Positive impacts of demonetisation we must know

The demonetisation move, which is now considered as the mother of all reform in India, has started showing its positive impacts in very short time. There are certain data which indicate that crimes like theft, snatching, dacoity etc dipped in many places like Delhi, Pune, and Mumbai after demonetisation.

Created On: Nov 23, 2016 15:57 ISTModified On: Feb 1, 2017 12:02 IST

Impacts of demonetisation

In his budget speech on 1 February, 2017, the finance minister Arun Jately said the demonetization has created a new normal in indian economy. The new normal is being seen as something which will make economy bigger, clean and transparent. The finance minister said that the demonetization move is a disruptive and it is considered as one of biggest positive moves taken for the betterment of economy.

The demonetisation move, which is now considered as the mother of all reform in India, has started showing its positive impacts in very short time. The demonetisation declaration states that Rs. 500 and 1000 notes is no longer a legal tender. Of course, this reformative move has brought some hard life for common people, but it will pass soon. The people of this country seem to be very enthusiastic about it and ready to take this pain. This is how democracy works where citizen participates in nation building and policy making.

Here, we’ll see the positive impacts of demonetisation has brought many-fold impacts on country and society:

1. Over Black Money
Black money is considered as a Cancer in any economy. It is a parallel economy, which weakens the foundation of any country. It is estimated that in India, the total amount of black money is Rs. 3 lakh crore. It is huge if we see that the total money in circulation is only Rs.17 lakh crore. With this single master stroke of demonetization, all the black money will either come to account book or will be destroyed.

2. Over Fake Currency
According to the ISI (Indian Statistical Institute), the circulation of the total amount of fake currency in India is Rs.400 crore at any given point of time. It is also estimated that around Rs 70 crore fake currencies are being injected into India every year.

3. Over Bank Deposits
It is well-known fact that near about 86 percent currency circulation in India was composed of 500 and 1000 currency notes. And demonetization of these notes made people deposit their money which was in the form of 500 and 1000 Rs notes into the banks. RBI had declared Bank had received Rs 5.12 trillion worth of deposits until 18th November. This deposit of money can boost Indian GDP by 0.5 to 1.5 percent. India’s largest public sector State Bank of India (SBI) said it had received Rs.1.27 trillion worth of cash deposits.

4. Over Lending Rates
This huge cash deposit base will enable banks to cut down the cost of funds because higher deposits will replace the high cost of borrowing and reduce overall costs of funds. It can be expected that banks can reduce deposit rates by ~125 bps over the next six months. The new directives of MCLR (Marginal Cost of Funds based Lending Rate) will instantaneously take into account the lower cost. This will pave the way for a decline in lending rates, which will expedite the economic activity in the medium term.
5. Over Real estate cleansing
It is repeatedly said that real estate industry is built on black money. The extent of black money circulation in the sector is huge. According to report at least 40 percent of real estate transactions in Delhi-NCR are being done in black money. The demonetization move will curb the flow of black money into the real estate sector.

6. Over Hawala transactions
Demonetization has badly affected the hawala rackets. Hawala is a method of transferring money without any actual money movement. Intelligence reports indicate that Hawala route is mainly used as a means to ease money laundering and terror financing. With black money suddenly being wiped out of the market hawala operations have come to a constant halt.

7. Over Financial inclusion
The inflow of cash into the banks will enable them to offer subsidized loans and other facilities to Jan Dhan account holder. The share of Jan Dhan accounts in total deposit base of the banking system is under 1%. The demonetization drive of higher denominated notes might propel cash deposits in Jan Dhan accounts. And this move will also make Jan Dhan Account holders to be accustomed to Banking system.

8. Over government finances
The unaccounted money will make way into the formal channel. This will raise the income tax collections. This raised amount from income tax will help the government to reduce the fiscal deficit in the fiscal year 2017. The latest move will shift the economy from the unorganized to organized sector. And the formalization of unaccounted money will also facilitate the implementation of GST scheme.

9. Over Bond Market
The ban on currency notes will enhance the demand for government bond in the market. As we know, it will improve cash deposits in the Banks which will eventually lead to higher SLR (statutory liquidity ratio) demand.

10. Over Kashmir unrest
If anywhere demonetization has shown its impact very soon, it is the Kashmir Valley. The four-month long turbulence in Kashmir has come to the rest because of the lack of monetary supply. An intelligence report suggests that the separatists receive Rs 1,000 crore annually from the Pakistan for causing unrest in the Kashmir. The money is transferred through hawala route. Demonetization completely choked up hawala transactions. As a result, the separatists are now clueless. Demonetisation has dealt a death blow to the counterfeit Indian currency syndicate operating both inside and outside the country.
Demonetization also brought peace to the stone-pelters in the Kashmir valley. Since Demonetization has given a severe blow to the funding of separatist, they are unable to pursue the young people to agitate against the army or the state.  

11. Over Naxalites and North-East insurgency
They are the group, whose oxygen is black money. They are the worst victim of demonetization. Therefore they term this move as “Financial Emergency”. It is estimated that their yearly turnover is more than Rs.500 crore trough terror funding, NGOs, forgery, extortions and local taxes. This massive amount of money is used for recruitment, arms, foods, medicines and shelters.

With the demonetization move, all these stashes of money is no more than a worthless paper. However, it has also come to notice that Naxals are using villagers to deposit the money in their accounts. The authority must look into this matter seriously and prevent any further deposition of such money.

It should be also mentioned that after demonetization, crimes like theft, snatching, dacoity etc dipped in many places like Delhi, Pune, and Mumbai according to the recent data.

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