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5 Advantages of Demonetization in India

The 1000 & 500 rupee notes were recently demonetized by the PM, Narendra Modi. The entire country is now grappling with a severe cash crunch. However, this is only for a short duration of time. The demonetization move is going to be a very beneficial one towards building a cleaner India. Counterfeit notes and black money hoarding are activities that necessarily need to be curbed. That is the reason the ruling Govt. discreetly planned the move. The first thing to be clear about is the concept of demonetization. After you have understood this, you will automatically consider the benefits of such a practice. Although the advantages and disadvantages of demonetization exist, the benefits far outweigh the pitfalls of such a practice. 

What is demonetisation?

Demonetization is a process that is enforced by the government. You could also consider it a policy of the government whereby the government declares the present official currency in use in India invalid. Hence, once demonetization is in place, no citizen is allowed to conduct any transactions with the old currency, as a new currency will take its place. In terms of the legal tender, new notes and denominations exist, as older ones are phased out in a gradual way. What are the aims of adopting such a move by any government? You will find out once you have a look at the advantages of this process. 

Let us go on to discover some of the Advantages of Demonetization:

Putting a complete full-stop to corrupt practices

One of the most significant advantages of demonetization is to put a complete full stop to malpractices carried out in the black money market. Now, people will be quite scared to be involved in hoarding their cash as they would have an inherent fear of being prosecuted by the concerned authorities. Black money cash would now never be exchanged with banks either. Many terrorist countries were dealing with hot currency, including counterfeit notes, to buy arms and ammunition.

Now, with the present demonetization move, this cannot happen, at least for a decade or so. In other words, the smuggling of arms and dealing with terrorists will not be sustainable as all the money will be in a proper and systematic record now.

Witness a sophisticated banking system

One of the most definitive benefits of demonetization lies within the finance and banking sectors. The Indian government has always strived to propel the nation towards a cashless system of financial transacting. With age-old practices of using cash, the people of India, thus far, were not willing to try out fresh approaches to payment. This is done in a bid to wipe out corruption, so transactions without the cash component remain clear and valid. Banking and financial practices and procedures will get an impetus to move online and become convenient and more secure for all parties involved. With the present demonetization move appropriately put in place, the banking system will improve considerably. The economy will slowly start moving in a completely cashless direction. Moving towards a cashless economy also implies better access to credit and revamping of financial operations.

More and more people will be using online portals to make their purchases. The existing white money will thus continue to remain with the government. The newly legalised money can therefore be utilized by banks and financial institutions to grant loans to needy borrowers, and the banks can generate interest from the same. The financial or the banking system will receive an additional boost in terms of 7-8 Lac Crore of base money. This is when the new notes are circulated, but one must also witness how much cash remains in the banking system once the withdrawal limits are eased.

Reduced liability for the Govt.

You can witness the move as a positive one as you have several fabulous benefits of demonetization. The move can reduce the risk and liability of handling liquid currency. It is always easier to handle soft money than hard money. As every note is a liability for the Govt., this liability can be reduced considerably. The old currency is again worthless for people who decide not to disclose their income. The old notes have become worthless pieces of paper now. With the current demonetization move, it is estimated that more than 5 Lac Crore may come to the Govt. in the form of extinguished notes, taxes, and penalties. The money the Govt. realises this way is enough to take care of the country’s administration for the entire fiscal.

Reduced instances of tax avoidance

This is one of the significant advantages of demonetization. The drastic move can considerably reduce tax avoidance. In view of the positive impact of demonetization, this is a definite way to get people to pay their taxes. India has long faced the bane of tax evasion and needed a transparent way to check whether people were paying their taxes or not. Whatever money is deposited or exchanged will be kept track of by the income tax authorities. This way, more and more people will be quite hesitant to involve themselves with tax avoidance tactics. Dealing with real estate and jewelry business will constantly hit the radar. Loan transactions will also be under constant scrutiny. The IT department will also be extra-vigilant towards curbing such malpractices. The prevention of tax avoidance can turn out to be a very good boost to the Indian economy. The increased flow of taxes can enable the Govt. to undertake public welfare measures.

Increased GDP levels

Reduced tax avoidance can lead to a better flow of clean money into the economy. In the longer run, tax and interest rates are expected to come down as higher income tax collections can offer a better scope to reduce interest rates on loans. Housing loans can be offered at reduced rates of interest. This, in turn, will hike up the disposable income of the economy. When more and more people enjoy the disposable income, the GDP or Gross Domestic Product levels of the economy can improve by quite a deal. The better purchasing power among people can have a positive impact on the consumption demand in the longer run. The core advantages or benefits of demonetization are therefore discussed as a part of the segment!

A Necessary Move

Although people initially criticized the demonetization move, citizens now see the value in this action. With more and more instances of fraud and corruption looming large over the Indian financial sector, demonetization has wiped this out to some degree by bringing online and secure transactions to the fore.


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