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Tuesday, January 2, 2018

Demonetization - Implications

It is more than a year now and still, people discuss one of the biggest decision taken by India government in 2016 - Demonetization.

On 8 November 2016, the Indian Federal Government who controls the currencies of India through its reserve bank announced the demonetization of all 500 and  1,000  banknotes of the Mahatma Gandhi Series. Some say it is a bold move which no one would dare to take others are in the view it is one of the worst decisions ever made by any government across the world.

During the first three to four months of the exercise, people panicked. Crowds queued up in front of ATMs and banks. Queues to get new currencies as soon as possible. In the bank, queues were to exchange old currencies with new. Most of them started to hoard the cash thinking it would be difficult to get lower denomination notes. The economy was on standstill. Daily wage workers were finding it difficult to get their wages as there is a shortage of currency notes.

Those who were having a large bulk of cash reserves in old noted found it difficult to establish the source of their income. Economists predicted falling GDP and there were counter-arguments. But ultimately GDP growth fell two percent.

Any decisions made by a government has pros and cons. But those who really struggled was with undeclared incomes, especially in cooperative banks were income declaration and KYC norms are not strict. Later cooperative banks too had to make KYC mandatory and re-KYC was performed on all existing accounts.

The government realized people were floating KYC norms by having duplicate accounts and they have decided to link everything with Aadhar number which could not be duplicated. It has become another mammoth exercise and many refused to do so citing privacy concerns and lack of Aadhar number for them. It is like a never ending debate.

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