Economy

KEY POINTS

Demonetisation

·         Demonetisation is the act of stripping a currency unit of its status as legal tender.

·         Current forms of money are pulled from circulation and retired, often to be replaced with new notes or coins.

·         On 8 November 2016, the GOI announced the demonetisation of all 500 and 1,000 banknotes.

Successes

·         India’s highest ever unearthing of black money – 0.00011% of India’s population deposited almost 33% of total cash in the country.

·         It helps to trace bank accounts, where deposits after demonetisation, unmatched with its earlier transactions. 

·         It helps to track cash transactions which did not match its tax profile.

·         Through this, maze of shell companies dealing in black money and hawala transactions were uncovered and struck off.

·         Decisive blow to terrorism and naxalism – Reducing Stone-pelting incidents in Kashmir.

·         Incidents of left wing extremism reduced.

·         7.62 lakh counterfeit notes detected.

·         Big push towards formalisation, better jobs for the poor.

·         Huge increase in digital transactions (up by 58%).

·         More than 13 lakh POS machines were added just in 1 year.

·         Multiple benefits from demonetisation also includes

a)     reduced rate of interest for loans

b)     decrease in real estate prices

c)      increased income of urban local bodies, etc., 

Failures

·         With 99% of the demonetised 500 and 1,000 notes back in the banking system, little of the stock of the black money in the country was evidently extinguished.

·         Which means it was successfully converted into other forms, thereby delaying detection.

·         Tax authorities opined that, they are investigating suspicious accounts post demonetisation.

·         But, the amounts under investigation so far, however, constitute a drop in the ocean.

·         The tax department’s past record of proving evasion is unlikely to be giving offenders nightmares. The faulty system is skewed in their favour.

·         Procedures of these investigations are time-consuming; there are limitations of administrative and judicial capacity, handicaps the government seems to be grossly underestimating.

·         Black money is produced by various means which are not affected by the one-shot squeezing out of cash.

·         Any black cash squeezed out by demonetisation would then quickly get regenerated.

·         So, there is little impact of demonetisation on the black economy, on either wealth or incomes.