Demonetization in India-Narendra Modi

Demonetization is the discontinuation and replacement of an existing currency with new currency. It is often done to clamp down on tax evasion, black money, counterfeit currency or simply to replace national currency.

India has a history of demonetization, the first being carried out in 1946 and the second in 1978. Recently, in November 2016, India demonetized a third time by retiring 500 and 1000 notes rupee notes and replacing them with new 500 and 2000 rupee notes. Apparently, the circulation of fake currency notes was growing and black money was being hoarded by corrupt officials.

The announcement of demonetization was sudden and did not give ample time to people to prepare for the scarcity of cash and the hurdles that lay ahead related to deposit of old currency notes in the bank within a short stipulated time. The unpreparedness of the banks, dearth of new currency notes, frequent changes in the cash conversion rules, and government’s cap on maximum money that  could be exchanged created a crisis like situation.

People, mainly lower and middle class were highly inconvenienced. Many daily wagers lost their jobs as employers were not in a position to pay salary to these people due to scarcity of cash. Trucks loaded with farm produce had to wait for several days at the tolls causing big losses to the farmers. There was a huge impact on agriculture as farmers could not buy seeds and fertilizers or sell their produce at optimum prices. As business collapsed, stock market crashed. Industrial growth was also affected due to shortage of cash availability. Hospitals and other healthcare services refused to accept old currency and added to the woes of common people. All these led to anger and protest among people.

Nevertheless, many experts also applauded the move as necessary to curb the evils of corruption and black money and promote digital cash flow. While the task of transformation of India into digital cashless India seemed difficult, in the long run it could prove beneficial. The use of plastic money or digital transactions went up considerably due to scarcity of cash. Government emphasised and promoted the use of digital payment systems. This move also generated interest among people who had opened Jan Dhan accounts under Jan Dhan yojna. They can now deposit their money in these accounts.

According to the government, advantages of demonetization will be seen in the long run. Even though there was anger and suffering among people but later or sooner this will benefit the people and will present a clean economy.  India will be digital friendly and this will strengthen the relationship with foreign countries.