Breaking Down Demonetisation – Two Sides Of The Same Coin

At the stroke of midnight of ninth November 2016, India lost 86% of its fiscal base. The print, electronic and digital media has been admiring the Prime Minister’s masterstroke by which he has apparently pulverised the base of corruption in India. In this single move, the Government has endeavoured to handle all the three issues influencing the economy i.e. a parallel economy, fake money available for use and dread financing. This is most likely a noteworthy coop and generously improved his reputation for being a solid leader.

What Is Demonetisation

Demonetisation is the legal action taken for the purpose of stripping a unit of currency of its status as a lawful tender. It is essential for the situation when there is a change of the national currency. The old currency unit must be retired and then replaced with another new currency unit.

A recent case of demonetisation happened when the countries of the European Monetary Union embraced the euro. With a specific objective to switch to the euro, authorities initially settled trade rates for the shifted national monetary forms or currencies into euros. When the euro was presented, the old national monetary standards or currencies were demonetised. However, the old currencies stayed convertible into euros for some time so that a smooth transition would be guaranteed.

Case Study Of Demonetisation MMK (Myanmar Kyat)

The currency contraction for the Myanmar kyat (MMK), the Myanmar coin. The Myanmar kyat is made up of 100 pya and is often presented with the symbol K. Pya coins are very rare, but notes up to 1,000 kyat are commonly used.

The Burmese kyat replaced the Indian rupee at par in 1952, but for many years, a strong black market for the new currency forced the government to demonetise several times. In May of 1964, the 50 and 100 kyat notes were demonetised, and in 1985 the 20, 50, and 100 kyat notes were demonetised. The last demonetisation occurred in 1987, when the government demonetised the 25, 35, and 75 kyat notes, rendering three-quarters of the country’s currency valueless. The modern current Myanmar kyat was presented in 1989 without a demonitisation of the earlier currency is still being used today.

Why Demonetisation By Government

The black economy stock constitutes a noteworthy part of the GDP is significant. Regardless of the possibility that half of this sum is pulled back, the sort of help that the RBI will get on its liabilities and the kind of stores business banks will get, will be decreased in the store. And later on, there will be reduction in loaning rates in addition to a financial shortfall.

Black money in circulation resembles a steroid in the economy which keeps the demand going and also becomes the source of the feeling that everything is functioning well. The issue is that the investment is not occurring in the economy and the rate of development of capital arrangement and formation is down. The best way to convey this up is to occupy more supportive fund into investments which will happen when the cost of capital descends.

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Impact On Various Sectors

The prospect of demonetisation is great. However, it needs to be considered that the greater part of the black money is kept as land structures, or gold, or kept abroad. What is in real cash constitutes just 4% of the aggregate sum of black money on which taxes are not being paid. Out of this, a considerable measure of cash is available for use in the ordinary transaction like if somebody is building a house; the bill is not paid through banks for sand, blocks etc. This cash goes into alternate frameworks. However, it has been drawn from the bank. These things will go under control with this progression step.

Small agriculturists, dealers, vendors, day by day wage workers and merchants are suffering lack of appropriate planning, foresight and intelligence, for example, ATM machines recalibration.

There was a requirement to heap up enough 100 Rupee notes and other small group notes in the market before making this stride. It is being said by commentators that this progression was taken just to support the picture of the Prime Minister as he has been not able convey on GDP development, inflation, and bringing the black money from abroad.

Demonetisation is a set up practice in fiscal approach to handle black money. The Prime Minister has clarified why this is a money-related surgical strike. It was intended to be an all of a sudden execution. Previously, demonetization has occurred twice. Yet, it falls flat on the grounds because the thought is to handle the black money existing in the circulation.

Consumer Behaviour Noticed During Demonetisation While Purchase Of Goods

Individuals are facing issues because the limitation of withdrawal has not been kept at a higher amount. If this would have been kept at a higher amount, there were chances that the reusing of black money may start. Perfect cash available for use needs to go to the channels of banking.

Steps Taken By Ecommerce Companies

Moving to the online transaction priorities and making the online transaction more beneficial for customers so they prefer it. There are many better ways of making transactions and during this period of demonetisation, people are gaining awareness about e-payment and e-shopping options.  Ecommerce marketplace majors like Amazon and Flipkart had removed cash on delivery option. LatestOne.com has doubled the extra discount on pre-paid orders. Other measures like call confirmation of orders from customers, to check if they are ready with cash at the time of delivery.

Conclusion

What is being endeavoured is substitution of money and not demonetisation itself which was pointless. As of now, the economy is battling with stoppage and slowdown. There is demand sluggishness in the economy prompting to essentially no private sector investment and stagnant development of industries.

If we take a look at the farming sector, this is the time of harvesting. Agriculturists or farmers usually deals in with the cash money India is also considered a cash economy to the great extent.

Cash transactions and trade exchanges in this economy are much more than the sum calculated number of overall complete electronic transactions done on the daily basis. In the tribal heartland of the nation, poor individuals through agents are getting their currencies exchanged and renewed for INR.300 or INR 400 due to the lack of proper data which are hitting them.

[This author of this post is Ameen Khwaja – Founder and CEO of LatestOne.com – an aggregator platform for mobile accessories and more.]