Cashless India Boon or bane

Abstract:
To achieve a great thing we have to sacrifice something in the same magnitude. With a noble
objective of curbing the black money and giving a boost to the growth of the Indian economy a
bold step was taken by the government of India. The transition period of this demonetization has
definitely added some pain to the common public but with a hope of better India we have to take
the pain positively. This paper has focused on the boons and banes of the demonetization
exercise of the Government of India.
Key words: Black money, demonetization, transition period.
Introduction:
Nearly six weeks after India abruptly scrapped high-denomination banknotes accounting for
about 85% of its currency by value, the economy continue to slow. Poor and middle-class
Indians are still suffering from the shortage of new bills. On Nov. 8, Mr. Modi announced that
Indias two highest-denomination currency bills1,000 rupees and 500 rupeeswould
immediately cease to be legal tender in most places. Holders have until the end of the year to
deposit these bills into bank accounts. As replacements, the government has slowly rolled out a
redesigned 500-rupee bill and a new 2,000-rupee bill. The long-term effects of Indias
demonetization gambit remain unclear, largely because no other major economy has attempted
such an experiment except during a crisis. But with growth slowing and job losses rising, the
short-term prognosis appears grim.
The hopes ahead:

The major expectation from the demonetization is the demolition of the parallel economy
running in the country. It will definitely end the black money accumulated so far by various
groups of people.
You will have interest rates trending downwards, you will have real estate prices collapsing
clearly because demand will no longer be there and that demand will start converting because
earlier it was only demand at a price. There was no supply coming at the price. Maybe that will
match and come to real economy.
Some other benefits may be summarized as:
1. It will prevent counterfeiting of currency since the materials used in the new notes
will not be as easily available as in the previous notes

2. It will curb hawala transactions used for terror funding.

3. Prices of real estate will come down.
4. Reduction of unaccounted money will reduce inflation in the medium term.
5. Will increase the trust of the people in the government.

The sufferings so far:

Instead of factory openings or large new investments, the images that tell Indias current
economic story include snaking lines outside banks, distressed workers migrating back to their
villages, and tax raids on jewelers and officials caught with hoards of allegedly illicit cash.
The policys shabby implementationthrough an avalanche of amendments, rollbacks and
patchwork fixesundercuts Mr. Modis reputation for quiet efficiency. It also underscores his
overreliance on Indias notoriously heavy-handed bureaucrats.

Demonetization has resurrected fears that the ruling Bharatiya Janata Party takes policy advice
from quacks. It damaged the credibility of Indias central bank. And it forced many of the
countrys ostensibly right-of-center intellectuals to perform advanced mental gymnastics to
defend the prime minister. Though a few economists have applauded Mr. Modi, the weight of
informed opinion leans heavily against his decision.
Not surprisingly, shock waves from the announcement continue to crash through the economy.
The Asian Development Bank cut its growth estimate for India for the financial year ending
March 31 to 7% from 7.4%. JP Morgan expects growth to decline by half a percent to 6.7%.
Meanwhile, falling sales have begun to translate into layoffs spanning various sectors, including
construction, textiles and jewelry. The Centre for Monitoring Indian Economy estimates the
transaction costs alone of swapping out an estimated 14.2 trillion rupees worth of currency to be
1.28 trillion rupees, or about $19 billion.
Indias economy will eventually recover from this self-inflicted wound, but theres no question
that demonetization has created doubts about Mr. Modis competence. The decision, reportedly
hatched in secret with a coterie of trusted bureaucrats, showcases the prime ministers faith in the
command-and-control ethos of the civil service rather than in the minimum government he
once promised.
It also shows how susceptible Mr. Modi and his aides are to the unorthodox ideas of assorted
cranks and oddballs from the Hindu nationalist movement to which the BJP belongs. The loudest
backers of demonetization include a telegenic yoga guru, a chartered accountant best known for
propounding the homespun economic philosophy of swadeshi, or self-reliance, and a
nongovernmental organization that wants almost all taxes to be replaced by a single levy on bank
transactions.
Already, a flurry of commentary by well-regarded Indian and global commentators has tarnished
the prime ministers image. The business journalist T.N. Ninan calls demonetization a bad idea,
badly executed on the basis of some half-baked notions. For Morgan Stanleys Ruchir
Sharma, Mr. Modis clumsy exercise of state power wont achieve its ostensible aim
cracking down on so-called black money salted away by tax dodgers. Kaushik Basu, a former

chief economic advisor to the government of India and former chief economist at the World
Bank, calls the policy poorly designed, with scant attention paid to the laws of the market.
To be sure, not everyone thinks demonetization is a disaster. Columbia Universitys Jagdish
Bhagwati calls it a courageous and substantive economic reform whose potential benefits
include shrinking the shadow economy, hurting terrorists and counterfeiters, and expanding the
tax base by digitizing many economic transactions.
Others argue that this is likely only the first of a series of reforms that will eventually simplify
tax administration, root out corruption and make campaign finances more transparent. Some
supporters view demonetization as a quick way to invigorate a sluggish banking sector with
cheap funds.
Conclusions:
Perhaps the optimists will be proved right, but at this point their gauzy hopes of future benefits
must be weighed against the present pain. Even if demonetization ends up producing some gains,
the question of whether it was worth its considerable costs will linger. Moreover, the simple fact
that no credible expert suggested such a drastic policy before Mr. Modi announced it makes
many arguments in its support look like belated apologia. Two and a half years ago, based on his
record as the business-friendly chief minister of Gujarat, Mr. Modi stormed to national power as
Indias great economic hope. At least for now, the demonetization debacle has shaken this
assumption to its foundations.
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