Demonetization: A Move much Needed - Part 1

8^th Novemeber, 2016, the day which will be remembered in the history of India for one of the biggest financial decisions, ever taken.  Prime Minister Narendra Modi declared war on Black Money and came with the sudden move of demonetizing the 500 and 1000 Rupee notes. The move planned with such wit and timing that depositors of Black Money were given no window of opportunity to invest that money in the capital markets. With the taxman having the time of his life coming after people depositing piles of cash in their homes, news of notes found in drain, and burned in bundles have become common.

While on one hand the Demonetization move has received praise from the people of India, the Political parties in opposition have a different story to tell. The biggest opposition has been from All India Trinamool Congress’s Mamta Baneerjee who has left no opportunity to criticize the Modi Government’s move, and even claimed that this move has created a financial emergency, her opinion and action on the Chit Fund Scam however are yet awaited. Its not just TMC, AAP and Congress are no far behind in taking a jibe at the government. The unrest in the houses of Parliament clearly shows who has been severely hit by the Demonetization move.

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Political Drama has always been a part of this country’s politics, but without involving ourselves into that let us try to understand the answers to the following questions, Why is Demonetization such a big move?  How does it affect the common man? How will it affect the increasing GDP of the country? Is it a miscalculated move? Which positive outcomes Demonetization will bring to India as whole? To answer these questions let us first understand the need for a Demonetization move.

The Indian Economy at this moment is the fastest growing Economy in the world and stands at $2.1 Trillion, currently at par with China’s. With more money in the Government’s pocket, there will be more to spend for the development of the Country. Development, which we usually see in the form of construction of fly overs, roads, dams etc are product of the money which the Government collects from the people of India. But with this Economy, there is a parallel Economy which we commonly know as Black Money. This Black Money amounts to almost $2.1 Billion in Swiss National Bank alone, the total amount however would be uncovered in the days to come.  To understand the true extent of the damage Black Money is causing to our Economy, let us further go deeper into the problem :

·         The circulation of Black Money has a deep impact on our Economy. Money which could have been collected by the government in the form of taxes and ultimately for the betterment and modernization of the Country, is instead stored up in banks abroad. The effect of this is that there is LESS REVENUE for the government to collect. Lesser the Revenue, lesser it can spend on development projects.

·         Black Money leads to CORRUPTION, this cycle of bribes from top to bottom corrupts the whole system and the only one who suffers the most is the common man who can only make bread for two times a day.

·         As Black Money is never recorded in the Government’s Book of Accounts, this money leads to lowering of per capita income (Total Income/ Total Population) of the country. For a developing country like ours, it is essential that this ratio is high for the overall development.

·         The quality of service offered is affected. When bribes are paid to producers of products and services, they naturally offer a better service to those who pay more.

·         Black Money results in higher taxation of the people. In an attempt to collect more revenues, the government collects more tax from the people. Maybe in small amounts, yet it is still there. If however there were no Black Money, or even if it were there, but were captured, the resulting revenue would be higher and people would be spared from the pain of tax increment. And this is one of the key reasons the Demonetization move has been implemented, and it maybe be painful now, but it will definitely bear fruits later.

·         Black Money also results in Crime. From the Sand Mafia of Maharashtra to the Underworld everything and everyone runs on Black Money. Money which is paid in cash and never accounted for.

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Click here to read: Demonetization:  A Move much Needed - Part 2

Keep reading for more the second part of the series unveils  some advantages of this move. Do suggest what you think about demonetization and let the discussion flow. Follow us here for regular updates. For any queries feel free to contact us . Visit that section for updates. 

About the Author: Shekhar Tanwar is a computer science engineer who is working with a renowned MNC and is a die heart defense aspirant. Guitar is his passion and he is very firm believer of physical fitness. This article is a way to help defense aspirants to present his critical views on the topic, on the forum so that collective exchange of thoughts can take place.