Impact Of Demonetisation On Indian Economy

Geopolitics and Demonetisation

Identify anayse and Predict that crises is one of the major challenges of the field of geopolitics. For your individual project, you will be responsible for researching and reporting on a current ongoing geopolitical crisis.

The term geopolitics is a combination of Geography and Politics. The main objective of this subject is to define the effects of the geographical events on the politics of a country and how it creates impression on the international relations. However, geopolitics not only deals with the international relations but discusses with inter-continental geopolitical issues also. Different ranges of the political power within a country and relation between the political actors are included within the parameters of geopolitics. In the words of Christopher Gogwilt (2016), the modern geopolitics are discussing with domestic political relations. Every country has their geopolitical issues. This report discusses with the effect of demonetisation and attempts to understand the main driving force behind the crisis and also describes the impact of the crisis on the social, economical and political background of the country. 

Empirical description of the crisis:

In every country, the issue with black money is important in nature. In the developing countries like India, the effect of black money on the economics is huge. To curb this phenomenon, Indian Government under the leadership of Prime Minister Mr. Narendra Modi had implemented certain drastic changes in the financial environment in 2016 by way of the process of demonetisation (Dhingra, & Menon, 2016). The Indian government suddenly call for a meeting and banned the Rs 500 and Rs 1000 Rs or rupees are the terms of Indian currency). The government decided to devalue the currency notes of 500 or 1000 after the midnight of Eighth November 2016. The main objective of the government behind this decision was to cut back the issue relating to fake notes, but such sudden announcement has compelled the general citizen to face serious problems to maintain their daily life (Gupta, 2017). The aftermath effect of the announcement has made a great crisis in the social, political and economical condition of India. The international relations have also been affected by the demonetisation. The Indian SENSEX had fallen down and the citizen had to face severe cash shortage due to this. The process of demonetisation has been criticised by several economists as well as bankers and strikes has been made against such freak decisions of the Indian Government. However, government has given fifty days time span to exchange the old notes to new notes, but in an over populated country like India, fifty days are very impractical for exchanging all notes. Further, the citizens could not able to withdraw many currencies from the banks as there were limitations. The people of every societal stages had raised their voice against such arbitrary action and titled the action as “Carpet Bombing”. T. N. Ninan had quoted the process as badly executed idea. However, there are certain positive effects too. The scope of fake money and rate of human trafficking had been reduced in a record rate. The extortion cases were reduced. There was a rise observed in the Gross Domestic Products and change has been observed in the cashless transactions (Mali, 2016). On the other side, a notable stock market decline has been noticed and few deaths had been reported that time.

Background of Demonetisation

Interest involved directly in the crisis:

The main intention of demonetisation is to stop the curse of fake notes and active effectiveness of black money. The announcement of banning the Indian currencies had shaken all the stages of the society. Many black monies had been recovered by the Special Tasks Forces and the crimes related to the human trafficking or extortions have been reduced and notable growth in the GDP has been observed. According to Mr. Narendra Modi, Honourable Prime Minister of India, this is a wide and bold step towards the recovery of black money and direct impression of fake money on the Indian Economy. According to the report published by Reserve Bank of India (RBI), near about 99% old notes were come back or credited in the banks and the system.

Source: ("Reserve Bank of India - Annual Report", 2018)

However, there were certain loopholes too and it has been observed the Indian Economy was very much affected by such decision. Most of the problems have to be faced by the Indian citizens and the whole nation was suffered from cash shortage. Lengthy queues of customers had been observed waiting outside the banks and many events of deaths were reported at this time. The Indian stock market was vehemently affected by the decision (Mahajan & Singla, 2017). Stock market was crashed by the dual effects such as demonetisation and US presidential election. The SENSEX was witnessed a rapid declination in the economic market. Over 750,000 trucks were detrimentally affected by the cash shortage and Indian transportation system was rammed (Chauhan & Kaushik, 2016). The agricultural system was also affected by the money demonetisation. Cash scarcity has affected the small business industries and many youths had lost their job.

