November 8, 2021, completes exactly five years since the hasty step of Demonetization that was taken by phasing out the high denomination notes all at once. Prime Minister Narendra Modi undertook this decision to combat the parallel economy and black money threats.
Demonetization, in turn, affected the Indian government’s reputation by posing a visible influence on their actions and activities, as seen in international economic circles. There have been drastic fluctuations in people’s perception about this decision.
Nonetheless, this event has been marked as one of the most politically important and economically significant of all times.
The Surprise move
On November 8, 2016, in a televised address, the PM unfolded the quadratic goals of this, demonetizing the counterfeit notes and ceasing the legal tender of Rs. 1000 and 500 notes.
These objectives were terror financing, fake currency printing, black money and corruption. Also, the demonetization program had wide-reaching ambitious goals of purging unaccounted cash in the Indian economy.
To achieve those goals, the government decided to ban currency notes of higher denominations and other measures.
However, following Demonetization, the number of counterfeit notes significantly did drop.
Still, the government’s sudden move to ban the two highest denomination currency notes resulted in long queues outside banks to exchange or deposit the demonetized notes, thereby bringing in a wave of chaos and fear.
With fewer counterfeit notes, the scope for terror financing and financing the left-wing extremism groups is reduced drastically.
What has changed? – Impact on the Economy and Society
Although the economists and experts are still in a constant tug on the reality and extent of the actual effects of Demonetization, it is certainly sure that the impact of Demonetization was severe and far-reaching.
The decision severely impacted significant sectors of the Indian economy, particularly the unorganized ones. However, with the debate still on, it is hard to estimate the actual economic impact of this contraction.
During this time, the economy also started witnessing various highs and lows. The rise in digital payments is the most significant.
According to official data, there has been an increase in digital payments via multiple channels, including plastic cards, online banking, and the Unified Payments Interface. There was a permanent increase in digital transactions, especially among the young.
What was also noticeable was the conflicting economic views. Across the ideological spectrum, the economists were initially skeptical about the movie considering the enormous potential cost of liquidity crunch, ultimately reducing the volume of economic transactions due to insufficient cash holdings.
Farmers, laborer’s, daily wage workers etc., who were a part of the informal sector were the hardest hit. The large proportion of these people whose basis of livelihood lay under the half broke umbrella of the informal sector relied on cash during Demonetization.
As a result of the move, the informal industry went from having a share of around 50 per cent of the Indian economy to just 20 per cent of the GDP, according to National Statistical Commission.
Understanding the Political Implications of note ban
Prime Minister Modi’s proposed policy move adversely affected people also simultaneously increased support for BJP by drawing huge crowds towards the party.
All this was the result of sentimental speeches given by the PM, thereby arousing the feeling among educated masses about the integrity and braveness of Narendra Modi in taking such a bold step to curb black money. And in that lies the mystery of the politics of Demonetization.
