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Objectives of Demonetisation
Objectives 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
Demonetisation is a type of economic process through which the currency unit of a country ceases to be legal tender. A currency unit is physical money like coins and banknotes. An overview of Demonetisation in India /b> shows that the country had experimented with the idea at least three times, i.e., in 1946, 1978 and as early as 2016. While the earlier two instances were not very disruptive, in 2016 the discontinuation of Rs 500 and Rs 1000 notes led to acute cash shortage for some months as citizens scrambled to the banks to exchange their existing notes.
There were multiple objectives of Demonetisation that the government suggested but the primary aim was to stop the circulation of black money which was circulating in the market. Another important objective stated by the government was to remove counterfeit banknotes that were in circulation at the time. Apart from these two major reasons, the other objectives included the creation of a cashless economy, reducing anti-social and terror activities by cutting off the finances and formalising the informal part of the economy that covers a significant part. In addition to all of them, the government also wanted to reduce the interest rates that were prevalent in the banking system.
There were mixed outcomes of Demonetisation for the economy but the tilt was more towards sluggishness indicating that the process may have been avoided as a better option. It is because the Reserve Bank of India (RBI) had estimated before Demonetisation that 30 percent of the cash in circulation was black money and should not have come back but about 99. 3 percent of currency came back from 2017 to 2018. Moreover, just after three to four days of Demonetisation, there were pictures of fake notes of the Rs. 2000 denomination doing the rounds and thus removal of counterfeit notes also suffered a jolt. Additionally, anti-national and terror activities also continued unabated as the army was attacked in Assam and terror attacks followed up in Kashmir and Nagrota.
The very purpose of demonetisation was to meet its end objectives and create a cashless economy for everyone’s benefit but it failed on most of them. During the demonetisation period, there is no doubt that cashless transactions increased manifold but with increased cash availability, there was a significant reduction in the cashless economy.