“Impact of demonetizing in indian economy: Issues and challenges”

In an important move, the Government of India declared yesterday that the five hundred and one thousand rupee notes will no longer be legal tender from midnight, 8th November 2016. The RBI will issue Two thousand rupee notes and new notes of Five hundred rupees which will be placed in circulation from 10th November 2016. Notes of one hundred, fifty, twenty, ten, five, two and one rupee will remain legal tender and will remain unaffected by this decision. This measure has been taken by the PM in an attempt to address the resolve against corruption, black money and counterfeit notes. This move is expected to cleanse the formal economic system and discard black money from the same.

Indian rupee (INR) is the official currency of the Republic of India. The rupee is subdivided into 100 paise (singular paisa), though as of 2011 only 50 paise coins are tender. The issuance of the currency is controlled by the India. The Reserve Bank manages currency in India and derives its role in currency management on the basis of the Reserve Bank of India Act, 1934. The rupee is named after the silver coin, rupiya, first issued by Sultan Sher Shah Suri in the 16th century and later continued by the Mughal Empire. Prime Minister Narendra Modi has announced demonetization of high denomination currency keeping in view the manifesto of the party to fight corruption and respecting the sentiments of voters.

Despite the pain which people are facing in the exercise, generally the scheme has been hailed by Indians across the spectrum. The sentiments are positive and encouraging. Prevention of corruption needs strong policy deterrence which requires effective administrate system, and technology based data processing to generate actionable intelligence. In India, black money is estimated between 10 and 30% of official national income. The Modi government, in the last two years, has initiated various measures to fight corruption like transparency in decision making, enhancing rule of law, deregulation, and simplification of rules.

Demonetization of high currency notes has a two-fold objective-first, choking the funding channels of militancy and terrorism from across the border. In the last few years large number of counterfeit notes was regularly discovered in states infested with terror activities. Thus, demonetization will certainly paralyze financing channel of terrorist activities. The other objective, to fight corruption, is rather complex and needs to be addressed persistently through different ways. The demonetization of the highest denomination currency notes is part of several measures undertaken by the government to address tax evasion, counterfeit currency and funding of illegal activities. The requirement to deposit currency notes in excess of specified limits directly into bank accounts has resulted in the declaration of hitherto unaccounted income, subject to higher tax and other penalties.