“DEMONETISATION EFFECTS IN INDIA”
– Tushar Kumrawat
Student, B.A. LL.B., Indore Institute of Law
– Shubham Umath
Student, B.A. LL.B., Indore Institute of Law
– Purnima Soni
Student, B.A. LL.B., Indore Institute of Law
– Rahul Kapoor
Student, B.A. LL.B., Indore Institute of Law
– Shashidhar Vishwakarma
Student, B.A. LL.B., Indore Institute of Law
– Dr. Kavita Dive
Asst. Prof., Indore Institute of Law
Demonetisation means ending something as no longer the legal tender of a country Demonetisation is a legal tender which is a medium of payment recognized by a legal scheme to be valid for meeting a financial duty. Paper currency and coins are common forms of legal tender in many countries. Legal tender is variously defined in different jurisdictions. Formally, it is anything which when offered in payment extinguish the debt. Thus, personal cheques, credit cards, and similar non-cash methods of payment are not usually legal tender. The law does not reduce the debt responsibility until payment is tendered. Coins and banknotes are usually defined as legal tender. Some jurisdictions may ban or restrict payment made other than by legal tender. For example, such a law might outlaw the use of foreign coins and bank notes or require a license to perform financial transactions in a foreign currency.
Generally, designation of a particular form ofmoney as legal tender means “that the designated money is valid payment for all debts unless there is a specific contract to the contrary.” In some jurisdictions legal tender can be refused as payment if no debt exists prior to the time of payment. For example, vending machines and transport staff do not have to accept the largest value of banknote. Shopkeepers may reject large banknotes: this is covered by the legal concept known as request to treat. Under the law, United States money as identified above is a valid and legal offer of payment for antecedent debts when tendered to a creditor. By contrast, national statutes do not require that someone who is not a pre-existing creditor must accept currency or coins as payment for goods or services. Private businesses may formulate their own policies on whether to accept cash unless state law requires otherwise. The right, in many jurisdictions, of a trader to refuse to do business with any person, means a purchaser may not insist on making a purchase and so declare a legal tender in law, as anything other than an offered payment for debts by now incurred would not be successful.
In 2016, the Modi-led government had controlled the inflation, made India more investment pleasant, and getting strong leaders on board, we didn’t have much of a problem like in 1946 and 1978. It was a kind of Swacch Bharat Abhiyan drive by the government to get more point of view points and reduce black money effect on the economy controlled by some powerful politician and businessmen.
The historic demonetization move by the government is see as a war on parallel economy, corruption, money laundering and to stop financing aid enjoyed by the terrorists. We expect this to have a direct impact on parallel economy and cash transactions. Along with the introduction of GST (expected byApril 2017) this constitutes a far reaching change around of the Indian economy. The move by the government to demonetize Rs.500 and Rs.1000 notes by replacing them with new Rs.500 and Rs.2000 notes has taken the country with surprise. The move by the government is to tackle the danger of black money, corruption, terror funding and fake currency. From a market perspective, we think that this is a very welcome move by the government and which has taken the black money hoarders with surprise.
The total value of old Rs.500 and Rs.1000 notes in the circulation is to the tune of Rs.14.2 trillion, which is about 85% of the total value of currency in circulation. This means that the total cash has to now pass though the formal banking channels to get legality. The World Bank in July, 2010 estimated the size of the shadow economy for India at 20.7% of the Gross Domestic Product (GDP) in 1999 and rising to 23.2% in 2007. assume that this figure has not risen since then (quite unlikely though) and that the cash component of the shadow economy is also proportional (it could be higher), the estimated unaccounted value of the currency could be to the tune of Rs.3.3 trillion.
Now, post the declaration of demonetization by the government this money would have to either accounted for by paying the relevant tax and penalties or would get extinguished. There are higher chances of larger proportion of this unaccounted currency getting extinguished as the tax rate and subsequent legal issues could be prohibitively high for such money.
