Demonetisation has not been a completely new term to India. Past is evident that in 1946 & 1978, demonetization took place to curb the black money generation in the country. These two bans were not having any significant impact as currency denomination of 1000 & 10,000 were not possessed by common people at that time. On Nov 8, 2016, with the demonetization, the legal tender of 1000 & 500 currency notes have gone out of circulation. It leads to impact all sectors of the economy followed by the immediate decline in the growth rate of the economy although the long term economic effects of this move are yet to be analyzed.
It has been observed that there have been wide variations in different sectors after demonetization. In banking, people rushed to banks to deposit liquid cash which they stored. It was difficult to examine whether such deposits are actual savings or may be withdrawn at any time in the form of new currencies. Assuming these as medium-term savings, it increased the money supply in the market and fall in interest rates to increase investment. This in turn indirectly raises employment levels and subsequently consumption patterns. Thus, Demonetisation had a positive impact on the banking sector.
In real estate, it had a negative impact as the sale of houses in major cities fell by almost 40%. A significant impact is that it curtailed the flow of black money in real estate. In Agriculture, demonetization severely affected through input-output channels. The output in this sector fell due to the nation-wide problem of shortage of cash. Inadequate banking facilities to dispose off of cash lead to the inability to meet-up transport expenses and infra projects like irrigation, mechanization of Agri production, storage facilities, etc. The main aim of demonetization was the elimination of black money operators who were running a parallel economy. For the time being, it has been minimized but the actual fact remains the same that it cannot be prevented altogether. Demonetisation has driven out the counterfeit currencies, paralyzed the hawala transactions, thrived terror financing and increased the use of digital transaction systems.
It is observed that the efforts of policymakers were motivated by good intentions but it was criticized for its incompetent management or implementation. At this point, it is observed that such policies in a country like India can only experiment with wide ramifications for Indian society.
Ms. Jasmeet Kaur
Research Scholar, JIMS Rohini
