Four years ago on the 8th of November 2016, Prime Minister Narendra Modi announced demonetization, That 30 min speech brought an immediate change in our lives and economy because we could no longer use 500 and 1000 Rupee notes, which meant that 86% of the currency in use was termed as invalid. We were given 59 days to deposit our money in the bank which was later extended.
There were major reactions to the decision, Some hailed it as a bold move that would help in the fight against black money while many claimed the move was disastrous for the economy.
The Impact of Demonetization
The question which arises is whether we are all really aware of what our economy went through during the time of demonetization. It happened and passed but we definitely do not discuss it as if it were a big part of our lives.
Why is demonetization really happening? Has this happened before? Our minds were filled with confusion and questions which we mostly kept to ourselves. Well, it is time to actually talk about why it happened.
There were two main reasons behind this unexpected change: to stop terror funding and for putting a stop to black money the majority of which was stuck in the Swiss Bank.
It isn’t the first time demonetization has taken place because our economy has gone through it twice already.
The first time was in 1946 when 1000 and 10,000 Rupee notes were removed from circulation and it happened again in 1978 when Prime Minister Morarji Desai banned 1000, 5000, and 10,000 rupee notes.
Demonetization did not affect our economy significantly in 1946 or 1978 because a majority of the population did not have high-value notes, to begin with.
The main reason why the demonetization which took place three years ago affected everyone to such a huge extent is that most people had the currency.
It’s a different time which is why things are bound to be different than before as it is no longer uncommon for most people to have high-value currency.
There is absolutely no doubt that there were some immediate effects of demonetization. The banks were flooded by people who stood in long queues on a daily basis to get their notes exchanged.
For some time, people had trouble getting their change back from general stores as everyone fought hard to get the new currency. Gas stations were an important part during this time period as they accepted the old currency for a much longer period of time.
The negative aspect of this was that people wasted so many hours waiting in line when they could have had the opportunity to be productive.
However, in the age of Facebook, Instagram, Snapchat, etc. You might believe that there is no need to invest in a full-blown website now. Business owners might think it is a waste of time, money, and energy and a better strategy would be to focus where the users actually are – Social Media channels.
But that is not the case. There are many reasons why websites still hold importance in 2020.
Opinions and Facts
A report from Reserve Bank of India says that 99.3% of all high-value currency notes which were demonetized were deposited back in circulation which makes demonetization a failure. Mamta Banerjee stated that it was an utter failure and India still has a lot to recover from.
Over 66% of Indians think that demonetization had a negative impact on the economy and did not help in the fight against black money.
Almost 33% of Indians think that the biggest impact of demonetization was Economic Slowdown.
Many people believe that because of demonetization many daily wages and unorganized sector workers lost almost all of their earnings.
At least five million factory workers lost their jobs between 2016 to 2018.
Almost 25% of Indians believe that there was absolutely no benefit of demonetization, whereas 4/10 people do think that it helped in catching tax evaders and black money launderers.
Impact on various sectors of the economy
After 3 years of demonetization, we can finally sit back and analyze the impact it had on our economy
Jobs: Unemployment rose to a 4 year high in 2016, In 2017-2018, the country’s unemployment rate rose to 6.1 percent. Between 2016 and 2018 more than five million people lost their jobs.
Tax: Finally there was some positive impact of demonetization as in 2017/2018 1.07 crore new taxpayers were added, and the number of dropped filers came down to 25.22 lakh.
Real Estate: The real estate was hit hard by demonetization, small developers suffered the most, Gurgaon and Noida saw a decline of more than 74%. Lack of inventory and execution capability were the main reasons for the decline.
Digitization: The biggest trend that gained momentum after demonetization was digitization, cashless transactions became a thing and apps like Paytm, G-pay, and PayPal started getting used much more.
Benefits of Demonetization
There are always two sides of every story though, so here are a few ways in which demonetization has benefited our economy:-
Based on a report given by the Times of India, we can tell you that there has been an increase of 221% in the Digital transaction rate since demonetization. Today, people prefer making online payments through various domains such as Paytm, Google pay, etc.
The Jan Dhan Yojana account has crossed over 80,000 Cr. Rupees which also means that unprivileged and poor people have bank accounts and can easily deposit money as per their convenience.
Demonetization has caused an increase in the annual growth of tax payments by 10%. This means that more people are filing their taxes, unlike the years prior to demonetization.
An extremely important benefit that our economy has acquired is the shift in the investment habit. People are evidently trusting the market and investing in MF, stocks, bonds, etc.
Last but not the least, the stock market has significantly improved. Just after demonetization, SENSEX and NIFTY went down but were quickly recovered and presented a new high. People are undeniably exploring the stock market.
One thing we should be aware of is that change will always be constant, sometimes it will be for the better and sometimes for the worse. As for Demonetization, even though the immediate effects were troublesome, it actually helped our economy grow in many ways. Had it not been for demonetization, we would be at the same place digitally as we were before it happened. Underprivileged people would not have bank accounts and our life would not be as convenient as it is today with online payment domains. It is essential to be aware of events that have an effect on you, whether it is directly or indirectly. Rather than keeping our thoughts and questions caged inside, we should acknowledge and discuss issues that affect our economy and lifestyle.