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Long queues for ATMs and overcrowded banks are the results of demonetization since the day of its announcement by PM Narendra Modi. The demonetization of Rs 500 and Rs 1000 notes which are the highest denomination of Indian currency has adversely affected different income levels. The media has given all the attention needed for this issue and has highlighted main aspects and different views of the people. Some are appreciating the financial surgical strike as the PM calls it while some are constantly complaining. The opposition parties are bewildered by PM Modi’s bold move with Mamta Banerjee tweeting “Withdraw this Draconian Decision” followed by Arvind Kejriwal retweeting it and Rahul Gandhi taking a back seat.

The PM’s decision of demonetization has a primary objective to curb corruption and black money which is in huge amount in the country. It is believed to be one of the strongest moves in the long run. However, in the short run, one can expect the shortcomings since the implementation. He gave a deadline of 30th December 2016 to exchange all the old notes with the 100 rupees notes or less. He also asked people to deposit their money in the banks and provide a legal document for depositing more than 2.5 lakhs and if they failed to do so, they would be answerable to the court.

The decision had an immediate effect followed by people standing in long queues and overcrowding of banks the very next day. The daily wage labourer’sincome was affected as they were spending their time to exchange notes.The banks witnessed highest number of deposits in the next few days. The markets crashed down, the small business units and the informal sector seemed to have affected the most. The demand for commodities kept on declining as people had no change to buy them. Higher denominations of Rs 2000 notes were introduced to meet the difficulties of people but there was no change in return for such notes. Especially in rural areas, the banks have failed to transport the new stock of currency to the ATMs. The people were unable to withdraw money and the situation is even worse for people not having bank accounts. Thus, the plight of the comman man is evident; they are the ones suffering the most.

The initial idea of demonetization by the right wing political party was to target the black money hoarders and feed the poor. But is it happening? Are the rich people suffering or is it just another political move?

First things first; the black money which is in huge amount in the country constitutes to a total of only 6% in the form of cash. The rest is invested in gold and real estate. How does the government decide to track such transaction?

Secondly, chartered accountants, bankers and private bankers have helped people in finding innovative methods to get away with the problem. Over draft and credit facilities are considered for converting black into white. A chartered accountant from Madurai in an interview with Scroll.in said, “if a person has 10 crores unaccounted-for wealth in cash, he has to find someone who has already accessed the bank overdraft facility for the same or larger amount and offer to repay it with black money. The receiver will charge an interest for helping convert the black into white.”

Large business companies with daily cash transactions are adjusting their balance sheets by creating pre-dated high value bills and invoices where they are adjusting the sales and purchases to avoid further investigations. They'd rather prefer to pay Value added tax on such high value bills than pay 200% penalty levied on unaccountable cash.

The best way to administer unaccounted cash is to invest in gold and property. As soon as the demonetization decision was announced, people rushed to their nearby jewellery shops to buy gold. These shops remained open till midnight. Also, people have showed sudden interest in buying properties of low value and are ready to pay high prices for it so that their ‘hard earned’ money doesn’t go in waste.

People have also resorted to their trusted family members or someone who isn’t a business man to stand in long queues to exchange notes or even deposit 2.5 lakhs in their respective accounts, then withdraw it later and pay a small amount to them as an incentive.

Another one such way is investing the money into foreign banks where there is no demonetization and no interrogation.

It’s unfortunate to see that the political party that plans such surgical strike gives no account of its own financial sources. Jagnath Reddy the richest politician of Karnataka held a lavish wedding of his daughter for about 550 crores. Ironically, he is a BJP member and the guest list of the wedding included his party members along with Congress. 550 crores is a huge number and everybody's wondering from where did he get such a huge amount?  Even if he already had, were they old notes or Rs 100 notes?

The truth is these people will anyway find a way to get away and continue to flourish.The PM should understand these people are smart enough to take care of their money. He should also see that this decision has caused not just temporary pain but has affected the daily earnings of countless Indians. There are 47 deaths reported by standing in long queues and these people have still accepted the so called fiscal policy. The government should firstly, consider the parallel economy of its own party and then dig into the country. The national income of the country that is the gross domestic product (GDP) is expected to fall or even get into negative in the coming few months. The stock market has crashed down and the rupee value in foreign markets is relatively low. Inspite of the low level of economy why aren’t the tax hoarders targeted as it was planned to? Will this policy eradicate corruption and black money in its true sense? Questions that only time would answer.

 

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Written By Gunjan Sharma

Currently studying economics majors in KC College. Aspiring to specialize in field of finance.

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