While the whole world, including India, had their eyes glued to their television sets waiting for the American presidential candidacy results, the Indian Prime Minister Narendra Modi, had different plans entirely. When people in India were awaiting the speeches of Donald Trump and Hillary Clinton, Narendra Modi took the microphone and made an announcement that left the whole of India in a shock. Before people could say “black money” the ground was swept off from beneath their feet.
On the 8th of November 2016 at around 8 PM IST, Prime Minister Narendra Modi announced the imminent arrival of the demonetization scheme in India. The demonetization scheme is basically an act in which the higher currency notes worth 500 Rupees and 1000 Rupees which are currently in circulation would have value no more than an ordinary piece of paper. Once the note exchange period ends these old notes can as well be used in order to have a samosa on as they will hold of no purpose to the holder.
The History of Demonetization
While this is a big step in the current state of Indian Economy, this is not the first time such a step has been taken. Not many people are aware of the fact that the Indian history is quite familiar to the demonetization scheme.
India has already undergone one major demonetization scheme in the past, before Independence, in 1946, where the scheme was responsible in scraping off the 5000 Rupees and 10000 Rupees notes from existence. However, this spark of this feud of demonetization did not catch much fire as it proved to be only partially successful. Also, the notes were reintroduced not long from then in 1954.
Pic Credit- ncaacademy
A demonetization scheme was again run in India in the year 1978 against the 1000 Rupees, 5000 Rupees and the 10000 Rupees notes. However, this time the 5000 Rupees and the 10000 Rupees notes were abolished for good.
The Objective behind the Demonetization scheme in India
While the normal public all over India is stressed by standing in long ATM queues blaming the Indian Government for their troubles, the government has introduced this scheme with some of the superior motives for the benefit of the nation as a whole. Some of the reasons why the scheme was introduced include:
- To tackle the problem of excessive black money that is faced by India as of now.
The introduction of the demonetization scheme will prove to be a nightmare for major black money holders as the crores of rupees stored by them (mainly in the form of larger denomination notes i: e; 500 Rupees and 1000 Rupees) will render useless.
- For the elimination of fake currency use within India and outside India.
The demonetization scheme will render the old 500 Rupees and the 1000 Rupees notes useless hence ceasing the funds of the anti-national and terrorist groups that often operate by the means of cash with these forms of notes. This will ensure a safer future for India and its allies.
- A way towards Digital India.
The demonetization scheme is a simple yet highly effective way to ensure that India is on its way towards the market of a digital India. The scheme forces the public indirectly to shift towards other modes of payment such as internet banking, debit cards and credit cards, as the higher value denomination notes will now be scrapped off which constituted of the major chunk of the Indian Economy.
Effect of Demonetization on various Industrial Sectors
All the service based as well as consumer based industries in India will be affected in their own ways by the introduction of the demonetization scheme.
The Insurance and Banking Sector
Just like all the industrial sectors in India, the finance sectors of India will be affected by the government’s demonetization schemes. The effect, however, will be more short term and targeted deeply towards the privately driven insurance funds. Similar to all the other sectors, this scheme has several painful short term effects, however, can prove to be sincerely beneficial in the long term.
The major insurance sector in India is covered by the government agencies such as the
Life Insurance Corporation of India (LIC),
Oriental Insurance Co. Ltd,
New India Assurance Co. Ltd, etc.
These insurance companies have already started taking steps towards making lives easier for the general public who seem to be distraught by the demonetization schemes. LIC for example, extended its grace period for the customers to pay their premiums of several policies without any penal fee for a period of 20 days after the scheme was introduced. This allowed people to have some time in order to withdraw any necessary amount from the bank ATMs.
The private insurance sector which mainly deals in cash is hit hard by the demonetization drive as it is not ready to except the premiums in terms of online banking or credit in terms of bank transfers. This will basically ensure that people are lured more towards the national government operated insurance companies which can still freely operate by means of internet banking.
Hence, the insurance and banking sector of India will be forced to be converted into a digital market where the promise of cash deliverance is reduced. This will ensure a major increase in the internet banking sector of India.
Pic Credit – Forbes
Just like insurance sector the banking sector too will see a rise in terms of using the ‘plastic money’ i.e; the use of ATM debit and credit cards to perform transactions. The banking sector of India will allow the exchange of older notes of 500 Rupees and 1000 Rupees up till the 30th of December 2016. However, to limit the reach of black money holders misusing this opportunity a limit of 4000 Rupees to be exchanged until a review by the RBI, from the day the scheme was introduced.
The Consumer Based Industries (Restaurants and Entertainment)
The consumer based industries have definitely been struck out at nil with the demonetization scheme. With most of the transactions that occur in terms of cash only, the major source of black money for these industries, the black money gathered here is definitely going to be reduced. Apart from this people will refrain from such activities for a while in order to avoid spending their hard earned cash (by standing in ATM queues for hours) on entertainment and use them primarily for utilities and day care.
The consumer based industries that operate on cash had a large flow of black money by that means and hence their source will cut off immediately with the implementation of this scheme. Also, demonetization will force everyone from the local vendors to large restaurant owners to compulsorily allow transactions via debit and credit cards as people would rather keep cash on hand for other emergency purposes.
The internet banking and online shopping industries will observe a massive boom in these days as the several modes of payments will allow the people to shop sitting at home without having to worry about transactions made by cash.
The Overall Review and Added benefits of the Demonetization Scheme
While the demonetization scheme may seem to be an unnecessary menace for the public right now but it sure has its own benefits in the near future. While people will take some time to adjust to this new scheme and suffer longer hours waiting in ATM queues to withdraw a small amount this scheme will soon be accepted by the public in its full maturity as a boon.
The scheme not only will furnish the results behind the basic ideology and need for it. It will have added benefits to it as well. Some of these benefits include:
- A lesser risk of theft of money as people will prefer carrying less cash on them and prefer making transactions through their bank accounts and ATM cards.
- It will liquidate the market of Banking in India which will, in turn, lead to lower interest rates on loans by banks all over India
- A higher tax collection rate in India will allow the government to function at a higher efficiency and proceed with several projects that were blocked all this while due to the lack of funds.
- The introduction of cashless transactions will help the budding of internet based transactions and help several youngsters to choose a field of internet security in India, creating several start-ups as well as new jobs in terms of software engineering.
- It will not only rule out the current black money holders in the Indian society but will ensure that people do not accumulate more black money in near future in the case another such demonetization occurs. Hence, this was a great move to show the public of India that government is actually powerful and is not afraid to take large steps when and if necessary.
- People will no longer despise government jobs and be actually thankful for the government officials in the long term to help the general public out in the times of crisis. A mutual respect between the public and government will rise and hence improve the efficiency with which the government operates.
All in all, the demonetization is a bold step that is working its way through ups and downs in India right now. It feels like a step taken by a mother (Mother India) teaching its child (the public) a lesson and instil stronger values in it to ensure its bright future. Demonetization can hence be termed as a necessary evil as of now and a way of paving its way towards a more stable and economically stronger road for India.