Impact of Demonetization on Indian Economy

Demonetization is the most memorable experience of the present generation and it one of the economic event of our time. Demonetization is not new to the Indian economy. The highest denomination note ever printed by the Reserve Bank of India was the Rs 10, 000 note in 1938 and again in 1954. But these notes were demonetized in January 1946 and again in January 1978, according to RBI data. During that time less than 5% of Indian population had access to such notes and it did not leave much impact on the population of country. It was done to avoid corrupt deals and to restrict illegal use of high denomination currency.

The current demonetization is supposed to work as a cleaning agent and may help in the production of several good things in the economy. On the one hand, it has created unavoidable income and welfare losses to the deprived sections of the society and daily wage earners and to those also who are not aware of the technology. Overall economic activities come to a hold in the short run. On the other hand, the hidden benefits of demonetization will be felt soon, more transparency, reduced usage of black currency, corrupt practices and undocumented transactions can be taken as long term benefits. The latest demonetization has a great and unexpected impact as the demonetized currency represents 86% of the total currency in circulation.