Demonetization

Demonetization can be defined as the withdrawal of a particular form of

currency from circulation. On the evening of 9th November 2016, Prime
Minister Narendra Modi announced the demonetization of Rs.500 &
Rs.1000 currency notes from midnight. This sent shockwaves among the
public though it was not first such action in independent India.
The government planned a complete setup to carry out this complex
process. People were allowed to exchange the old notes worth Rs. 2000
per day from banks up to 31st December. The cash withdrawal limit was
fixed at Rs.2000/day which was later increased. Marrying couples were
given some exemptions to avoid inconvenience in the marriage. New
Rs.500 & Rs.2000 notes were introduced to deal with the cash crunch in
the economy.
Demonetization had wide-ranging effects on the Indian economy. It not
only unearthed huge amounts of black and counterfeit money but also
increased tax collection of the government. This step helped in blocking
terror funding and gave a blow to illegal trades like smuggling and drug
dealing. Banks recovered many of their NPAs which would not have been
possible without demonetization. Most importantly, it brought
digitalization and transparency through cashless transactions in a cash-
based economy like India.
However, flowers are always accompanied by thorns. Demonetization
left the Indian economy crippled as the GDP fell from 7.9% in the first
quarter of 2016-17 to just 6.1% in the last. Small & medium sector
businesses collapsed. Local shopkeepers and street vendors who were
completely dependent on cash for their day-to-day transactions suffered
the most. Added to this was the inconvenience caused to the general
public waiting in long queues outside the banks and ATMs.
Despite its limitations, Demonetization appears to be a hopeful move
implemented with long term vision. The drawbacks of demonetization
have now been significantly recovered and it seems to be paving way for
a new India.