At 8 PM on 8th Novemeber,2016, The Indian Prime Minister Narendra Modi announced his plans of banning Rs 500 and Rs 1000 notes with several motives in mind and thus began India’s struggle with demonetization. Demonetization has been one of the most criticized moves by PM Modi and everyone from former Prime Minister Manmohan Singh to former RBI Governor Raghuram Rajan has condemned this move and its effects on the Indian economy.
Without any doubt this move has played predominant role in making India cashless and giving digital India a boost. Demonetization was initiated with a wide array of motives like stripping the Indian economy of its black money, push people to pay taxes for the unaccounted pile of cash, curb terrorism, promote the digital India movement and make India a cashless economy.
Demonetization and Personal Finance:
Piggybanks have been transformed to savings accounts as people turn towards increasing bank balances instead of stashing emergency cash in different corners of the house. People finally began to trust the digital payment systems; because that was the only option they were left with.
Demonetization and Black Money:
One of the most important points that pushed people to support demonetization was its associating with bringing an end to the black money problem in India. However, almost 99% of the money was deposited back to RBI. The statistics revealed that either the hoarders found a way to legitimize their black money or did not hold them in the form of cash.According to several finance experts black money hoarders do not hold the money in cash.
Demonetization and Terror Funding:
Without any doubt, the cash reserves of several terror groups were severely hit in the early days of demonetization.
Demonetization and Digital India:
People turned towards digital transactions for everything from buying groceries from a road side vendor to paying utility bills after demonetization.
Demonetization and Tax Payments:
Pushing Indians to deposit and account the cash lying in their house also meant a rise in the tax payments for the country.
Demonetization and GDP:
The ban on old notes is being cited as one of the key contributors to the economic slowdown. With the gross domestic product (GDP) for the April-June quarter slipping to 5.7% .The World Bank has reduced the India GDP growth forecast to 7% for 2017-18 owing to demonetization and GST (Goods and Service tax).
Demonetization and MSMEs:
Demonetization had a lasting effect on Indians MSMEs (Medium, Small and Micro Enterprises). Various medium and small enterprises turned towards digitalization, however, the micro industries were affected by the worst of its wrath. The micro industry owners were not a part of the black economy and they were clearly unprepared for the effects of demonetization. Many micro industry workers returned back to villages and the growth rate of these companies went as low as 1%. The MSME sector has been recovering from the drastic changes and its impact on the revenue, but demonetization forced the MSME sector to be friendlier and more accommodating towards the digital arenas and made them more accommodating towards change.