Demonetization in India (Merits and Demerits)
The demonetization policy introduced in India is part of the on-going financial reforms. However, such decision has its merits and demerits. Enacting the demonetization policy means specific currency will be replaced with a new currency. In India, the decision of demonetization of 500 and 1000 rupees as a legal tender is meant to fulfill specific objectives. The government of India enacted this policy in an attempt to fight corruption. The demonetization policy is meant to limit black money and to control the increased prices.
The government believes that through demonetization, funds flow from illegal activities will stop. Everyone will pay income tax and are expected to account for all the money they possess. The Indian government has encouraged its citizens to open bank accounts and deposit money in their possession to Jan Dhan account. In addition, all future transactions would be done through banks. Through the tax declaration of the income, the government aimed at eliminating undeclared income from its citizens.
The demonetization policy has its merits and demerits; the following are some of the merits of the policy, demonetization policy has helped India become a corruption-free country, individuals involved in taking bribes find it hard to keep the unaccounted money. Demonetization has enabled the government track black money, anyone holding unaccounted cash is required to submit a PAN or a legal financial document. Because of demonetization, the government is able to get income tax returns. Demonetization has stopped funds being channeled to unlawful or illegal activities like terrorism. The banning of high-value currency has so far curbed money laundering because the tax department can easily monitor and arrest people involved in money laundering. The move to ban specific currencies has reduced the circulation of counterfeit currency, which mostly are in form of high-value notes. Demonetization 500 and 1000 notes in India is a move applauded by many people. After the introduction of the demonetization in India, the Jan Dhan accounts have enabled the government to engage in developmental activities people are forced to pay income tax returns that are channeled into development activities.
After the government announcement regarding demonetization policy, the withdrawal of the currency has disrupted several financial activities. The banks have to contend with long queues of people who are either exchanging of depositing money. The sudden announcement has brought chaos in the banking sector; delay in circulation of new printed currency has affected several sectors, causing the Indian economy to come to a standstill.
The government is facing several challenges in implementing the new policy. The government has to incur additional costs related to printing new currency notes. Delay in money circulation has resulted in reduction of jobs because employers are unable to pay casual workers daily wages. Even though demonetization policy targets the black money, many people involved in the black money businesses keep their money on assets like real estate hence they have not been even affected by the ongoing reforms.
Different views have been presented regarding the merits and demerits of demonetization; the government argues that there are several long-term merits of the demonetization policy while economists view the process as an organized way of looting public funds. If we are to compare the merits and the demerits, it is fair to conclude that the merits outweigh the demerits. However, several measures are still required to change the economy to benefit its citizens. Even though citizens might suffer in the short term, but in the end, several benefits come along with the demonetization policy.