Demonetisation Effects on Economy.
A question which has arisen in almost everybody’s mind since the iconic speech of Mr. Narendra Modi. To understand the demonetization effects on the economy the aims of the targets for which it was launched for needs to be understood.
You can see that iconic speech here.
Mr. Modi eliminated 500 and 1000 rupee notes as the legal tender.
Demonetisation Effect’s on the Economy
GO BELOW DOWN THE PAGE TO SEE THE FULL ANALYSIS IN VIDEO.
Demonetisation Effects on GDP Growth –
According to the report, India’s grew by about 7.6% in the fiscal year 2015 to 2016. This GDP has gone down by about 2 percent as earlier stated by dr. Manmohan Singh.
This has happened due to the lack of cash in the market, which eventually slowed the growth of many businesses and even led to their shutting down in many cases.
Sectors which are cash intensive sectors including manufacturing and real estate saw severe effects of the drastic move. Even the automobile industry saw contraction on the last of 2016.
Also, the purchasing power of the consumers has gone down by a considerable amount.
Demonetisation Effects on On Tax Compliance –
India’s tax-to-GDP ratio is quite low at 16.6% as compared to other economies od developing nations. it has been forecasted that as a result, all the money (including black money) will come in front of the system, which will, in turn, lead to an increase in no of people paying taxes.
This can also lead to the benefit of the local public by reduction of taxes. This can happen because there will be an increase in the availability of funds with the government.
So there will be no need left for imposing higher taxes.
Also, the schemes related to digital India will also help in this, as the when an increase in the digitization of businesses would be seen the, automatically tax revenue will increase. The overall transparency between the government and business will also increase.
Demonetisation Effects on Small and Medium-sized Enterprises (SMEs) –
The importance of small and medium-sized enterprise (SME) sector can be easily understood by the fact that they make up almost eight percent of the GDP, which leads to the generation of employment for 80 million people per year approx.
The reason by the virtue of which this sector has seen the downfall is the fact that nearly all the payments made to laborers are made in cash.
Due to the same reason revenue generation of other sectors like restaurants and transport has gone down considerably.
Wholesale vegetable markets have been also witnessing declining demand and prices of tomatoes and other food items have fallen drastically.
Demonetisation effect on employment rate –
Due to factors like the decrease in consumer demand as well as production, employment generation (which is an integral part of the economy) has also seen a decline.
Another negative factor is that not only the employment rate has gone down, the wage has also gone down.`
Also, the workers which were working as permanent workers are now forced to work as temporary ones.
We cannot say that demonetization just created a negative effect solely, the fact that Demonetisation has impacts like
- reducing funding to terror groups
- The decrease in stone pelting in Jammu and Kashmir
- some black mone holders punished
- boost was given to the digital economy
- bringing black money in the formal economy
However, this can also be not denied that these positive impacts have come at a great cost. Also, a large amount of money was used for printing new currency notes.
We can state that demonetization has some positive effects but still the price paid for the same was way much higher considering the fact that several people have died standing in the ques of the bank.
Here is the video