Demonetization of India | Effect on Economy

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Introduction

Friends, after around 2 years of working hard day and night our reserve Bank have finished the counting of notes. And found out that 99.3% of demonetized currency has returned back in the banks. On this special occasion I would like to show you my analysis on Demonetization of India. Here I’ve analyses it’s positive and negatives’.

announced the Demonetization of India

On 8 November 2016, the Government of India announced the Demonetization of India of all ₹500 and ₹1,000 banknotes of the Mahatma Gandhi Series. It also announced the issuance of new ₹500 and ₹2,000 banknotes in exchange for the demonetized banknotes.

This analysis I’ve done in September 2017 when RBI said that 99% of currency has come back. But they were still counting and they took another one year where 99% figure has now become 99.3%, some people had estimated that around 30% of cash in our country is back money.

 they were expecting that around 30% of demonetized currency will not come back to the banks, infect our SBI has told in December 2016 after, a month of Demonetization of India that they are expecting about 2.5 lacks crore currency out of 15.4 lacks crore will not come back to the back.

After a month of Demonetization of India even SBI was assuming that this much amount of currency will not come back to the banks.

Advantages of Demonetization of India

Black money

Because whoever had black money will not come to the bank to deposit it as if they do so bankers will match their salary and look for the unpaid tax and they will be caught.

 So either they will burn their black money or flow it in the river. This was told by our prime minister but nothing like this happened 99% of money has come back. This leads to two reasons.

Either the amount of black money expected by the government was not there only or people found new ways to deposit the money and turn their black money into white.

 15.44 lacks crore was the value of demonetized currency and 15.31 lacks crores of currency has come back in the banks so the remaining 16,000 crore rupees is considered as the black money by people. But the truth is that a lot of money from this is not black money.

 3300 crore is kept in Nepal and Bhutan which the Indian government is unable to get back. There are so much amount which is kept with the NRIs and they didn’t come back to return. A lot is with the poor people who couldn’t return back.

 There is much in the donation box of the temple which they are requesting the government to take back but the government is not doing so. So all in all the thing which was considered as the surgical strike on black money couldn’t get even 0.1% of black money till now.

Fake currency

After this it told that the demonstration will work a lot on the fake currency but just after 3-4 days of demonetization there were photos of fake notes of 2000rs, infect by June 2017, more than 11 crores of fake currency was detected. And don’t know much was undetected.

This shows there’s 0 impact of demonetization on fake currency then it was told that there will be an impact on the terror funding.

Terror funding

Demonetization was on 8th November then after some days on 19th November terrorists attacked our army in Assam. There was another attack at Kashmir on 22nd November and again another big attack on 29th November at Nagrota where 7 soldiers of our army were martyr.

Within a month of demonetization so many terrorist attacks took place which shows that it had no impact on terror funding.

Cashless economy

After this they changed the agenda and started saying that the purpose of demonetization was to create cashless economy.

Tax collection and No. Of taxpayers

Now it’s been told that the advantage of demonetization is that a lot of growth is seen in the number of tax payers and direct tax collection. And yes there’s a lot of growth Seen in the tax payers due to demonetization and this is big advantage of it.

There has been 14% of increase in the direct tax collection as compared to the last year. This is true but to call it an advantage of demonetization is very misleading because of if look at the graph of the previous year’s 2011.12.13.14.15.16 then you will know that the increase of 14% in the tax collection over the year is not a big thing.

Now even after 2 years our country is trying hard to make demonetization a positive achievement. Now few days ago Arun Jaitlleyji has tweeted, the phenomenal increase in the number of IT returns filed, he gave a figure that 2017-18, and 6.86 crore income tax returns were filed. However it was just 3.8 crore in March 2014 is reflective of impact of demonetization.

Now let’s come to the loss occurred due to Demonetization of India

This is loss Indian economy had to face just in the first 50 days of Demonetization of India. Just in the first 4 months of demonetization more than 15 lacks people lost their jobs. India GDP growth has decreases by 2.2%.

Here I would like to thank manmohan ji who had predicted this very accurately. And arvind kejriwal ji shashi tharoor ji these are those people who were criticizing Demonetization of India since the beginning. And the educated people all the economists had already predicted that this will happen. That time our Prime Minister modiji made fun of them and Harvard education. But not their prediction has come true.

Here we have the vice chairman of Neeti ayog who says that the economy which has fallen down during Demonetization of India, GDP growth which fell down was actually not due to Demonetization of India but it was due to Raghuram Rajans policies, our former RBI governor.21, 000 crore rupees was the cost of printing new notes, we culminate overall GDP loss job loss 1.28 crore lacs loss and the cost of printing these notes.

The example of this is few people started saying the positive effect of demonetization of India is that the government has collected a lot of data now. They now know who all are the tax defaulters more than 18 lacs tax defaulters are known now and now action will be taken against them.

The rating for the advantages and the disadvantage that has come up of the demonetization of India between 0-10 and it should be rated as -10; there are only the disadvantages so far.

How many times Demonetization of India?

The Indian government had demonetized banknotes on two prior occasions—once in 1946 and once in 1978—and in both cases, the goal was to combat tax evasion via “black money” held outside the formal economic system.

https://www.rbi.org.in/

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