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Intent in public view and hence not easy

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Intent
for Demonetization

As per the details published in the Gazette of
India, there were three basic intents of government behind demonetization
exercise viz.

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1. Eliminate fake currency that was causing adverse
effect to the economy;

2. Unaccounted wealth was largely accumulated in
high denomination bank notes of five hundred and one thousand;

 3. Risk to
the security and economy of the country as fake currency was used to finance
subversive activities such as drug trafficking and terrorism.

 

Agenda
of the Government behind Demonetization

The actual agenda of the government is not in public
view and hence not easy to comment upon but various newspapers, political
statements and social media highlighted few points that were the prime reason
behind demonetization.

During election time, one of the biggest promises of
Bhartiya Janata Party (BJP) and their star campaigner Shri Narendra Modi was to
eliminate corruption from India and bring the black money back from their safe
homes abroad. It had to demonstrate to the general public that it was a sincere
commitment and not a political gimmick. And that has to be done before the next
assembly elections take place in India which were seen as an opinion poll on
various initiatives taken by NDA government under Prime Minister Narendra Modi.

Another theory widely published by different papers
and spread on social media was that elections in five states were fast
approaching and the government wanted to put a check on money in the hands of
other political parties that might be used to influence voters so as to gain
power in the states going under election.

A more rational aspect and point of view of
demonetization lies in the higher tax structure that is considered as root
cause of the spread of black money. To reduce the tax rates, government needed
sufficient revenue and an estimation of about three lakh crore black money
coming as dividend to government was really lucrative for the government to act
upon.

Why
did People Support Demonetization?

 People of
India faced all sorts of hardships and news, videos and images of people
spending entire day and even nights in front of banks in long serpent like
queues kept coming on daily basis. Over 127 people reportedly died standing in
long queues or from shocks or committed suicides not able to get money for
their needs. People were forced to change even their children’s marriages plans
or lowered down the scale. People were forced to even beg money from others
even for basic necessities as a result of sudden withdrawal of old money from
the system and by putting curb on withdrawals. ATMs ran dry. Business
community, especially whole sale markets and businessmen were the most to
suffer as their most of the transactions were in cash earlier. It was however
surprising to witness that majority of people, though faced such large scale
difficulties by government’s sudden move, supported the Prime Minister’s intent
of eliminating all malpractices from the financial system and bringing
transparency in all financial dealings. This reflects an intent and willingness
among people to come out of the strong clutches of black money and its other
formats. The Prime Minister’s highly effective speeches and connecting
demonetization with patriotism made the general public believe him blindly and
support demonetization in spite of difficulties hoping sincerely black money
and its hoarders will be booked in these fifty days and India will emerge a
corruption free nation.

Opposition
of Demonetization

However, not everyone was convinced that it was a
step taken in right direction. As the things worked out after lapse of 50 days
period that the Prime Minister had asked from the nation to change the economy
fully, it has turned out that this change didn’t turn out to be same as
planned. For majority of opposition leaders and general public, it turned out
to be a monumental mistake and a step taken in haste without proper planning
and without proper back up to ease common man’s problem. Prime Minister’s claim
of long term benefits is being mocked by none other than the man credited for
economic liberalization in the country, ex-prime minister Dr. Manmohan Singh,
who is world renowned economist himself.

The father of macroeconomics, John Maynard Keynes
said in his work “A tract on monetary reform” (1923) on page 80 of Chapter 3,
that “But this long run is a misleading guide to current affairs. In the long
run we are all dead. Economists set themselves too easy, too useless a task, if
in tempestuous seasons they can only tell us, that when the storm is long past,
the ocean is flat again.” 2 These lines were quoted by our Ex. Prime Minister
Dr. Manmohan Singh, a highly acclaimed economist and father of Indian economic
liberalization in 1990s in Rajya Sabha while participating in a debate on
demonetization. He said that it is a monumental mismanagement which has caused
great distress to the common man of the country. He further said that Indian
GDP could shrink by 2 per cent due to poor implementation of demonetization

And politics apart, his claims seem to be true.
While Reserve Bank of India, in its recent monetary policy review, reduced the
percentage of economic growth substantially and that too when it didn’t take
into account industry figures for November and December post demonetization,
but the World Bank and other leading international rating agencies like Moody
also downgraded India’s economic growth rate. India is no more the fastest
rising economy of the world and has lagged behind China after demonetization,
according to the recent reports.

Nobel Laureate and another leading economist Dr.
Amartya Sen has also criticized demonetization as “despotic action that has
struck at the root of economy based on trust” meaning this is a step as if
taken by a tyrannical, autocratic, dictatorial government. According to him,
this step undermines all established norms and institutions. He mentioned that
by declaring promissory notes as illegal, government has broken the trust of
people.

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