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Demonetisation and its reality check

Hyderabad: At 8:15 PM, on 8 November 2016, out of the blue, Prime Minister Narendra Modi appeared on Television Screens and announced the cancellation of legal tender character of Rs 500 and Rs 1000 currency notes i.e. Demonetisation.

Demonetisation and its after effects

Though demonetisation was not new to India, as in 1946 and 1978, the Governments in power used this Brahmasthra to curb black money in the system, the current exercise is larger and bigger as the cancelled Rs 500 and Rs 1000 notes constituted around 90% of the currency in circulation.


Still, even after two years of its implementation, the efficacy of this mammoth exercise is widely debated and discussed.

Let us have a look at the purpose as well as the outcomes of demonetisation.

As per the government, it had five objectives.

1. Flushing out black money
2. Eliminate fake currency notes
3. Curb financing of terrorism and left wing extremism
4. Expanding tax base and employment
5. Boost to digitalisation of payments
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Black Money: How far the BJP government has been successful to flush black money out of the Indian economy?

The government claims that it has identified "more than 37,000 shell companies engaged in hiding black money and hawala transactions. Around 163 companies which were listed on the exchange platforms were suspended from trading, pending submission of proof documents".

Most importantly, 99.3% of the scrapped notes had returned according to RBI. Hence the black money has not been hit hard by the note ban. Even, The Suspicious Transactions Report has gone up four times. Which would be investigated by enforcement bodies to track any illegal activity on these.

Eliminate fake currency notes: The counterfeit currencies almost doubled in 2016-17, after demonetization. Also a report claims that after demonetisation counterfeit currencies have gone down by 31.4%.

Curb financing of terrorism and left wing extremism: Did Demonetisation actually countered terrorism funding and the terrorist attacks?

As per the data terrorist attacks in Kashmir has actually increased after demonetization. In 2016, 322 terror incidents had occurred, while in 2017 it increased to 342.

As per the US Department of State's Country reports on terrorism "India continued to experience attacks, including by Pakistan-based terrorist organisations as well as tribal and Maoist insurgents. Indian authorities blamed Pakistan for cross-border attacks in the state of Jammu and Kashmir."
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Hence no trace of desired impact of demonetisation can be seen on Terrorism.

Expanding tax base and employment: Union finance minister Arun Jaitley earlier this year said that the income-tax returns have increased by 19% and 25%. The number of new returns filed post-demonetisation has also increased in the last two years, yielding higher taxes.

Boost to digitalisation of payments: According to the RBI statistics, On February 23, 2018, the total cash in the country was Rs 17.82 lakh crore. Which was Rs 17.97 lakh crore on December 4, 2016.

Which shows that 99.17 percent of the cash has reached the hands of the people. There was an increase of about 200 per cent in digital transaction at the time of demonetization. But now the transactions of less than 30 percent is being done digitally.

Demonetisation has not been that successful in fulfilling its objectives, but it did have its effect on illegal money. But should that be achieved at the cost of shaking millions of common man's lives and livelihoods, remains a question.




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