One of biggest conducted exercises in India in recent times-Scrapping of old notes, Demonetization

This has been taken from our blog,”Brinks of economic thoughts”

One of biggest conducted exercises in India in recent times-Scrapping of old notes, Demonetization

With the advent of new year we remembered previous year as one which saw a major initiative being taken by the government to end the use of old notes of 500 and 1000.Being a student of economics, many knew that in a way to curtail unchecked flow of black parallel economy it is essential to end up the use of notes with higher denomination. But it also depended on the courage of the leader as peoples in government always knew where the problem lay.

Few have forgotten the times when Mr P Chidambaram had taken a step in his general budget during UPA 1 regime to levy taxes whenever there is any cheque transaction more than 25,000 INR.

It was a step which had not gone well that time with opposition, [which is now ruling government] opposing the step severely. Finance minister that time had insisted that this is all major exercise to bring all the monetary transaction into cheque transactions or cheque economy..

This may have been a surprise but owing to  a fact that tax evasion is a very major problem in the nation and also it is difficult to know for which purpose the money has been getting used from various rangers of unlawful activities to anti nation activities, it was crucial to take some kind of a drastic and unexpected measure.

We had seen an anti draft campaign carried in the nation during UPA 2 regime, seeking Lokpal acts and seeking more and more transparency in the public life. Even with the new regime we had been watching that the government had been pretty concerned about raising the issue of disclosing the names of people who have stashed illegally  huge amount of money into safe tax heavens .At various international summits issues of money laundering had been gaining attention. This issue had been getting reciprocated by major financial powers at major summits also like G-20,etc.

The issues related to the execution could have been discussed, for the matter, but how could then this be ensured that secrecy of matter would remain. India has shown at instances that if we wish we can surely conduct secretive exercise.We have not forgotten the time of Pokhran Nuclear test 1998,where best of satellites of USA  could not find a clue that India would be conducting nuclear test.

Global financial giants like Goldman Sachs , Ernst & Young have come with the forecast of slowing down of economy for a quarters or so. But gradually they have all, assumed that the in totality this exercise will have fruitful impact on whole. The best positive out of this exercise will be the broadening of tax base, which earlier was very minimal, Our nation had very less numbers of peoples who had been paying taxes, and now the rest will have to disclose their income.

Given the kind of deficits the economy had been facing and also that we are trying to implement various social welfare schemes it was necessary that majority of people who are not paying taxes must pay and the whole nation must grow in totality.

With advent of thing like digital transactions and cashless economy, it is vital that data breach must be checked along with availability of strong broadband connectivity. As we are planning to completely digitalise the economy ,it is also vital that the peoples who are illiterate or have less idea of use of new digital transactions , must be taught about the use of modern IT uses. Some far areas still lack in it, and we have seen sincere steps by governments over past years to ensure that many of villages are connected with internet connectivity.

Questions can be raised about timings, or about the execution, or about the problem faced by masses, but intent does not seem wrong, We saw a good amount of money already disclosed under Income disclosure scheme.

Strangely many nations in past have conducted similar exercise, like Myanmar did in 1990,,or even Russia, Even lately we have seen Venezuela doing similar exercise.

Hoping for the transparency and now availability of huge funds back into banking system we can expect low interest rates and availability of huge money for important infrastructural projects or loans.

This will remain very controversial exercise but hoping that it gives good results.IMF and WB have also indicated that for long run  benefits certain pains can be taken and economic activities are bound to regain their pace with passage of time.


Harsh Vardhan Pathak

Msc Economics


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