“DEMONETIZATION” – a word which is on the lips of every Indian, with almost everyone using the word on social media today, was known only to economists and very small fraction of people in India before 8 November 2016. On this day, Prime Minister Narendra Modi announced one of the biggest decisions ever made in the history of India. In one go, he made the bills of denominations Rs 500 and Rs 1000, which constituted 87% of the total currency in circulation, invalid from the midnight. People were given a time of 50 days (till 30 December) to deposit their old cash in any of the banks or post-office.
The motive behind demonetization was to end the flow of counterfeit currency, deal a heavy blow to Naxalites and terrroism, put an end to human trafficking & forced prostitution….and of course, target unaccounted cash in the system. Since India is a cash-based economy, scrapping of almost 90% of the cash in the system took heavy toll on people. There were long serpentine queues at banks, ATMs and post-offices. Several limits and restrictions were placed on withdrawal, and despite all these, cash was simply not available in the initial few days. However, thanks to the zeal, determination and support from 1.25 billion people, there were no report of any untoward activity or unrest. Almost everyone supported the move and made it a huge success, something which PM Modi has been acknowledging again and again.
Has the step been worth the pain ? Where do we stand after 50 days of demonetization ?After demonetization, there were various news of ‘how unsuccessful this step would be’ or ‘how badly will it disrupt the economy’. However, the report card of these 50 days totally refute the claims. Let us go through the report card of demonetization.
- Human Trafficking : As per Nobel Laureate Kailash Satyarthi and agencies who work in rescuing children & women from trafficking and forced prostitution, demonetization has broken the back of the trafficking industry , worth Rs 2,00,000 crore. The trafficking of women and girl children is done to force them into prostitution and this dark business is all cash based. (Source : The Livemint)
- Naxalism : Due to demoentisation, Maoists and Naxalites have been badly hit. Since their terror activities, survival and existence is solely based on cash which they earn from extortion, demonetisation totally destroyed Naxalite movement. 564 Maoists and their sympathizers surrendered before the authorities in the month following demonetisation, highest ever in the history of India (Source : The Times of India)
- Terrorism : Since entire stone-pelting in Kashmir was dependent on cash, demonetisation put a full stop to unrest and stone pelting on security forces. The separatists used to pay Rs 1000 or Rs 500 to every person for stone-pelting, mostly in form of old notes. With the currency notes being illegal, the incidents of stone pelting in valley has almost ended post demonetisation (Source : The Times of India)
- Hawala Transactions : With old notes no longer being legal tenders, the Hawala transactions in almost all the major cities have come to a grinding halt. Hawala traders have been arrested or simply lost their jobs in absence of cash in the market, and the old cash no longer valid (Source : India Today)
- Now, let us come to economic parameters post-demonetisation.
– There has been 14.4 % increase in direct tax collection.
– There has been a massive 26.2 % increase in indirect tax collection.
– Central Excise collection has witnessed an increase in 43.3 %
– Rabi Crop sowing has witnessed an increase in 6.3% while the net agricultural growth has been 6.5 %, flatly refuting the fear of an agri-economic slowdown that was being propagated in the media and by some “intellectuals”. The data shows that demonetization did not affect farmers adversely. (Source Times Now – see photo below)
- More than 13 lakh crore cash has already been deposited in the bank, of which 7 lakh crore have been deposited by just 60 lakh people. Earlier, there was no trail for money in the system. However, now all the deposits above 2 lakh will be scrutinized and if there is a mismatch, it will be taxed. While a lie was spread that if someone deposits money in the bank, it will become white… the lie has been refuted by the finance minister and investigations ordered. (Source : The Economic Times)
- Central Board of Direct Taxes has detected and recovered 4172 Crore of unaccounted cash, both in old and new notes post demonetization following raids on various places all across the country.
With these data, it can be safely concluded that the pains of demonetization (standing in queue) was totally worth it. It has made country safer, free from terror and naxalite attacks, pushed towards transparency by pushing up digital payments by multiple folds and has heralded a new era in Indian history.