1. The Indian government demonetized Rs. 1000 and Rs. 500 currency notes on November 8th, 2016 in an effort to curb black money and corruption. 2. Demonitization involves removing the legal tender status of currency notes, which the government has done before with Rs. 10000 notes. 3. The move aims to uncover undeclared black money in the form of high value currency notes, increase tax revenue, and move towards a cashless economy with more electronic transactions. However, it has also negatively impacted the cash-based rural economy and increased unemployment in the short-term.

1. DEMONETIZATION – MOVE OR BREAK
For the firsttime everprobablymostof uswouldhave come across the word demonetization.
Demonetizationisanact on takingback the statusof legal tendertocurrencynotes.
As a part of Governments move towardscashlesseconomy,abolishingblackmoney,corruptionthe
governmentof Indiaon8th
of November2016 has takena call fordemonetizationof Rs.1000/- &
Rs.500/-.Thiswouldbe ineffectfrom 9th
of November2016. The governmenthasgrantedrelief from
demonetizationtoHospitals,railways,governmentservices&petrol bunks.
Thus W.E.F9th
of November2016 has withdrawnthe legal statusof Rs.1000/-& 500 currency notes.
It’snot for the firsttime governmenthasabolishedthe legal statusgiven tocurrencystatus.The
governmenthasearlierhasabolishedlegal status giventoRs.10000/-.
The governmentmove came aftera longtime eversince the demandfordemonetizationof higher
currencynotesbegan. Many surveyshave clarifiedthatmostof the Black moneyinthe formof higher
currencydenomination. The governmenthasnotcarriedout demonetizationinisolationbutratherasa
seriesof stepsstartingfrom:
1. Askingforopeningof zerobalance bankaccountsnamedas Jan DhanYojana.
2. Governmentsubsidiesinthe formof gas etc.are directlyremittedintothe bankaccountsof
beneficiaries.
3. Providinganopportunityforblackmoneyholdersinthe formof Income DeclarationScheme
2016.
In thisprocessit’sveryimportanttoacknowledge the advantagesof demonetizationatthe same time
not undermine the disadvantagesof demonetization.
Before discussingaboutthe advantages,disadvantagesof the same itisimportantto know that black
moneymayin the formof currencynotes,gold& otherjewelry,real estatepropertiesetc.
Advantages
1. Black moneyinthe formof highcurrencynoteswill now be unearthed.People will have to
ensure thattheyeitherdeclare theirblackmoney&paytax on the same or leave them
untouchedreducingtheirvaluetoZero.
2. The bankingsectorwhichisa cash crunch positionforthe movementhasfeltasense of relief
withdepositsfromcustomerscominginhuge numbers.

2. 3. Consequentlyafterdemonetization&cashcrunch situationinthe economypeopleare moving
towardscash lesstransactionstherebyleadingtowardspaperlesseconomy.
4. Since blackmoneyis mostlyusedinfundingterroristactivities,moneylaundering,betting,
gambling,inflatingpricesof real estate properties.Demonetizationwill reducethistoa lowlevel
or nil level forashort periodof time.
5. As a resultof unearthingblackmoneygovernmenthasgotan opportunityof taxingthe black
moneytherebyincreasingthe taxationrevenue.
Disadvantages
Justas a coin has twosidessimilarlyeveryaspectof anyissue hasadvantagesaswell asdisadvantages.
Ever since demonetizationmanynewproblemshave dwelleduponfarbeyondasexpected.Some of
these are narratedas under.
1. The demonetizationwill resultintoacash lesseconomywhichwilldrasticallyeffectthe cash
basedeconomylike Indiainthe initial phasesof demonetization.
2. Indiaisbasically&traditionallyagriculture basedeconomy.AgriculturecontributestoGDP
nearingabout20% .Demonetizationwill ineffecthave adrasticeffectonrural economy&
agricultural sector. Thiscouldbe well fromthe latestreviewGDPestimatesforthe F.Y 16-17
where GDPwas reduced.
3. Economictransactionshave come to standstill positionhence asacost cuttingmeasure
employerstendtocutdownthe numbersof employeesleadingtounemployment.
4. It takesa periodof time fornewcurrencyto replace the oldcurrencynotes& getthe new
currencycirculatedas a result general inflationinthe marketreduces.
5. Indiaisa bigmarketnot onlyfordomesticproducers butalsoforinternational exporters. Ever
since the demonetizationthebuyingpowerof consumershasreducedbecause of non-
availabilityof cash.
6. Cybersecurityisa matterof concernfor customersasconfidential informationhasthe riskof
beenhacked ortappedduringthe transaction.A recentexampleof asimilarissue hasarisen
where severalbankswereforcedtoIssue new credit&debitcardsas customersinformationwas
subjecttohackers.

3. 7. Demonetizationisnot ‘’onlyameasure’’butisapart of ’’several othermeasures’’toeradicate
blackmoney.Assaidabove Blackmoneymay notbe necessaryinthe formof Currencynotes.
Thus demonetizationinresulthasaminute effectonBlackmoneymarket.
8. Demonetizationhasthe effectof increase inNon-PerformingAssets(NPA) because mostof
mortgagedassetsare in the formof real estate assetsorotherimmovable propertieswhose
marketvalue hasreducedto drasticallylow level.
Governmentstill hastogo a longwayforwardfor eradicatingblackmoney.Demonetizationis
still afirstmove towards‘What we dreamof a Black moneyfree India’.
By,
R.Avinash
SRO0397256