The announcement of demonetisation in India on 8th November, 2016 resulted in an economic revolution within the country. Demonetisation was initiated with an aim to curb black money and an attempt to make a cashless society and create a Digital India. The process of demonetisation in India however, has not been without its challenges and failures; some economist calls demonetization a failure because black money has not been recovered as expected. Despite the difficulties and the failure it faced, we cannot say that demonetization failed in its entirety and the forecast is that its benefits will be seen in the long run.
Thoughts on Demonetisation
Crowther, a monetary economist defined money as “anything that is generally acceptable as a means of exchange and at the same time acts as a measure and store of value.” His definition is very general in approach however the acceptability and applicability in modern economy cannot be refuted. Money plays an important role in the functioning of an economy. The efficient functioning of modern economic system is possible due to role money plays’. It’s well said that other than life, money can buy everything. However, the statement is controversial though since money has and can serve as a means and can also be cause for unfortunate events. Whatever may be the case, since the economy cannot function without money, an effective monetary policy should be followed by the government which is essential for the well-functioning of any economy. Now the tools of monetary policy are many, among the policy that was followed recently in India was demonetisation, to be specific currency denomination of Rs500 and Rs1000 was scraped. But to what extent demonetisation was carried out, or the achievements of the policy of demonetisation in the true sense of the term arises so many doubts?
Monetary policy like the one mentioned serves as a shock to any economy; in fact everyone was affected by this policy in one way or the other. Now the question does arises as to whether such a policy is required in the context of India or in the first place why was it followed by the Government of India? Is it applicable in the Indian context? The answer was yes from the implementer’s side and no from the ones who were badly affected by this policy. However the pumping of more money into the economy with even higher denominations was meant to correct the aftermath of shock from demonetisation.
Welfare of its people is what the government tries to adhere to. So in theory what the government did was for the welfare of its people. So the policy of demonetisation with its well-expressed objectives was meant for the welfare of the people. However, the policy that was implemented in India was slightly modified version of demonetisation; what could be put as “demonetisation-cum-monetisation” my apologies to all the reader’s since such term may not exist in the standard literature. So the move made by the government was first demonetise and then monetise. People were so much driven by the term demonetisation that monetisation which also did happen was forgotten by almost everyone. Of the two- monetisation and demonetisation, which affected the people most? Or was it that both demonetisation and monetisation were of equal force that they balanced out to no effect on the common people?
Every move or policy by the government has well defined objectives; policy without objectives is bound to meet people’s objection, but difficulties do arise sometimes in understanding the objectives of government policies. In this connection a story of a beggar’s satisfaction is what will fit in this write up. The incident goes as such; a beggar was waiting for a train at a railway platform ready with his musical instrument, when the train reached the platform he started to sing a gospel song. It must be acknowledged that he really had a good voice and on hearing his song people gave him whatever they could. However, he was so focussed in singing that he never thanked anyone who gave him alms. After the train left the platform, he also stopped singing. The most interesting part of the story is the comment he made as he was leaving the platform, “ah! There were many believers in that train. Some even gave me 50 rupee note.” The ‘believer’ he meant was those who believed in Christ. From his comment, it appeared that larger the currency notes a person gives the more he is a believer; but the other side of the story is that larger the currency notes the more satisfied he was. When enquired as to why he sang a gospel song while begging, he rather gave an unusual answer, “I am preaching the gospel.”
However the dual objective he must have had cannot be so easily ignored; i.e. one was to earn money and the other objective was to preach the gospel. On enquiring he was keen enough to reveal one of his objectives and not mention the other; however the other objective of making money is simply a guess which may be or might not be correct.
Is India in a position to function in the lines of developed economies where less cash is involved in carrying out any transaction? The right answer presently in Indian context is no. People using more cash to carry out their transaction are common in India. The position of Indian economy in the present times is very clear that it has to go a long way to achieve a situation where its people use less cash in carrying out their day to day transactions. It does not have sufficient and necessary infrastructure to function efficiently in the lines of the developed economies of the world and most of its people are not well educated to use the required and available technology.
It won’t be wrong to say that partial demonetisation that happened in India was not a great success story, rather it led to reduction in economic activity at least in that particular time period. It failed to answer the most important objective of flushing out black money or parallel economy. If currency note of higher denomination facilitated black marketing and extremism then as to why currency note of even higher denomination was pumped into the economy cannot be so easily explained and understood by many. Or is it that the entire demonetisation and monetisation story should be summed up as, “Neither the snake died nor the stick broke.”
Degree of Thought is a weekly community column initiated by Tetso College in partnership with The Morung Express. Degree of Thought will delve into the social, cultural, political and educational issues around us. The views expressed here do not reflect the opinion of the institution. Tetso College is a NAAC Accredited UGC recognised Commerce and Arts College. The editors are Dr Hewasa Lorin, Tatongkala Pongen, Seyiesilie Vupru, Vikono Krose and Kvulo Lorin. Portrait photographer: Rhilo Mero. For feedback or comments please email:firstname.lastname@example.org.