Demonetisation - Problems And Advantages

For India's progress, our PM Modiji took the bold step of Demonetisation.

Why Demonetisation was considered:

1. Restricting hoarding of black money cash
2. Curtailing cash-usage for illegal transactions viz narcotics & terrorist activities
3. Tackling fake notes in circulation

Black money is the income that escapes taxation.But, many are not under the tax-system, having never paid any taxes in the past, nor plan to in the future. Untaxed people must be under taxable public. Presently, less than 10% of the population is paying Income Tax. Demonetisation is an effort to ensure that business is fair and transparent. 

A study by MasterCard shows that the cost of using cash i.e. printing, transporting, storage, soiled notes, etc. is almost 1.5% of GDP. The move to ‘Digital’ transactions, through the Banking System will help to lower costs and benefit the customer and our economy. 


Demonetisation has hit those hoarding bags of cash. Money laundering is rampant as hoarders wish to convert black money to gold, dollars or new currency.

Problems:

• Bank & ATM long queues
• Leg cramps for customers standing in lines
• Hands ache & extra busy work and long days with extended working hours & workloads for bankers with full-day operations even on the weekend-Nov 12-13 2016
• Trade Disruption
• Business hit & activity slowdown -50% down
• Transportation- Buses & cars- people staying indoors as they don't have change or are queuing before Banks & ATMs
• People coming with Rs 500 notes.
• Small traders shopkeepers not having change or cash in low denomination 
• Some roadside eateries have shut-down
• Losses in lakhs - cakes, icecream parlours, sweet shops, vegetable vendors 
• Many had to shut shop to deposit cash in banks. They had kept that cash to buy goods.
• Some lost their day's wages to deposit cash they had earned 
• Great intent, poor implementation 
• Some companies accepting old notes as currency for membership etc
• Unfair that some honest people have to suffer owing to some hoarders
• Some died of shock that currency had been demonetised.
• Poor & illiterate people do not use plastic money.
• Demand for gold & USD increase
• Gold coins & bars will finance black deals.
• Tracking of black money-  Advance salaries paid to employees to get rid of black money-Advance cash to construction workers for raw-material purchase
• ATM issues-  a) ATMs were not functioning or were damaged or out-of-order, b) ATM were running out of cash  c) ATM machines were not calibrated for dispensation of the new currencies. Many ATMs need to be recalibrated.
• High data and electricity availability, lietracy & internet security is a must for a cashless society 

Many of these problems were and are being encountered initially and things should be better soon. Many are supporting demonetisation despite the above problems. Some are happy that though business is down, they don't have to accept fake notes!

Government should have considered the marriage season and the other difficulties. However, to its credit, it has tried to attend to problems with solutions viz. drawing cash from petrol pumps by swiping card and putting big ads and info that too in multiple languages so as to reach all.

Advantages:

• Halted funding of terror and Maoist groups 
• Online payment gateways, Apps & free services & offers- Users of some digital wallet companies can transfer money from their mobile wallets to any bank account at a zero percent fee till 30 December 2016, as compared to 4% for a non-KYC compliant user & 1% for a KYC compliant user.
• Demand for portable swiping machines from bank
• Spread of online transactions everywhere
• More people will enter & be active in the banking system
• Fake notes can't be used to cheat at least for the time-being
• More than 5 lakh crores deposited in accounts within a few days.
• Customers whose bank-balance had been 15K for long, have now deposited lakhs into their accounts.
• Banks will have the capacity to lend and also to bring interest rates down.
• Services/loans will be available at competitive rates
• Smarter younger generation

Main points-

• More number of smaller notes should be there.
• People should be able to identify the real vs fake notes- This time, the new notes feel different & people need to get adjusted & learn how to identify new from the old notes
• Banks & POs, despite rush, must be careful & not accept fake notes from public. 
• There must be enough currency in stock to meet demand.
• People should be digitally & financially literate.
• More people should come under the banking fold.
• Government has to take steps to stop the new currency from getting converted to black money
• There must be a fear for the demonetisation of Rs 2000 note in the near future that will dissuade people from hoarding it!

‘Digital’ transactions, apart from providing convenience to the customers, will reduce corruption and enhance banking services. Just like 43% of the voters on PM App's survey, I do not mind note ban inconvenience at all. I feel Demonetisation is a positive step that has emerged with initial hiccups. Economy has got a jolt and should be catapulted after revival in the future. As such an abrupt move as Demonetisation in such a vast land like India is unprecedented in any nation of the world, only time will tell its impact.