Demonetization or Demonization – 14 days into PM Modi’s cashless India

Allow me to begin by offering a Grand Salute to the Man of the Millenium, Shri. Narendra Modiji, for constituting this meritorious evolution to curb the menace of money-laundering, black money and terror financing.

Chaos outside Petrol Stations

It  was around 20:15 PM on the eve of 8th November 2016 and I was jabbering around with a few mates at one of my locals.  All of a sudden my smartphone wouldn’t stop becoming an element of irritation, but not without a well-founded reason.  I was hoarded with messages and calls from friends & family informing me that India’s PM Narendra Modi has just declared demonetization of ₹500 & ₹1000 denominations.  I looked around and everybody was slouching into their smartphones. Hearing & watching people around me; scurrying off in the hope of getting rid of their denominations; it was a totally frantic affair on that evening.  At almost 1:00 am I witnessed endless lines at the ATM machines with a waiting of over 2 hours at the least, endless lines at the petrol pumps / gas stations, people scrambling in the city for the want of useable money & fuel.  It was a situation never before had I seen.  There was utter panic and chaos throughout this dazzling city of Mumbai.

Whether it was a rumor or fact, I instantaneously verified the news of demonetization of the ₹500 / ₹1000 denominations, with my sources.  Being a common human tendency to help oneself first, I immediately slipped my hand into my pocket & out it emerged with a few ₹500 notes.  I was carrying a few of the newly demonetized currency, but to tell you the truth I wasn’t worried at all.  I knew that there was no way in hell that someone could tell me that the money I was having was valueless.

It has already been more than two weeks since the demonetization was announced by PM Narendra Modi and I have no substantially usable currency in my pocket apart from the small change and a few notes of hundreds.  Looking at the terrifying queue of people standing outside the banks every day since the demonetization has absolutely restrained me from going to the bank.  This significant decision of blackballing the highest currency denominations which held the monetary base at 86% has not only sent the black economy snowballing into a frenzy, but, has also created a potential of converting India into a cashless economy.   There have been various reports online depicting the impact of demonetization in the Indian economy, but I came across an interesting article “Impact of Demonetization” by Insights which simply said that the “Government has attempted to tackle all the three issues affecting the economy i.e. a parallel economy, counterfeit currency in circulation and terror financing”; in other words PM Modi has killed 3 birds with one stone.  Unfortunately, certain detractors of the Prime Minister are trying to scoop the opposition & people against the Government.  There has been an aggressive demand from several political quarters that there should be a rollback of the move and provide an extension of time in order for people to utilize their old currency notes.

The Positives of Demonetization

I experienced the immediate impact of blackballing India’s most popular currency notes; I was left with little or no cash to spend.  Luckily for me, I had my credit cards to my rescue.  Ever since the big announcement, I have only been using my credit card everywhere, hence I have been cashless.  This has impacted the banking industry positively as people move towards a cashless economy.  Here are some of the positive impacts of demonetization:

1. ELIMINATION OF BLACK-MONEY OR UN-ACCOUNTED MONEY

There are speculations that an approximate of Rs. 4.5 Lac crore worth of black money will be taken out of circulation.

2. REAL-ESTATE TO BECOME MORE AFFORDABLE DUE TO SIGNIFICANT CORRECTIONS

It is common knowledge that most of the real-estate transactions often have a significant cash component as it reduces the incidental taxation of CGT (Capital Gains Tax) payable.  Black money was significantly responsible for the steep rise in the prices of properties in popular metros and now the real-estate may see a drop and make it more affordable for buyers.  This, in turn, will anticipate the buyers to invest and apply for loans which could significantly boost the banking industry, which in recent times experienced a downfall.

3. TERROR FUNDING

The network of fake currency will be eradicated.  The abolishment of the ₹500 & ₹1000 currency notes will have a celebrated impact on the syndicates involved in manufacturing counterfeit currency, which in turn shall affect the funding of various terror nets working against the Indian nation especially in Jammu & Kashmir, North-eastern & other terror-affected states.

4. THE NOW CASH-STRAPPED POLITICAL PARTIES DETERRED FROM USING UNDECLARED CASH FUNDING

With the state elections approaching in 2017, political parties largely rely on cash donations to fund their campaigns.  Businessmen, high profile individuals, establishments who all have vested interests allegedly fund the party campaigns via huge undeclared cash donations.  A total downplay of their current strategies will be in effect and it shall make it difficult for them to launder.

5. START OF A CASHLESS ECONOMY – MOVING TOWARDS DIGITALIZATION

As I mentioned earlier, post the big announcement of disbanding the currency notes, I was left with no option but to use my credit cards.  Like me, there are millions of people in the country who shall be converting their payment methods to digital wallets such as Paytm, freecharge, and similar applications.  Bloomberg Technology reported that the latest move is estimated to more than double the annual growth at payment companies.  Vijay Shekhar Sharma, founder of Paytm told the Mint newspaper that within hours of PM Modi’s announcement, Paytm saw a 1000% surge in money added into the wallet, a 200 % increase in app downloads and 250% growth in transaction value.  This itself shows that India has graciously accepted the change promoted by Shri Narendra Modi.

The Negatives of Demonetization

1. TRANSITORY PANDEMONIUM

Chaos outside an ATM in New Delhi.
Photo Courtesy: http://www.cbsnews.com | Arshad R Zargar

There was plenty of confusion regarding post the disarming of the currency notes.  People weren’t sure of the course of action needed to be taken.  People had very limited usable currency notes which were affecting the availability of essential items such as food & ration for every household. All local stores, vendors, cabbies, rickshaws had stopped accepting the old notes, causing grievance to the common public.

2. NEGATIVE GDP IMPACT IN THE CURRENT QUARTER

There is a likelihood that the current GDP shall be in the negative in the running quarter as the consumption comes to an almost standstill in the current term.  Unfortunately, the level of slump cannot be ascertained at this moment.

3. SLUMP IN PRODUCTIVITY ACROSS VARIOUS INDUSTRIES

Volumes of production in manufacturing & service industry may see a decline.  Employees likely to be skipping work in order to line-up at banks, which occupy almost a whole working day for them.  Workers in big industries have been seen jumping their daily muster in order to get change.  It has been reported by news media that many establishments have sent their workforce to the banks in order to get an exchange of currencies.

4. INTERIM OPERATIONAL DIFFICULTIES FOR SMALL BUSINESSES

Due to the decreasing supply of usable currency in the economy, small and medium-sized businesses are struggling to meet their daily expenses.  Sectors which rely heavily on cash transactions such as gold, jewellery, construction, restaurants, real estate & retail have witnessed a decline in sales post demonetization.

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To make the situation lighter, post the demonetization, Sonam Gupta seems to have hogged the limelight once again.  Recent trends show a rise in trending topics such as ‘Sonam Gupta Bewafa hai’.  Now, what is Sonam Gupta all about?  Sonam Gupta has scooped away the limelight of the online world once again.  She made the headlines earlier this year in August but is back with a bang after PM Modi announced the demonetization.  So what is this all about?  It all started with a jilted lover writing “Sonam Gupta Bewafa Hai” on a ₹10 note.  This note then traveled to different cities and finally into the hands of someone who took a snapshot of it & posted it to the internet.  Thereafter Sonam Gupta became a very despised off name on the internet. 

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Facing a lot of flak from the opposition & other parties due to the recent lockdown of the currency, here’s what Shri Narendra Modi had to say to those opposing the move:-

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