Economic Effect of Demonetisation in India

Demonetization has been a disaster for the Indian economy. The Prime Minister has not done enough homework before taking that decision. 84% of Indian currency is in form of ₹500 and ₹1000 denomination. While it was announced on 8th November 2016 that the currency notes of the above mentioned denomination will no longer be valid. The government was not ready with new ₹500 and ₹2000 notes. They were not yet printed.

The result was huge ques outside banks and ATMs with all banks and ATMs running out of cash. Again the limit to which the money can be withdrawn per day was kept minuscule so people were made to go to banks and ATMs more frequently than they ever did. There have been over 70 deaths across the country till now when people died for not being able to exchange their money when they were in dire need of it. 

It has been 17 days till demonetization took effect but things are at the moment far from normal. Consumption has come down and this has lead to decline in business. Most businesses across the nation are badly affected. 70% of trucks are off the road, decrease in consumption has had a severe effect on the transport sector.

A CMIE (Centre for Monitoring of Indian Economy) report has mentioned that Indian economy is poised to lose ₹128,000 crore in the the 50 day window when the demonetization operation takes place. In the end the article mentions the amount is conservative and it is for the first 50 day period only. There are surely going to be long term devastating effects on the economy. 

The foreign tourism industry is destroyed as tourist are only allowed to convert only about $70 per week to Indian currency, which is just peanuts. The foreigners who visit India during this time will have to face lots of hardships and they will never comeback to this country. 

Each and every sphere of the economy is badly affected. As much as 400,000 or more jobs will be lost in labour intensive industries. It was expected that the demonetization operation would clean up the black money in the nation, however channels have opened up that is helping people to change their old hoarded black currency into new, thus effectively converting their black money into white for a 30% commission. 

There are many more things that are not reported in the media like broken marriages and other hardships faced by common people. The Prime Minister had announced that after 24 th Nov the amount of money that can be withdrawn or exchanged in the banks will go up. On the contrary the amount of exchange per individual has come down to ₹2000 per day and on 24th it was announced that people would no longer be able to exchange old 500 and 1000 notes, they only will be able to deposit them.

Now 47% of Indians don't have bank accounts, most of them are poor people. They would have saved their life long earnings in form of ₹500 and ₹1000 notes, what happens to them?

The entire demonetization operation has rather become a moneylaundring work in which the rich are the ones who are benefited while common people have to go through tremendous hardships. It will paralyze the Indian economy if proper action is not taken by the judiciary, which is now the only hope of the common man. 

Currency Recall in India

On November 8th when the world was glued to US presidential elections, the prime minster of India declared that Indian currency notes of denomination  ₹500 and ₹1000 were no longer valid from 24:00, Nov 8th. The news spread like wild fire across the nation. People thronged towards different ATMs to withdraw money of amount ₹400 per transaction so that they could get ₹100 notes many ATMs ran out of ₹100 notes. 

The following day was declared as bank holiday and then the banks were supposed to be open even on weekends. From November 10th one can see huge ques across all the bank branches and ATMs across the country. Many ATMs are shut down for the want of cash. 84% of the printed currency was in form of ₹500 and ₹1000 notes that are out of circulation now. 

It is a fact that the neighbouring countries of India are circulating counterfeit currencies in mostly of denomination ₹500 and ₹1000. The move to recall this notes will make the counterfeit currency useless. There are many bureaucrats, corrupt government officers, unscrupulous businessmen who have loads of black money hidden as cash in form of notes of ₹500 and ₹1000.

 However many black money holders have hidden their black money abroad in tax havens like Dubai, Switzerland, Singapore, Panama, Malta etc. Many have them locked in form of gold bars and jewellery. So these people won't be affected by the decision taken by the government. 

While the decision was necessary poor planning in implementing this project has created chaos across the nation and common man of the country is the one who is worst affected. To begin with proper arrangements were not made and extra counters were not opened for people to exchange notes. Many people in India don't have bank accounts specially in villages, where the nearest bank branches are many kilometers away, they have their lifetime of savings in form of these notes which they can't use immediately. 

It is said that this move was made to fight the menace of black money, however new ₹500 and ₹2000 notes are being introduced. So again the government is making it easy for the corrupts to keep their black money safe. Again the current ATMs are not calibrated for the the new notes, so people are unable to withdraw the new currency notes from the ATMs.

On November 9th many major national dailies had a front page full advertisement of an online app based money transfer app company which sported the picture of the prime minister of India. Now the declaration of banning the notes was made at around 8pm by Prime Minister. At 10pm the newspapers went for print. So if indeed the operation was confidential then how come within 2 hours such arrangements can be made. There is clear indication that the people close to the ruling party knew beforehand that such a decision was coming and they made all the necessary arrangements to overcome any situation of their unaccounted cash becoming useless. 

It is clear that out of the 14.5 lakh crore worth of notes in circulation before demonetization. A very small proportion of unaccounted cash will be collected by the government. Maybe around Rs 1 lakh core or a little more. However what matters is how the money is used. It is highly likely that the money will be stolen again and very little will be achieved by this move. Since the current ruling party and government does not have any interest in eliminating corruption because it is gaining from it and they are in politics to make money from corruption rather than serve people.