We conducted a survey and The questionnaire was circulated to 20 respondents of different class and age groups , i.e., street vendors , business class , professional class , students and service class , and all of them are aware about what demonetisation is.
Do you support ‘Demonetization’ ?
In this question the result came out was neutral , out of 20 respondents , 10 were in support and 10 were not in support of demonetisation
Would this really help in curbing corruption?
Here half the respondents believes that the move will help in curbing corruption and the other half believes it will not help in curbing population .
Is it last resort to clean economy ?
The majority believes that demonetisation is not the last resort to clean the economy.
Could it had been implemented in better ways ?
90% of the respondents believed that the move could had been implemented in a better way
Are you finding it difficult to use the new currency of Rs. 2000 in the market ?
Majority of the respondents are finding it difficult to use the new currency of Rs. 2000 in the market.
Whom do you think the move has affected the most in the hierarchal steps of India’s economy? Half of the respondents believed that the move has most affected the middle class rather than the rich or poor class.
Has the move disrupted your regular routine ?
90% of the respondents shared that the move has disrupted there regular routine.
Do you think the move should have been implemented in a phase manner ?
Majority of the respondents believed that the move must have been implemented in a phase manner.
Is it a political gimmick ?
Half the respondent consider the move as a political gimmick and half not.
Around the world, several countries are currently undergoing “demonetization,” or currency reforms inwhich the government removes banknotes of a certain denomination from circulation and replaces themwith new notes. Governments follow demonetization for a variety of reasons, and some of the recent initiatives are going better than others.
A third form of demonetization is embodied in Indian Prime Minister Narendra Modi’s November 8 announcement that 500- and 1,000-rupee bills – constituting 86% of the cash in circulation in India – would no longer be considered legal tender and should be exchanged for newly issued bills by the end of the year. Since then, the country has been reeling. Indians have been waiting in long lines at banks, only to discover that the banks had not received enough new bills. Some businesses are unable to operate.
India’s demonetization plan was intended as a way to crack down on illegal activities. But its abrupt implementation has inflict unnecessarily high costson the Indian economy. The US had similar motives when it phased out bills denominated at $500 and above, in 1969. So, too, did the European Central Bank, when it commendably decided in May to phase out the €500 note. High-denomination notes are often used for tax evasion, corruption, drug trafficking, and even terrorism, so governments use demonetization to frustrate criminal enterprise. As it happens, such prominent observers as Kenneth Rogoff, Larry Summers, and Peter Sands think the US should even phase out $100 bills, too.
This form of demonetization is typically carried out regularly, and in some cases, indefinitely, by simply letting targeted notes wear out on their own. If leaders are brave and want to invalidate a high-denomination note in less than one year, they can ask tough questions of anyone who tries to exchange a large quantity of them. Rather than just making future illegal activities more difficult, they can also strike a blow against people who stockpile cash from past illegal activities. But imposing a short timeframe requires political will. It will be resisted by non-criminals – everyone from survivalists to grandparents who want to give a crisp new $100 bill to a grandchild for a special occasion.
India’s strategyof rapid demonetization has obviously fallen short, because it was unnecessarily abrupt and enigmatic. What’s more, the Modi government is targeting relatively small notes (worth approximately $7 and $15, respectively) that all Indians use for all purposes. It should have allowed for more time to print an ample supply of new notes, and to help businesses switch over to non-cash payment methods, such as electronic funds transfers.
Even with more warning, people who had stockpile the targeted bills for illegitimate purposes would have suffered a loss, if they had been unable to demonstrate to a bank the provenance of their currency. Their other option would have been to offload the bills at a discount in an unofficial market. Most important, by allowing more time, the government could have avoided inconveniencing ordinary people and disrupting the economy.
One possible explanation for Modi’s urgency is that, eyeing the 2017 election in Uttar Pradesh, he was trying to disrupt rival political parties that use cash in their campaigns. If true, that would be a rather cynical justification for what is theoretical to be a good-government reform.
Western best could most likely be bolder when they phase out big bills as slowly as they do. But Modi has been too bold.
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