Demonetization @India: The Great Move

On 8 November 2016, Shri Modi on national television around 8 pm, announced the demonetization of all ₹500 (US$7.80) and ₹1,000 (US$16) banknotes. Everyone was shocked by this masterstroke or power stroke by Shri Modi.

Recently the debate of pros and cons of demonetization of 500/- and 1000/- INR currency notes again surfaced. Almost 98.7% of 1000 Rupees Note has been submitted back in the banks during demonetization period as informed by RBI a week before. While I notice majority of players & institutes and political opposition parties continues to criticize the Govt. of India for this move and how GOI continues to defend its move.

Finance Minister and other govt. representatives put forward many arguments to defend this masterstroke of Shri Modi, the H’ble PM of India but fails to convince the ongoing attackers.

Some of the arguments are:

  1. Govt. intended to encourage cashless economy. IMHO its already a gradual process as time passes and one cannot justify extreme step of demonetization for this goal. That’s why this argument appears bizzare on first hand.
  2. Govt. intended to attack cash hoarders who mostly have unaccounted wealth. This is the most valid point and must be the intent of Mr Modi.
  3. Govt. wanted to attack fake currency in circulation. Again a valid point. Indian economy was suffering from massive counterfeit currency notes in circulation.
  4. Govt. wanted to bring back unused hoarded money back in system. Its a good point but my opinion is neutral towards this point for justifying demonetization.
  5. Govt. wanted to attack terrorist organizations’ source of income. Its also a good point but my opinion is neutral towards this point for justifying demonetization.

So out of total 5 major arguments I find only 2 points quite strong, 1 weak, and 2 neutral.

However how I put demonetization in simple terms is as follows:

You have a house in shabby condition from last many decades. You want things to be in order. So you need to get the white wash at first hand. And for the same, all the stuff of the house need to be temporarily moved out of the premise so that white wash work can be done. After the white wash, all the stuff is brought back. The house is now much better to live in.

Something similar was the Indian economy from last many years. The black economy was always the Elephant in the Room with no clue by anyone of its exact size. Moreover the trust for Indian Currency Note of 500 and 1000 was deteriorating rapidly in last one decade.

Hence extreme step was necessary. It hit the GDP and Small Scale Industries and Employment for a quarter or two but one cannot ignore the valid dangers looming on the overall economy had it been this step not taken.

We should congratulate Modi Govt. for the successfully implementation of demonetization decision. The impeccable execution with necessary extreme secrecy is incredible. All credit goes directly to Mr Modi. For sure, political opposition parities cannot acknowledge this fact but I’m surprised that many reputed financial institutes have not been kind towards the Govt. so far.

I hope so that fruitful results of “demonetization” shall be visible in near future.

My thoughts only.

God Bless!!

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