Chennai: It was a shock as well as surprise when Prime Minister Narendra Modi, on the same day last year, declared the devaluation of bank notes of Rs 500 and Rs 1,000 denominations. Having crossed a year since then, how has the demonetisation impacted the country?
News Today checked with common men and economists to analyse on this and here are the excerpts.
Appreciating the move of the Union government in demonetising the bank notes of Rs 1,000 and Rs 500 denomination, economics professor Victor Louis Anthuvan of Loyola Institute of Business Management (LIBA) came up with a criticism on the move that, despite its beneficial effects there are some troubles in execution of the decision which has left a lot of common people to suffer.
Victor said, ‘About 12 per cent of the black economy in the country is in liquid cash form which would be brought into spotlight through demonetisation.”
He said that, this is a bold move taken by the Central government which has benefited the country by pulling in about Rs 5 trillion into bank accounts well in the first 16 days after demonetisation.
“We still expected around Rs 3 to 4 trillion to be stored in banks. Thus by leaving the countrys GDP to hike it has pulled down the rate of interest in banks to benefit a lot of loan takers in the country,” he added.
However, the economics professor also pointed out cons that have been emerging everyday after demonetisation. ‘The government was not prepared completely to announce demonetisation which should have been a long term process in the pre-demonetisation phase’. He said that, the government should have taken measures to face this. ‘The release of higher denomination notes like Rs 2,000 or Rs 500 should have been made earlier so that the stashed black money would be converted into that form.
Further, when asked, was the black money from the country evicted, Victor highlighted on the wealth of the country that is stored in tax havens overseas. ‘In the past three to four decades, the export invoice of the country was not revised which has let a huge portion of the countrys wealth to be stored in tax havens like Luxembourg, Solomon Islands, Mauritius and Panama,’ he claimed.
The government should focus on this export invoice to liquidate the entire black economy of the country, he added.
“After two days of this announcement, I exchanged couple of Rs 500 and Rs 1,000 notes at a bank counter. In return, I received two new pink Rs 2,000 notes. When I tried to exchange these new pink notes for change, I realised that there was hardly change for that and people are holding the lower denomination notes as a precious commodity. The next lower denomination available for change is Rs 100 note. That means you need 20 numbers of Rs 100 notes to get change for the new Rs 2,000 note. Due to scarcity of change, I soon realised that the lower denominations notes in the system are not able to meet the demand,” says Rajkumar Sankaran, a corporate employee.
When asked how was the rest of the year?, Rajkumar said, “As the time passed by, things slowed down a bit. The queues in the banks shortened, ATMs were filled with money, new currency circulated and all these eased the situation. Nevertheless, this change will have a huge impact on the economy, I believe.”
B Srinivasan, Chief Accounts Officer of Southern Railways, said, “Since cashless transaction has been encouraged, demonetisation has reduced the use of printed currency and hence reduce the use of fake notes.”
He claimed that global agencies have pegged the size of the parallel economy in India at close to 23 per cent as of 2007. Based on this interpretation, the financial expert came up with an eye brow raising fact that, due to the parallel economy, an estimate unaccounted cash in the country to the tune of `4,500 billion, of which a certain significant proportion had made its way to the banks, thus boosting deposit base as well as financial savings.
“‘The deposit bases of all banks have received a fillip of 0.5 to 1.4 per cent of GDP. In turn, financing savings have hiked by close to this proportion due to switch from savings from unproductive physical assets to financial assets,” he added.