Is our PM Modi doing the correct thing with 500 and 1000 Rs notes?

The decision by Prime Minister Narendra Modi to demonetize the Rs. 500 and Rs. 1000 notes in 2016 is a complex issue with both positive and negative aspects.

Objectives and Potential Benefits

• The primary objectives were to combat black money, corruption, fake currency, and terrorism funding. By removing these high-denomination notes, the government aimed to force individuals holding unaccounted cash to deposit it into banks, thereby bringing it into the formal economy and increasing tax revenues345.
• The move was also intended to promote a cashless economy and digital transactions, aligning with the "Digital India" initiative25.
• It was expected to reduce the demand for high-value assets like real estate and gold, which were often inflated by black money5.

Challenges and Criticisms

• The implementation faced significant challenges, including a severe lack of capacity in printing new currency, recalibrating ATMs, and ensuring access to liquidity in remote areas. This led to widespread inconvenience, particularly for low-income households, daily wage workers, and small businesses that heavily rely on cash transactions245.
• The policy had detrimental effects on economic activities in the short run, affecting MSMEs (Micro, Small, and Medium Enterprises) and unbanked populations25.
• Despite the long-term benefits anticipated, the immediate impact included hardship for many citizens, disruptions in economic activities, and criticism for the lack of preparedness and infrastructure to support the transition34.

Public Support and Economic Impact

• Despite the initial hardships, the policy enjoyed strong public support, with surveys indicating that a significant portion of the population, especially in urban and semi-urban areas, supported the move due to its perceived long-term benefits2.
• The demonetization led to an increase in deposits in the banking sector, which was seen as a positive step towards increasing financial inclusion and tax compliance. Global credit rating agencies forecasted improvements in India’s fiscal position and tax revenues2.

In conclusion, whether PM Modi's decision was correct is subjective and depends on one's perspective on the trade-offs between short-term hardships and long-term benefits. While the move was aimed at addressing critical issues like black money and corruption, its implementation was marred by significant challenges that affected many citizens. The long-term impact, including increased tax revenues and a push towards a cashless economy, is still being evaluated.