DEMONETIZATION

Introduction

The past few weeks have witnessed a sea of changes in the lives of Indians. Going towards paperless transactions using credit/debit cards to the ‘barter of goodwill’ in the rural areas, demonetization has brought about major readjustments in the socio-economic fabric of the country. According to RBI figures, as of March 2016, currency in circulation amounted to Rs 16,145 billion.Of this, Rs 500 notes accounted for 47.8 % in value and Rs 1,000 notes another 38.6 %

World

Demonetization has earlier been adopted in various quarters of the world. In 1969, US demonetized$ 1,000 and $ 10,000 bills, keeping only $ 100 as legal tender.In 1991,Russia went in for demonetization, which caused widespread inflation.In 1996, Australia earned the distinction of the first country to have a full series of circulating polymer bank notes after replacing all paper based notes. This was aimed at putting an end to widespread counterfeiting in addition to being long lasting.

In India

RBI first demonetized Rs.1, 000 and Rs.10, 000 banknotes in Jan 1946. The aim was to nab businessmen who had made huge profits during world wars but did not disclose their income to the taxmen.In 1978, high denomination bank note (demonetization) Act, once again demonetized Rs.1, 000, Rs.5, 000 and Rs. 10,000 notes.

Present scenario

The old Rs 500 and Rs 1,000 notes are no longer legal tender.Other currency notes: Rs 100, Rs 50, Rs 20 & Rs 10 would remain valid as would all coins. In addition, all cashless transactions such as cheques, cards and demand drafts would continue as usual. The new series of notes are Braille compliant.

Objectives

The Government has attempted to tackle all three issues affecting the economy, i. e. parallel economy, counterfeit currency in circulation and terror financing.

Experts opine that it would had to a lower budget deficit, lower interest rates, should, all other factors remaining constant, produce a stimulus to the economy.

Reducing the base money supply would lower inflation.

No limits being imposed on amount of cash deposited in bank accounts, the cash would be subject to tax scrutiny.This has brought down the interest rates. Following suit, in a short period of time , according to SBI Chairperson, Ms. Arundhati Bhattacharya, “lending rates are expected to lower down, possibly giving a sluggish credit expansion a much needed boost and thereby promoting growth.”

According to are port by Crisil, a global S & P company, the “move could change the face of the Indian economy, improve the Government’s fiscal position and tax compliance. The size of the cash economy will shrink, as well as back money generation avenues because of better cash flow trails”.

The Road Ahead

Perhaps the current move is the greatest boost towards a digital India.It calls for renewed efforts on multiple fronts. The move has to be augmented by the following programmes in order to ensure that the anticipated benefits are realized:

      ·         Literacy programmes

      ·         Power transmission

      ·         Internet Access

      ·         Development of alternate/renewable source of energy

      ·         E- market place especially in rural areas

Conclusion

There will be vested interests looking for their short term gains; this fact being as old as mankind itself. In spite of the odds, generation have progressed and taken giant steps in to the realms of science and technology into an unimaginable future.

 Ms. Suchitra Srivasatava

Associate Professor

Dept. of Management Studies