Advantages and Disadvantages of Demonetisation | H&R Block

Advantages and Disadvantages of Demonetisation

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Advantages and Disadvantages of Demonetisation

It has been over 60 days since government demonetised 500 and 1,000 rupees notes. It was a major decision which had its impact on all sections of the society. Demonetisation has given a new direction to the way people do monetary transactions in India. Just like a coin has a flip side, demonetisation too has its advantages and disadvantages.

Advantages of Demonetisation

  1. A major advantage is that demonetisation helped the government track black money. Large sums of black money were kept hidden by tax evaders. Demonetisation helped government uncover the huge amount of unaccounted cash. According to estimates made by RBI, people have deposited more than rupees 3 lakh crores worth of black money in the bank accounts. This has helped the government in slowing down the plague of parallel economy.
  2. A major reason behind demonetisation was that a big part of black money was being used for funding terrorism, gambling, in inflating the price of major assets classes like real estate, gold and other social evils. Demonetisation is acting as an effective countermeasure against such activities. Now all such activities will get reduced for some time and also it will take years for people to generate that amount of black money again and hence in a way it helps in putting an end this circle of people doing illegal activities to earn black money and using that black money to do more illegal activities.
  3. Another benefit is that due to people disclosing their income by depositing money in their bank accounts, the government gets a good amount of tax revenue which can be used by the government towards the betterment of society by providing good infrastructure, hospitals, educational institutions, roads and many facilities for poor and needy sections of society.

Disadvantages of Demonetisation

  1. The biggest disadvantage of demonetisation has been the chaos and frenzy it created among common people initially. Everyone was rushing to get rid of demonetised notes while inadequate supply of new notes affected the day to day budgets of citizens. Banks and ATMs witnessed long queues while small businesses suffered temporary financial losses. The situation was even worse in rural India where people struggled to exchange and withdraw cash due to lack of enough number of banks and ATMs in their vicinity.
  2. Another disadvantage is that destruction of old currency units and printing of new currency units involve costs which has to be borne by the government and if the costs are higher than benefits then there is no use of demonetisation.
  3. Another problem is that this move targeted the black money, but many people who had not kept cash as their black money and rotated or used that money in other asset classes like real estate, gold and so on were not affected by demonetisation.

So, we can conclude that demonetisation has both advantages and disadvantages. Demonetisation alone cannot fight parallel economy and eliminate black money. Several other supportive measures are required by the government to change the economy for good.

 

Latest Update:

On July 4, 2017, Supreme Court asked the government and RBI to consider another window for the exchange of demonetised notes. The government has asked some time to respond to this. The government does not want to open another window for exchange of such notes and has decided to share its views on July 18, 2017 which is the date for the next hearing.

Niteesh Singh
Niteesh Singh
Niteesh works as a Tax Researcher at H&R Block India. He makes taxes easy to understand for people. He creates content for the website, marketing activities and social media. He carries experience in creating a wide variety of content like blogs, press releases, research papers, etc.

18 Comments

  1. manoj divatia says:

    In my opinion the biggest advantages is that large number of PEPOLE started using digital
    Transactions. Beginning of Less Cash ? appears to make sense in people at large. A lesson
    Taught by PM very roughly and toughly. ALL SUCH NON CASH TRANSACTIONS LEAVE THEIR
    FOOT PRINTS AND ARE TRACEABLE.
    REGARDING black money or its other implications on reduced Terrorist activity are , in my opinion
    Not very effective.
    As per PAC questions to RBI Gov regarding DEMONETIZATION few are very candid. Ratio of GDP to cash for India was @12% which as per PAC is not significantly high in comparison to other countries. So what lead to DEMONETIZATION of almost 87% of cash ?
    RBI has yet Not declared amount of so called black money deposited in those Jan Dhan Acs.

    • safal says:

      nice comment

    • SRINIVAS says:

      DEMONETIZATION .PAST FEW MONTHS THIS WORD BECAME SO POPULAR THAT EVERYONE HEARD AND SAID.
      THEY SAY TO TRACK THE BLACK MONEY .
      NOTHING HAS BEEN BENEFITED BY DEMONETIZATION.
      I ASK RESPECTED SIR , WHO HAS TAKEN CALL ON DEMONETIZATION SHOULD HAVE COMPLETELY ASK ALL THE INDIANS TO RE – REGISTER ALL THE PROPERTY DOCUMENTS UNDER NEW STAMP PAPERS WITH UNIQUE CODE (BY MEANS EVERY DATA WILL BE AVAILABLE AND PEOPLE WHO ARE AVOIDING TAX OR BENAMI ‘S WILL COME UNDER THE RADER)

      BUT NOT LEAST THERE SHOULD BE BAN ON 500 AND 2000 NOTES

  2. Vilwa says:

    Democratisation changed poor peoples faith and pushed them into problems but also it is to look helpful

  3. Erica says:

    This article is very useful and publisher has really done well

  4. anu says:

    Due to demontisation corruptionn reduced and also some what better to poor people

  5. Khushi says:

    Very nice article…. 😊
    Useful for kids………

  6. Damini says:

    Very easy artical 😀😀😀😀😊😊😊

  7. Amul says:

    Excellent article.

  8. Priya says:

    Nice but give some more information

  9. Yaghika says:

    Very nice article….. Satisfied

  10. SRINIVAS says:

    nice

  11. tamilselvan says:

    Every think fine but till now modi government after this issue do not discuss about it they doing there regular work i think this for unused plan for india

  12. Siddharth says:

    Write more about it

  13. Debanand says:

    Very Nice . Actually the black money with the black minded people will remain always in black. Change is required in thinking among those people.

  14. Merin says:

    Its a nyz article d publishr had publishd vry well tnakzz 4 that

  15. Nihal Dixit says:

    I have a question,
    1.Since black money is claimed to be used for funding terrorists and we have the stats that almost all the money(black+white) came into accounts so how is the terrorist funding prevented by this? People can still fund them that too with cash.

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