Demonetization - An Article for UpComing SSC written Exam
By Sant Kumar Sharma (Dev Sharma) - March 09, 2017
DEMONETIZATION
The term 'demonetization' has become a common name since the govt. banned the old Rs.500/- & Rs.1,000/- notes out of circulation on November 8, 2016.
Demonetization Meaning
"Demonetization of currency means termination of that particular currency from circulation and replacing it with a new currency".
These notes accounted for 80% of the country's cash supply.
'Demonetization' has happened twice before in India.
- First, in 1946, When 500, 1,000 & 10,000 Notes were declared illegal tender.
- Second, in 1978, Under Janata Dal (Morajai Desai Leadership).
MISSION
The Govt.'s Mission for banning high value notes of Rs. 500/- and Rs. 1,000/-
are :-
- To eradicate counterfeit currency
- To fight tax evasion
- To eliminate black money obtained from money laundering and terrorist financing activities
- To promote cashless economy
- To stop human trafficking
- Drug Paddling
- Hawala
IMPACTS
- Cash Shortage
A decision to scrap high value notes has created a shortage of cash in the system leading to a lot of discomfort for the general public and businesses.
Because of shortage of newly printed Rs. 500/- & Rs. 1,000/- notes,the situation has worsened.
- Forecast of GDP Growth rate
As only less than 50% of the population uses banking system for monetary transaction, demonetization has hit trade and consumption hard. Consumption makes up for around 50% of India;s GDP, hence, a drop in spending will pull down Growth.
- Banking
In the first four days after the announcements of the Action , about 3 trillion in the form of old Rs. 500/- & Rs.1,000/- banknotes has been deposited in the banking system and about 500 billion had been dispensed via ATM's, Withdrawl from the bank A/c. and exchanges over the bank counters.
Acc. to "The Economic Times" more than 80% of fake currency in India originates from Malda district in West Bengal.
- Agriculture
- Radical Groups
- Railways
- Stock Market Crash
- Deaths
- Transportation Halts
- Drop in Industrial Output
- Income Tax Raids & Cash Seizures
- Job Losses
Positive Side to this Stunning Action
- According to Economists, the current step could also lead to behavioural change in the household's savings and their consuming pattern.
- The near-term fall in growth on account of spending slowdown, could push inflation down.
- Also, over the medium term , there would be benefits through higher govt. spending and financial inclusions.
- Another benefit could be reduction of banks non-performing assets, a critical constraint that is holding up the flow of bank credit for private sector investment in the country.
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