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Q. Demonetisation of currency in India: Discuss the issue of demonetisation of 500 and 1000 rupee currency notes in India.
Nov 10, 2016 Related to : GS Paper-3

Ans :

Introduction-

Recently Prime Minister of India Shri Narendra Modi has announced that the demonetisation of existing notes of Rs 500 and Rs 1000 with immediate effect. Now these currency notes will be no legal tender with immediate effect. The demonetisation is aimed to curb the black money, corruption, terror financing.  

What is demonetisation?

Demonetization is process in which central bank of country some currency notes as a official mode of payment. It is the act of stripping a currency unit of its status as legal tender. 

Why Government has withdrawn 500 and 1000 notes-

  • To tackle black money in the economy. 
  • To lower the cash circulation in the country is directly affects corruption in our country.
  • To eliminate fake currency and dodgy funds which have been used by terror groups to fund terrorism India. 

Analysis- 

  • The increase in the circulation of these notes in the past five years has been disproportionate to the economy’s growth.
  • The recent move of withdrawal of high value currency notes of Rs.500 and Rs. 1000 as legal tender, which is aimed at curbing unaccounted cash, black money, terror finance.   
  • Decision was surprising for many that it will cause hardship as people scramble to get notes of smaller denomination for daily expenditure due to immediate ban of 500 and 1000 Rs currency.
  • It takes some time to replace all the money in market by banks and people may face some difficulties. Though it may create some immediate difficulties, the larger public purpose outweighs the immediate difficulties.  
  • The surprise move by government is a disaster for people who have accumulated lakhs and crores of unaccounted cash and it will help curb black money in the economy. 
  • This move will definitely bring about a whole amount of transition to no cash or low cash kind of transactions, simultaneously a parallel black economy will collapse. 
  • In this direction recent move by government is right step towards war against black money, but it needs to ensure this move does not hurt poor due to any reason.

Conclusion-

The government with intension to curb the black money has demonetised the currency of higher denomination. The move has been praised by most of the people except certain sceptics, as it will helps to unearth the huge quantity of black money. But government needs to ensure smooth transaction of this process by making various facilities available. 

 


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