Essay on Demonetization in 1100 Words for Students and Children

In this article, we have published an Essay on Demonetization in 1100 Words for Students and Children. This essay includes its consequences, history, the effect on a common man, 10 important lines on demonetization.

So, let’s start the essay on demonetization…

Introduction (Essay on Demonetization 1100 Words)

The act of stripping a currency of its status as a legal tender is known as demonetization. It transpires whenever there is a change of national currency; that is, the current form of currency is pulled from circulation, and new notes and coins often replace it. Sometimes a country replaces the old currency by new currency.

The Indian Government on 8th November 2016 announced the demonetization of old 500 and 1000 rupee banknotes of the Mahatma Gandhi series. They have also announced the issuance of 500 and 2000 rupee notes in exchange for the demonetized banknotes. The Prime Minister of India (Narendra Modi) insisted the deed was taken to confine the shadow economy and diminish the use of illegal and forged cash to fund unlawful activity and terrorism.

Consequences of Demonetization

The announcement of demonetization lead to prolonged cash shortages in the weeks that followed and it also caused significant disruption throughout the economy. People who needed to exchange the banknotes had to stand in long queues.

It was not the first instance where the demonetization was conducted in 2016; there are three instances when this act was conducted –

  1. Reserve Bank of India demonetized Rs. 1000 and Rs. 10000 currency notes in the year of 1946.
  2. The Indian Government introduced new currency Rs. 1000, Rs. 5000 and Rs. 10,000 in 1954.
  3. The Morarji Desai Government demonetized Rs. 1000, Rs. 5000 and Rs. 10000 in 1978 to curb illegal transactions and anti-social activities. 

The following are the reasons stated by the Government for which the Indian Government demonetized Rs. 500 and Rs. 1000 banknotes in 2016, which totally accounted for Rs. 15.44 lakh crore

  • To plug financing to the terrorist.
  • To recover the black money and the unearthed black money will enlarge the fiscal space of the Government. 
  • To reduce the interest rate in the banking system.
  • To formalize the informal Indian economy. It will reduce the hard cash transaction and help the formation of a less-cash economy.

History of Demonetization

The Indian Government has also offered several incentives to encourage people to use a digital transaction.

A lot has been said about the effect of demonetization of the GDP, black money, corruption, etc. The impact of the note ban on the daily activities of the rural and peri-urban population of the country is not known. Studies have been conducted to understand demonetization effects and usage of the digital financial platform by low-income households who are primarily employed by the informal sector.

As per the findings, there have been adverse effects on the financial and economic lives of the poor. In the research, it was also reported that there was approximately a 20 percent drop in their income immediately after the demonetization. Many reported delays in their wage payments due to the liquidity crunch.

When the RBI report on digital transactions was reviewed, it was found that there was an overall increase in the number of digital transactions post demonetization. But it was noted that only 30 percent of India’s population is digitally included implying that the narrative of increase in the digital transaction didn’t include 70 percent of the population who didn’t have access to digital platforms.

Effect of Demonetization on Common man

Though the Modi government had listed as curbing the unaccounted wealth as the primary intention along with making the Indian economy is cashless; however, in the coming weeks and months, the goalpost keeps on shifting. There was an immediate increase in digital transactions due to acute shortages of cash. Soon the normalcy returned as the circulation of the cash increased by overtime. Even though the electronic transaction has increased, but it has not risen as per the pace the Government expected.

The decision of demonetization was challenged in the Madras High Court, but it was dismissed by the court, stating that it would interfere in the monetary policies of the Government. The PIL’s were also filed in Supreme Court to scrap the government decision.

The Supreme Court referred to all the cases related to demonetization to the constitutional bench to review the legality of the decision, implementation, irregularities, and violation of people’s rights on the limit to withdraw the cash. In November 2017, supreme court dismissed 14 petitions related to demonetization.

It was asked for the petitioners to file pleas with a constitutional bench which would deal with the cases pertaining to the demonetization. The Government allowed NRI’s to deposit the demonetized banknotes by 31st December 2016. 

There was a mixed reaction by the Indian Industrialists. Bankers like Arundhati Bhattacharya (SBI Chairperson), Chanda Kochar(ICICI Bank MD & CEO) appreciated this move as it would curb the black money.

Deepak Parekh (HDFC Chairman) initially welcomed the decision but later said that the movement has derailed the economy and conveyed skepticism about its outcome. Indian Businessman like Anand Mahindra, Narayan Murthy, and Sajjan Jindal supported the move as it would accelerate e-commerce. But Industrialist Rajiv Bajaj criticized the move not only the execution, but the concept of demonetization was wrong in itself. 

10 Lines on Demonetization

In the below let’s summarize the effects of demonetization had on Indian people and the Indian economy:

  1. The foremost benefit of demonetization was expected the people will tend to deposit their cash in the bank rather than keeping in their home as it will help them save money.
  2. Demonetization would move the money from people to banks and other financial institutions, leading to better circulation of money. It would lead to a lower cost of fund transfer, which will lower the lending rates.
  3. Demonetization would lead to more cash in the banks, which would cause a high circulation of money in the economy. The Government would receive more taxes and would be able to undertake more developmental projects.
  4. As cash is the mode of transaction for anti-social activities, demonetization has curbs these activities for a limited time.
  5. Banks are able to check old notes if they are counterfeit before accepting them so that they can weed out the fake notes from the market.
  6. Demonetization leads to an initial spike in the usage of digital transactions.
  7. Demonetization also leads to an initial decrease in activities and attacks of Maoist and Naxalite groups due to a lack of hard cash. It also recorded the highest surrender.
  8. Demonetization boosted the income tax filing of the 2016 financial year.
  9. Demonetization leads to unemployment, particularly in an unorganized and informal sector.
  10. Demonetization caused a large number of people to stand in the queue for hours to exchange the notes, which caused some deaths.

Conclusion

Hence, it is not possible to prove whether demonetization has proven beneficial or a disaster for the Indian economy as a whole. I hope you liked this informative Essay on Demonetization for students.