Cause of the crisis:

The announcement on banning the Indian currencies amounting Rs 500 and Rs 1000 was an unscheduled matter and the whole nation get only four hours to exchange all their old monies with the new currencies and it is an impossible event for the over populated countries like India. According to Amartya Sen, renowned Economists, the decision is gigantic mistake of Indian government. However, as per the government report, many people are not given the tax correctly and therefore; a serious monetary crisis had been observed in the government fund. The government had made an attempt to curb this tax evasion and stop the harmful effect of fake money to destroy the financial resource of the terrorist gangs.

However, the banning of money was not well planned and this announcement has fierce the common people and they were harassed in their daily life. They had to face lots of problems and could not buy the essential commodities (Bhavnani & Copelovitch, 2017). They were forced to postpone their important societal programs. Sufficient money or cash were not supplied to the banks and the huge cash deficiency had cropped up. Active agitation against the decision were made and customers had to wait before the banks or ATMs for long and many senior citizens were fall ill and some of them died. Even the banks had to face great dilemma as there were insufficient money supply. Lack of systematic procedure was the main responsible factor in this case and the effect of crisis can be seen in every stages of the society (Dasgupta, 2016).

Positive and Negative Effects of Demonetisation

Recommendation for resolving dispute:

Active agitation were made against the bank note demonetisation and according to T. N. Ninan, the decision of banning the currencies all on a sudden is a reflection of government inability to provide systematic approaches to the Indian citizen. Certain Public Interest Litigations were filed against such arbitrary decisions of the Indian government before several High Courts and the Supreme Court as well. The act of the government is quite legal as per section 26 sub-section (2) of the Reserve Bank of India Act 1934. This provision has empowered the Government to take any decision to ban notes. However, the process of banning currency notes was not perfect. The banks, either national or regional must be supplied with enough notes and alternative options should be given to the common people. A thorough monetary estimation was required by the government before taking such important decision. The government should have to provide reasonable time to the citizen to exchange their money.

Conclusion:

To sum up, it can be stated that the intention of the government behind banning the above noted currencies was good. However, the process of execution was improper. Government has made a fickle decision and negative impression was created on the common people. The main objective of the government was to eradicate the issue regarding fake notes, but such sudden announcement has compelled the general public to face serious problems to maintain their daily life (Sharma, 2017). However, certain people called the process as a step towards modified India as a tendency has been observed to go for the cashless transaction system. The government should make effective plan for this. The report can be concluded with the facts that the intention behind demonetisation was good, but it was executed in an improper way.

References:

Beyes, P., & Bhattacharya, R. (2017). India’s 2016 demonetisation drive a case study on innovation in anti-corruption policies, government communications and political integrity. OECD Global Anti-Corruption Integrity Forum.

Bhavnani, R. R., & Copelovitch, M. (2017). The Political Impact of Monetary Shocks: Evidence from India’s 2016 Demonetization?.

Chauhan, S., & Kaushik, N. (2016). IMPACT OF DEMONETIZATION ON STOCK MARKET: EVENT STUDY METHODOLOGY. INDIAN JOURNAL OF ACCOUNTING, 127.

Dasgupta, D. (2016). Theoretical Analysis of ‘Demonetisation’. Economic and Political weekly, 51.

Dhingra, S., & Menon, A. (2016). Demonetisation is not the way to tackle corruption. South Asia@ LSE.

Glazzard, A. (2016). ‘The inciter behind’: Spymasters and the Eastern Logic of Russia. In Conrad’s Popular Fictions (pp. 85-110). Palgrave Macmillan UK.

Gupta, D. K. (2017). Demonetization in India 2016--Mother Tongue Friendly E-Delivery Banking Channels for Cashless Growth.

Mahajan, P., & Singla, A. (2017). Effect of demonetization on financial inclusion in India. In International Conference on Recent Trends in Engineering, Sicince & Management (pp. 1282-1287).

Mali, V. (2016). Demonetization: A step towards modified India. International Journal of Commerce and Management Research, 2(12), 35-36.  

Patrick, M. (2016). Black Money, Corruption and Demonetisation (No. id: 11471).

Reserve Bank of India - Annual Report. (2018). Rbi.org.in. Retrieved 13 January 2018, from https://www.rbi.org.in/scripts/AnnualReportPublications.aspx?Id=1181

Sharma, T. P. (2017). Effects of Demonetisation on the Retail Business of Pune. International Journal of Advance Research, Ideas and Innovations in Technology, 3(6), 244-251.