Demonetization of the Indian rupee – an overall perspective

The sudden move of the government to demonetize the two biggest denomination notes of Rupees 500 and 1000, from midnight of 8th November 2016, has caused ripples in the economy. The entire issue has become a contentious one with arguments being voiced for and against the decision. Simply speaking demonetization would refer to replacement of old currency with new currency units. The objectives of this step include: curbing corruption, restraining parallel economy and controlling terrorism. The proponents point out that the move will help in cracking black money, curbing illegal activities, generating revenue, lowering interest rate, promoting growth, spreading digital culture, helping in the growth of formal economy and encouraging savings in financial forms. On the other hand, critics opine that demonetization has several demerits such as in a country like India it is difficult to share taxes as a proportion of GDP, it adversely affects daily wage earners, causes a lot of hardships to the common man, is ineffective in controlling black money as only a small proportion is in the form of cash and leads to increasing costs on account of issuance of new currency. The demonetization move has had its impact on several sectors of the economy. The point worth noting is that It has many hurdles to face and although a generally acclaimed welcome move, only time will reveal its true benefits.