect on illegal activities – The move was seen to fight corruption, many people did surrender their black money. Another impact was on terror- funding in Pak and Kashmiri Militants.
- Cashless Economy – Modi aimed towards digitalization in INDIA. On the eve of 31st December Modi restated his decision of making INDIA a cashless economy. Online transactions were seen on a large scale after the demonetization.
- PAYTM – Online mobile wallets came up and PAYTM was one who made huge profits. In case of visits to Dominos, McDonalds, KFC etc you would find “PAYTM accepted here” on the entrance door. A larger population of people were seen moving onto PAYTM wallets and doing transactions via PAYTM.
Evasion of Demonetization:
People still found a way to evade the demonetization or evading the submission of black money and these were:
- Gold purchases
After demonetization, long queues of people were seen shopping gold.
- Municipal and local taxes
Many people who evaded tax, paid of the dues with fines.
- Multiple bank transactions
It was seen that people were doing multiple bank transactions.
Many people instead of simply surrendering their money , they preferred dumping them.
Yet the fight against the black money is on even after the Demonetization and everyone needs to do his/her bit. Switching to cash-less economy or making online transactions won’t harm.