Impact of demonetization on Indian economy – merits and demerits

Demonetization of currency means discontinuity of the particular currency from circulation and replacing it with a new currency. In the current context it is the banning of the 500 and 1000 denomination currency notes as a legal tender. The government's stated objective behind the demonetization policy are as follows; first, it is an attempt to make India corruption free. Second it is done to curb black money, third to control escalating price rise, fourth to stop funds flow to illegal activity, fifth to make people accountable for every rupee they possess and pay income tax return. Finally, it is an attempt to make a cashless society and create a Digital India. The government has taken few steps in this direction much before its November 8, 2016 announcement. As a first step the government had urged people to create bank accounts under Jan Dhan Yojana. The second step that the government initiated was a tax declaration of the income and had given October 30, 2016 deadline for this purpose. The demonetization policy is being seen as a financial reform in the country but this decision is fraught with its own merits and demerits.