What do you think of the move by the govt to scrap 500 & 1000 rupee notes?

The move by the Indian government to scrap the ₹500 and ₹1,000 banknotes, announced on November 8, 2016, was a highly contentious and complex policy decision with far-reaching consequences. Here are some key points to consider:

Objectives

The primary objectives of the demonetisation were to curb the shadow economy, reduce the use of illicit and counterfeit cash, and encourage a shift towards cashless transactions123.

Implementation and Immediate Effects

The implementation was sudden and dramatic, leading to significant disruptions in the economy. The announcement resulted in prolonged cash shortages, lengthy queues outside banks and ATMs, and considerable hardship for the general public. Several deaths were linked to the rush to exchange cash, and the transport sector was severely affected, with many trucks stranded due to the lack of valid currency13.

Economic Impact

The demonetisation had several adverse economic effects:

• It led to a decline in industrial production and GDP growth. Former Prime Minister Manmohan Singh estimated that the GDP could decline by about 3 percent due to this move1.
• Approximately 1.5 million jobs were lost as a result of the policy1.
• The stock market indices, BSE SENSEX and NIFTY 50, fell over 6% on the day after the announcement1.

Effectiveness in Curbing Black Money

The move was largely unsuccessful in its primary goal of removing black money from the economy. According to a 2018 report from the Reserve Bank of India, 99.3% of the demonetised banknotes were deposited back into the banking system, indicating that most of the black money was not in the form of cash but rather in other assets like real estate, gold, and foreign bank accounts13.

Criticisms and Controversies

• The move was criticized for being poorly planned and unfair. There were allegations of information leaks and rumors that some wealthy individuals were informed about the demonetisation beforehand, allowing them to convert their money into smaller denominations or other assets1.
• The introduction of the new ₹2,000 note was seen as contradictory to the goal of eliminating high-denomination notes3.
• The Supreme Court of India, in a later verdict, had a dissenting opinion that the demonetisation should have been done through legislation rather than a gazette notification, highlighting the legal and procedural criticisms4.

Long-term Consequences

While the move did lead to an increase in digital and cashless transactions, the overall impact on the economy and the lives of ordinary citizens was largely negative. The currency in circulation eventually returned to pre-demonetisation levels and even exceeded them, indicating that the policy did not achieve its long-term goals of reducing cash usage1.

In summary, the demonetisation of ₹500 and ₹1,000 banknotes was a bold but ultimately flawed policy that caused significant economic disruption and hardship without achieving its intended objectives of curbing black money and reducing cash usage.