Advantages of Demonetisation in India – 11 Positive Impacts

Demonetisation is one of the major step ever taken in history of India. This was a necessary step to be taken from a long time and Prime Minister Narendra Modi did it on 8th of November of year 2016. This Demonetization of Money in India has started showing its positive impacts is a very short period of time.

As announced by Narendra Modi demonetization means that notes of rupees 500 and 1000 will no longer be legal tender from 9th November 12 AM. This move was really appreciated by at the same it brought big problems especially in life of common man. Government claims to be get over with the problems caused due to ban of 500 and 1000 notes in 50 days. People of India is appreciating this action and ready to sacrifice dealing with problems instead of doing riots and going against it. Implementation of this plan was really bad and everyone accepts this fact. There are many reasons behind bad implementation of this action because if the implementation would have beenĀ  earlier then some people might come to know about it and then they might have converted a lot of black money to white before implementation of idea.

There are many positive and negative impacts of this demonetization policy over every citizen of country and tourists coming to see India from abroad. So, in this article we are talking about what are the major advantages of demonetization in India.

So, here we go…………..

No More Blackmoney in India (at some point)

Blackmoney is the biggest problem of any economy and it is also considered as the biggest disease of any economy. Black money is a parallel economy which makes foundation of any country weaker. In Indian economy there is around of Rs.3 Lakh Crore black money injected and the fact is that total amount circulating in Indian economy is Rs.17 Lakh Crore. This single action of demonetization will either take that black money into bank accounts or it will destroy it.

End of Fake Currency

As per the ISI (Indian Statistical institute), the circulation of fake currency in Indian economy is Rs.400 Crores at every point of time. it was also stated that the Rs.70 Crores fake currency also being injected every year to Indian economy. Demonetization will also put an end to it as machines will be able to reject fake notes and also people now will not be able to circulate old previous notes.

More Bank Deposits and Higher GDP

Most of us know the fact that 86% of Indian currency is in form of 500 and 1000 notes. Demonetization of these 500 and 1000 notes will make people deposit 500 and 1000 notes in bank account which will take them in circulation of money in Indian Economy. According to the announcement by RBI they have collected over 5.2 trillion of money till 18th November. This deposit made in banks can boost Indian GDP to 0.5% – 1.5%. Largest public sector bank of India which is SBI has received Rs.1.27 trillion cash deposits.

Low Interest Rates in Money Lending

Due to low funds in banks, financial institutions are not able to cut down the money lending rates. As huge amount being deposited in banks will cut down money lending rates in banks and other financial institutions. It is expected that banks will cut down their interest rates by ~125 bps before May, 2017.

Lower Property Prices (Back to Circle Rate)

Many people are saying from a long time that Real Estate industry is built over black money. Circulation of black money in this section is really very huge. As per a report it is studied that 40% of transactions in Real Estate industry is done in black money. Demonetization will make the black money a waste in this section too and also it ends black money transaction. Properties almost everywhere are back at circle rate of that area.

Halt over Hawala Transactions

Hawala rackets got badly affected by this demonetization of money done in India. Hawala is a method by which people transfers money from one place to other without actual money movement. Hawala methods are majorly used for easy money laundering and terror financing. Hawala rackets met an complete halt to their operations after this demonetization of 500 and 1000 notes in country.

Financial Inclusion

Huge inflow of money due to demonetization into banks enable them to provide subsidized loans and other services at low cost to holders of jan dhan accounts. The contribution of jan dhan accounts so far in banking system is under 1%. Due to Demonetization, denominated notes are coming back into the banking system which might propel cash deposits in jan dhan accounts.

Less Fiscal Deficit

The money which was not so far counted in income tax system will come under a formal way now. Demonetization will raise income tax collection and government will be able to reduce fiscal deficit in fiscal year 2017. This recent move regarding black money will shift economy of India to Organized sector from unorganized sector.

Higher SLR

Ban on notes will increase demand of government bonds in market. As we all know that cash deposits will be increased due to demonetization will lead to higher Solid Liquidity Ratio (SLR) demand.

Rest to Terror in Kashmir

Kashmir is the place where demonetization has shown it effect earlier. The riots in Kashmir which was running from a long time in Kashmir came to a stop due to lack of money supply to the people who was doing it on orders of others. Hawala method was used to transfer money for riots in Kashmir and demonetization has blocked it completely.

No Naxal activities and North East Insurgency

Naxalies in India was living all beacuse of blackmoney. Now, they don’t have funds to do recruitment, have shelter, buy foods and other activities. On an estimate their annual turnover was around Rs.500 Crores which they does through terror funding, NGOs, forgery, extortions and local taxes. So, No valid money means no bad activities. 😀

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