October 30, 2020

IT Voice November 2016 Edition

Demonetization of Indian Currency

The demonetization of the Indian 500 and 1000 rupees currency, dragged my attention towards the pros and cons that it is about to bring to the Indian economy. Most of the citizens are agitated, are not on the same page with our Hon’ Prime Minister Mr. Narendra Modi. But when we get deeper to the facts and towards the detailed study of how the Indian economy actually works out we would gradually feel that the inconvenience is merely the problem of sometime but the solution it would provide to our economy is immense and could not be at all compared with this pain of few months.
To start with I would like to highlight some basic benefits it is directly impending. Firstly, it would help the government of India to track the people with unaccounted cash or cash on which no income tax has been paid. Given the recently found bags full of the demonetized currency are proving the things right of how much money was actually there with people on which no Income tax was paid.
Secondly, since black money is used in funding illegal activities like terrorism funding, gambling, money laundering and also inflating the price of major assets classes like real estate, gold, demonetization will deduce it for some time and it will take years for people to re-generate that amount of black money putting an end to the circle.
Third benefit is that due to people disclosing their income by depositing money in their bank accounts government gets a good amount of tax revenue which can be used by the government towards the betterment of society by providing good infrastructure, hospitals, educational institutions, roads and many facilities for poor and needy sections of society.
There are not any cons I can think about, but yes the inconvenience and distress it is bringing in the country has to be addressed. The biggest disadvantage of demonetization is the chaos and the frenzy it leads amongst the people and the impending dangers of the breaking of law and order in the country.
The demonetization of a currency doesn’t involve only banning of certain currency in the country but also means the minting of another currency on its behalf. The risk of the demonetization involves the complete failure of the vision behind the demonetization of the currency. The cost of minting new currency can cost the government some great fortune and if the cost of minting the currency is higher than the amount of gained profit by the acquiring of the black money it is useless to undergo demonetization and also face that much of distress in the country.
Another problem is that majority of times this move is targeted towards black money but if people have not kept cash as their black money and rotated or used that money in other asset classes like real estate, gold and so on then there is no guarantee that demonetization will help in catching corrupt people.
Well, only if the vision behind demonetization becomes a success imagines how much profit would Indian Economy gain. The inconvenience may be distressful but still it’s the headache worth taking. The decision like this even if corrupted can change the face of the Indian economy nominally but very powerfully.