What do you think of PM's decision on the banning of 500 and 100 rupee notes?

The decision by Indian Prime Minister Narendra Modi to ban the 500 and 1,000 rupee notes, announced on November 8, 2016, was a highly controversial and complex policy move. Here are some key points to consider:

Objectives

The primary goals of the demonetization were to curb the shadow economy, reduce the use of illicit and counterfeit cash, and encourage greater financial inclusion and digitization of the economy3.

Implementation and Immediate Impact

The policy was implemented with very short notice, leading to significant disruptions. People had to stand in long queues to exchange their banknotes, and several deaths were linked to the rush to exchange cash. The move resulted in prolonged cash shortages, affecting various sectors of the economy3.

Economic Consequences

The demonetization had several adverse economic consequences:

• It led to a reduction in industrial production and GDP growth rate.
• Approximately 1.5 million jobs were lost.
• The stock market indices (BSE SENSEX and NIFTY 50) fell over 6% on the day after the announcement3.

Effectiveness in Reducing Black Money

The Reserve Bank of India reported that about 99.3% of the demonetized banknotes were deposited back into banks, indicating that the effort to remove black money from the economy was largely unsuccessful. Most economists agreed that the move did not effectively target black money, as it was based on an incorrect assumption that black money was primarily held in cash3.

Criticisms and Reactions

The policy was widely criticized by economists, industrialists, and politicians for its poor planning and execution. Critics included Nobel laureates such as Amartya Sen, who called it a "despotic action," and Paul Krugman, who saw significant costs but little gain. Other critics argued that the move caused undue hardship to common people, particularly the poor and those without access to banking services3.

Long-term Impact

While the policy did lead to an increase in digital and cashless transactions, the overall consensus is that the demonetization was not an effective way to tackle black money or counterfeit currency. It is viewed by many as a poorly executed policy that caused more harm than good to the economy and the people, especially the vulnerable sections of society3.

In summary, the decision to ban the 500 and 1,000 rupee notes was highly contentious and is generally regarded as a policy that failed to achieve its intended objectives while causing significant economic and social disruption.