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Advantages and Disadvantages of Demonetisation
Advantages and Disadvantages of Demonetisation
Tags: Gig Economy Economy WTO WTO Public Stockholding MSP Economic Growth Masala Bond Environmental Performance Index Forecast of Economic Growth Functions of the Finance Commission
As per the government of the day aim of Demonetisation was to flush out black money from the system, eliminate counterfeit currency, stop terror funding and other illicit activities, encourage cashless transactions, minimise income inequalities and formalise the large informal Indian economy. The government maintains that it discussed all these factors before the exercise with the board of the Reserve Bank of India (RBI) and it also wanted to expand the taxpayer base by increasing the number of taxpayers. However, in 2012, another government body, the Central Board of Direct Taxes (CBDT) cautioned the government with a report against Demonetisation
The report mentioned that Demonetisation may not be the best solution for tackling the shadow economy as black money is mostly held in bullion, jewelry and Benami properties with only about 6 percent or less being maintained as cash. So, while looking at the advantages and disadvantages of Demonetisation, it can be very clear that the disadvantages outweighed the advantages significantly. Firstly, the government expected 20 percent of demonetised notes to be permanently removed from circulation whereas 99.3 percent demonetised notes returned to the banking system. The menace of counterfeit currency also persisted as there were more counterfeit banknotes of Rs. 500 and Rs. 2000 than before.
The tax collection did increase in 2017 and there were more income tax return filings than the preceding year but they were mostly from the salaried and non-business class. The increase can also be partly attributed to the Income Disclosure Scheme of 2016. During demonetisation, digital payments picked up but afterward cash transaction was more prevalent and the banknotes in circulation went up by about 10 percent to suggest that just like in earlier years, more people were comfortable with cash usage. The job loss due to demonetisation was also a major issue, particularly in the informal sector.
People lost their means of livelihood in lakhs and crores during the period and as a macroeconomic outcome of the same, the Gross Domestic Product (GDP) also suffered during the consequent years. The industrial output and the stock market also bore the brunt of demonetisation. The transport sector and government welfare schemes also suffered significantly. The worst part was that there were many deaths in bank queues. Thus, it would not be particularly wrong to say that demonetisation was a failure.