Demonetization: Its evaluation 1 year after


Last year on 8th Nov, the GoI decided to demonetize 1000 and 500 rupees denomination notes. Almost one year has passed and now there are more data to analyze its impact on the economy.

Demonetisation can be simply defined as an act of stripping a currency of its legal tender. By demonetizing, Rs.500 and 1000 notes, the government stripped notes of these denominations of their legal tender and hence rendered these denominations useless. It was a purely executive decision with the RBIs nod.

Any policy decision has its pros and cons and thus demonetization can also be analyzed on these fronts.

A few benefits that are visible post-demonetization are:

Formalisation of the economy, more tax compliance which is evident from the data put forward by the Ministry of Finance, massive cleansing of India’s financial system as a maze of shell companies dealing in black money and hawala transactions have been uncovered, cleaner economy for the nation through ‘Less Cash’ behavioural shift and an increase in savings of the people.

A major negative impact of demonetization has been on the informal sector which works on cash. India’s 92% of the youths are engaged in the informal sector. Due to the cash crunch as a result of demonetization, the informal sector registered heavy losses and a massive loss of jobs in the informal sector has been noted post-demonetization. This has, of course, led to further uneasiness and a slowdown in India’s economic growth which fell to 5.7% in the 2nd quarter as per the data put forward by the Central Statistics Office, Ministry of Statistics and Programme Implementation, GoI.

The pros and cons having been discussed, I would like to put some of my analysis into it.

The major problem that India faces today is not of unemployment but of under-employment. Under-employment refers to the condition where people are made to work at lower salaries, not in line with the skills they possess. This has created a major resentment in today’s youth and particularly in a country like India with a huge demographic dividend it has become a massive problem. One of the ways to solve the crisis is to push the economy towards formalization which will have a major impact on the salaries of the youth. This can be achieved only if the informal sector is pushed towards formalization by bringing them into tax-net. This, according to me, has been successfully done by the demonetization process although a large work still remains to be done. However, a better implementation of this process would have reduced the hardships the people faced.

I would just like to suggest some steps that must be taken in order to push the economy back on track:
MUDRA yojana of the government need to be rolled out and an impetus must be provided to the small and medium scale industry, Stand Up India and StartUp India initiatives need to be pursued with more vigour and there is a compelling and urgent need for a crackdown on the shell companies and others which are involved in hawala transactions.

These are my views in which I have taken the reference to government figures and government advertisement. People may differ and may not be satisfied with my arguments and that is perfectly fine (Article 19 of the Indian Constitution). So, no offense to anyone. Please suggest, whatever you feel.


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