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What are the Advantages and Disadvantages of Demonetization?

Advantages and disadvantages of demonetization of 500 and 1000 currency notes. The government of India recently took a bold step of demonetization of Rs 500 and Rs 1000 currency.Demonetization of currency means discontinuity of the said currency from circulation and replacing it with a new currency. This panic and discomfort is temporary phase. Actually intention behind this move is to curb the black money which is source of terrorism, bribes and other anti social activities.

Is the decision about Demonetization all of sudden?

Answer is absolutely “NO”.

Different Steps has been initiated before implementation of this brave decision

  • Step-1 Govt requested people for creating the bank Accounts under jan dhan yojna
  • Step-2 Opportunity provided for declaration of unaccounted income under the Scheme of IDS.
  • Step-3 Now the time for overwhelming turn as part of nation building.

Advantages and Disadvantages of Demonetization

Advantages of demonetization (Over a period) :

Cashless & Digital economy : A better step towards Digital India. There are now several to being digital. There are several banks, several digital wallets and new payments banks entering the markets. Aadhar card linkage everywhere could also be a game changer.

Interest rates : There should be a rise in banking interest rates.

Inflation and GDP: If not Poverty elimination, at least a difference in the poverty graph has to be seen over a period.Every individual who are now standing in the queues are to be shown the difference, which increases the credibility on such bold steps, and let them be prepared for such kind of decisions in future which could be taken in favor of common man.

Increased Tax revenue:

There is an incredible surge in tax collections for the past month. Property tax, water tax and other corporation levies in all states have risen considerably. The income tax collections have also risen rapidly. The provision of Income Tax department monitoring the accounts with more than 250000 rupees deposit and collecting tax with penalties will increase the tax revenue for the government.

Good Governance:

Demonetization is done as a measure of good governance as suggested in the World Bank’s Ease of Doing business report. This measure will increase the rankings of India in various indexes published by World Bank, World Economic Forum, United Nations and IMF etc. Demonetization will enhance the transparency levels in governance to a great extent by bringing all transactions in the formal banking sector.

Ease of Recovery of long term dues in public sector and banking Sector from public.

India is developing as best Investment destination with the view of ease of doing business, reliability and strong govt. administration system.

Disadvantages of Demonetisation

a) The biggest disadvantage of demonetization is that once people in the country gets to know about it than initially for few days there is chaos and frenzy among public as everybody wants to get rid of demonetized notes which in turn sometimes can lead to law and order problem and chaotic situation especially in banks and ATMs which are the only medium to change the old currency units to new currency units.

b) Another disadvantage is that destruction of old currency units and printing of new currency new units involve costs which has to be borne by the government and if the costs are higher than benefits then there is no use of demonetization.

c) Another problem is that majority of times this move is targeted towards black money but if people have not kept cash as their black money and rotated or used that money in other asset classes like real estate, gold and so on then there is no guarantee that demonetization will help in catching corrupt people.

d) Business are encountering with the loss due to limited cash circulation.

e) There are many instances of fraudulent activities like the banking personnel and the post office personnel illegally exchanging the old currency for new currency for a commission amount. The brokers are making hay of the current situation and earn whopping commission of 50 to 60 percent for exchanging the currency using the poor people. The misuse of Jan Dan accounts to exchange black money is also revealed and restrictions are implied on such accounts. Media has exposed such cases of corruption.

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