AFTER ONE YEAR- DEMONETISATION: Success & Failure

AFTER ONE YEAR

DEMONETISATION: Success & Failure

Demonetisation  represents the retirement or rejection of any note or currency from the economy to regulate the economy from a number of evil situations faced by the nation. Sometimes the demonetised note or currency is replaced by the same or different amount of other one.

The demonetization was announced by Mr Narendra Modi, the Prime Minister of India, on November 8, 2016 in a sudden and unscheduled live television address at 8PM. In the days following the demonetisation, the country faced severe cash shortages. The use of Rs.500 and Rs.1000 banknotes was made invalid past midnight of November 8. Instead new Rs.500 and Rs.2000 banknotes of the Mahatma Gandhi new series were introduced.

Success of Demonetisation:

 

* Rate of Inflation goes down

Prices of commonly consumed commodities like Pulses, fruits, vegetables had gone down substantially post demonetization. Accordingly it brought down the rate of inflation during the months that followed demonetization. The chart below represents the impact of demonization on the commodities

* India moves to cashless economy

One of the key effects of Demonetization 2016 has been that more people have made digital payments part of their lives moving towards a cashless economy. The details of growth of such digital transactions since January 2016 to August 2017 reflect that NEFT transactions that involved Rs. 7086 bn increased to Rs.12500 bn; Debit cards transactions increased from Rs.2328 bn to Rs. 2700 bn; credit cards from Rs. 214 bn to Rs.366bn and the IMPS transaction which was not used by the people, got a share of Rs.651 bn. 

* Stock Market gets bullish 

After demonetization stock market in India got bullish. While BSE index which was 27, 459 on November 7, 2016 rose to 33680.92 on November 6, 2017, the NSE rose from 8497 to 10,443. 

* Banks’ lending increases for small businesses

Banks’ finance to small business was going down in pre-demonetization period. There was a negative growth even in short period of months. As on November 25, 2016, a negative growth of -7.71% was recorded in Banks’ lending to small business. It went to -8.16% as on December 23, 2016. However, as on September 29, 2017 the Reserve Bank of India has reported a positive growth of 1.65% in lending to small business by the Banks.

* Automobile sales picked up

Sale of 2 wheelers and 4 wheelers was showing a negative growth in 2016. In 2017 it went up substantially and recovered from the impact of negative growth to high positive growth as reflected in the report.

  

* More people use Mobile wallets than cas

Instead of using cash, more people have started using Mobile wallets for making payments for their regular needs. Even less educated people have learned and switched over to mobile transactions. The volume of transactions which was Rs.22.14 bn in January 2016, had gone up to Rs. 83.53bn in January 2017.

Failures of Demonetisation:

* Economic Growth slows down

Post demonetization growth of Indian Economy slowed down from 9.1% to 5.7% in less than one year. Month-wise GDP growth chart for the period March 2016 to September 2017.

* Realty sector bears the brunt

The triple decisions of demonetisation, RERA and GST resulted in a deceleration of new property launches. The supply of new housing units in the top-6 cities in India during the first three quarters of 2017 was down by around 60 per cent, compared with the corresponding period of 2016.

With respect to property sales, the secondary market was obviously highly susceptible to demonetisation as compared to the primary market. Property transactions in the secondary sales and luxury housing segments tended to have significant cash components, and such sales have been hampered significantly due to demonetization.

* Which way to go in GD: Expert advice

You may get not more than 1 minute while speaking for or against or taking a balanced view on demonetization and its impact on economy. The only thing is that you should be well aware about the topic and only this can lead you to speak the way you think is right. Besides, once someone else is speaking you may carefully listen to him and later try to get in and speak out your view point. Please remember do not criss-cross your own stand.