Rs of 500 and 1000 Note Ban: Benefits & Drawbacks

PM Modi announced a decisive war against black money and also corruption by demonetising notes of Rs 500 and Rs 1000 which will be no longer legal. So, let us have a look on the benefits of this scheme, how it will be beneficial and also some drawbacks.
Created On: Mar 5, 2018 11:49 IST
Modified On: Mar 5, 2018 12:10 IST
Rs of 500 and 1000 Note Ban: Benefits & Drawbacks
Rs of 500 and 1000 Note Ban: Benefits & Drawbacks

Prime Minister Narendra Modi, on 8th November banned currency notes of Rs 500 and Rs 1000. He announced a decisive war against black money and also corruption by demonetising notes of Rs 500 and Rs 1000 which are no longer legal. From November 10, 2016 new banknotes of Rs 500 and Rs 2000 were introduced. Even RBI Governor, Urjit Patel said that he saw no impact on liquidity in the wholesale market and that the bank had ramped up production of the new series of notes over the last few months.

That timem, the launching of new currency notes are claimed to be equipped with some additional/new security features to keep track of fake currency notes in the country. We all know that demonetisation of Rs 500 and Rs 1000 for short term surely impact all the citizens of India but for long run it will be beneficial step in right direction. So, let us have a look on the benefits of this scheme, future perspective how it will be beneficial and also some drawbacks.

Before discussing the benefits of the scheme first we will discuss why this scheme is introduced.

The incidence of fake Indian currency notes in higher denomination has increased. And for ordinary persons it is difficult to differentiate between the fake notes and the genuine notes, even though no security feature has been copied. These fake notes are being used for antinational and illegal activities. High denomination notes have been misused by terrorists and also for hoarding black money. As India is cash based economy and circulation of Fake Indian Currency Notes continues to be a menace. And to curb this the scheme is introduced.

Now we will see the benefits of the Scheme

Advantages and Disadvantages of Note Ban

Source:www.i.ytimg.com

- It will lead to inflation like people who have lot of cash, legally earned, which they will deposit it in the bank.

- Then Banks can do more lending.

- Credit (loans) will become easier and interest rates may come down.

- It will help the Government to fight with black money, corruption, terrorism, drug cartels and counterfeit currency.

- Due to lack of funding arms smuggling, espionage etc activities will be stopped.

-  It will help in curbing unaccounted cash in the real estate sector and bring more transparency.

- New limits to withdraw from ATMs by one debit card will be Rs 2000 per day and may be it will increase by Rs 4000 later, withdrawals from banks will be limited to Rs 10,000 a day and Rs 20,000 a week, this will help in driving card payments across the country or we can say that Card transactions in daily activities will slowly replace the cash transactions.

- For the Government it will be easy to track the money being exchanged as it can be only done by giving valid identity cards like PAN, Aadhaar etc. from 10 to 24 November with a daily limit of Rs 4000. And then it will be exceed to 31st December, 2016.

Is inflation always bad for the economy

- Prices on Houses will be decreased and demand will increase which will provide required liquidity to the sector.

- Prices of Gold, Commodities and stocks will drop in future.

- Now hoping that common man will also get benefit in the Higher Education, Real Estate and Healthcare transactions as the artificial increase in the prices will fall down.

- In the future Deflation and Inflation will balance out each other.

 

Drawbacks of the Scheme

- This scheme has created a sort of inconvenience to the people regarding exchange of Rs 500 and Rs 1000 notes.

- May be it is a costly idea of the government. As, to print Rs 100 notes cost for RBI will be about Rs 11,900 crore, which is more than a four-fold increase excluding the cost of operating ATMs etc.

- Difficult for the common man who don’t know the process of card transaction.

- It will impact on daily wage earners or bi-monthly cash payments like drivers, maids, cooks, electricians, plumbers etc. For an example how can a chai wallah leave his business and deposit his earning in bank while standing in a queue. Also, if he is not educated and don’t have knowledge about bank etc. So we can say that in shorter run small business will be affected.

- May be big earners will be left out if their black money is in the form of foreign currency, gold and are hidden from taxes.

- Construction activities will be affected.

- It may push people towards non-cash transactions.

- Somewhere jewellery and luxury goods may be worst hit as these are avenues in to which back money is funnelled.

Rs of 500 and 1000 Note Ban: Is this the first time in Indian History?

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