Indian
Prime Minister, Mr. Narendra Damodardas Modi surprised the entire nation with
his long but meaningful speech on the 8th of November where he
disclosed the fact of demonetisation of the currency notes of INR 500 and INR
1000. As he mentioned, the procedure
came into force with an immediate effect from the midnight of the similar day.
To
sum up, the complete speed was lasted for 40 minutes and it was delivered in
Hindi and English. This bold decision, proclaimed by the Indian PM, has created
a benchmark. It would never be an exaggeration to remark that the
state-of-the-art declaration nevertheless stands for the general mass of the
nation. However, there are several aspects, which acted as the driving force to
take such step.
Though its chief purpose is to assist the common Indian folks,
there are some negligible hurdles for which the nation is going to face
difficulties to some extent for the next few days. A clear analytical study
will certainly reveal every single factor associated with the ban of Rs 500 and
Rs 1000 currency notes.
Why was the decision taken?
The
sudden action was bestowed for taking a control over three negative quotients
including black money, terrorism and corruption. India has already reached a
level by being “world's fastest growing economy” but due to the extremity of
black money supply, the nation could have lost this tag. Modi's sudden attack on
the black money flow is totally meant to tackle that detrimental situation and
on this move, he has successfully received the consent from the country's
central banking authority, Reserve Bank of India. As the illegal money flow has
risen its head and already started to affect the nation's economic development
with its claw and paws, it was in high demand to uproot the adversity.
India's
black money market is equal to 20% of the total GDP. Not just that but also the
level of corruption had constantly been increasing that needed to be halted at
the crucial level. Continuous terrorist attack in the borders is another
significant reason to make such movement.
What is included in the action?
This
astonishing decision incorporates the following facets.
- Demonetisation of all Rs. 500 and Rs. 1000 currency notes.
- After the announcement, banks and post offices were closed on the very next day (9th November). It was stated that from 10th of November, individuals would be able to return those currency notes in the banks or post offices.
- People would be able to exchange maximum Rs. 20000 in a week. The limit of daily exchange would be Rs. 4000. Well, valid documents, bearing identity proof, would be needed at the time of returning and exchanging the notes.
- Indian citizens were given a time of 50 days to return the banned currencies. They were asked to return the money before 31st December.
- Daily withdrawal limit from ATM would be Rs. 2000.
- New version of INR 500 currency notes would be available.
- It was also cited that shortly, there would be availability of Rs. 2000 currency note bearing the image of Mangalyan Launch.
Along
with this, it was clearly informed that if any individual would deposit cash
more than Rs. 2.5 lakhs without having proper income details, he or she would
surely be penalised with 200% tax.
Impact on the general public:
That
sudden action to prevent illegal money transaction put the people into trouble
instantly. Quite naturally, they got perplexed though the future prospect would
certainly be great. Limited cash, long queues, denial to accept the devalued
notes in different significant grounds made them helpless to some extent. But,
the government has done as good as possible to retain the balance.
Still,
it was a terrible daze to the black money holders whereas the honest persons
would be able to have some sound sleep. That's the undoubted best part
associated with it.
Effect on the Indian Economy:
The
possible outcomes of the demonetisation is definitely going to put some impacts
on the Indian economy and these are highlighted here.
Impact on Money Supply:
Until
the new currency notes of Rs. 500 and Rs. 2000 circulate broadly, money
supply is anticipated of getting ablated
for short term.
Impact on Parallel Economy:
The
process is expected to eradicate black money transaction and prevent financial
backing for the anti-social activities including terrorism, smuggling,
etc.
Impact on Demands:
The
demand curve will show differences in the case of:
- Real Estate and Property
- Consumer Goods
- Luxury Items
- Automobiles
Impact on Prices:
Prices
of the commodities are expected to fall down due to this move.
- Effects on
Consumer Goods:
It
would be lowered because of restraint in demands.
- Effects on Real
Estate:
Property
selling that incorporates cash based dealing, will surely face differences.
Prices will be reduced for medium and short time period.
Impact on Economic Entities:
- Households
- Service Sectors
- SME or Small and Medium sized Enterprises
- Agricultural Sectors
- Political Parties
- Micro Business Associations
- Retail Outlets
- Some professionals of various fields
Impact on the Banks:
For
the banks, the devaluation will prove to be beneficial as liquidity ratio will
be increased that would help these financial organizations in the lending
procedure in the upcoming days.
Impact on the GDP:
Yes,
undeniably, the GDP of India will be impacted but it won't gain too much
importance as the festival demand will proportionate the overall impact.
Last
but not the least, disruption is also going to be faced in the case of online
money transactions and the other alternative modes of pay off.
Final Words:
To
conclude, it was not an overnight process and conclusion was drawn after making
a complete research. It was a firm and astounding decision to fight corruption
and stand against the black money market. In spite of the immediate
difficulties, the proclamation is certainly be regarded as in favour of the
country's economy.
