India's Demonetization: A Short-Term Loss or a Long-Term Gain?
|
Case Code: ECON061 Case Length: 20 Pages Period: - Pub Date: 2017 Teaching Note: Available |
Price: Rs.500 Organization : OnePlus Industry : Smartphone Countries : India Themes: Demonetization, Counterfeit Currency,Cashless Society |
Abstract Case Intro 1 Excerpts
"You see its (demonetization) impact in the long term. It will be very positive...Financial intermediation has increased after deposits in bank accounts. This means the capital which was privately invested will now be invested through financial institutions. This will have good impact (on the economy). It will increase our efficiency of transactions as we move towards digitised transactions. This will also be a positive thing."
– Arvind Panagariya, Vice-Chairman, National Institution for Transforming India (Niti Aayog), 2016
"I don’t think that this (demonetization) decision was taken after considering all sides. It was taken hurriedly without thinking of consequences. So far economics is concerned, I find no reasoning behind this decision. It will have adverse effects."
- Amartya Sen, Nobel laureate, 2016.
Introduction
On November 16, 2016, a 48-year-old man, Saud Ur Rehman, died of a heart attack outside a bank in the capital city of India, Delhi. He was standing and waiting in a queue at that time for his turn to exchange and deposit demonetized currency notes which the Indian government had announced were not legal tender from midnight November 8, 2016. Rehman was not the only one who rushed to the bank to get cash after demonetization; there were hundreds of thousands of people who waited for several hours to get rid of the junked notes. Several incidents were reported of common people suffering because of the economic stress caused by the note ban. Apart from common people, bankers too found it difficult to manage and serve the long, snaking queues of customers.
India's Prime Minister Narendra Modi’s sudden announcement of banning currency notes of INR 500 and INR 1,000 denomination created chaos across the nation. The government's intention behind launching the demonetization program was to tackle the counterfeiting of Indian high value currency notes, remove black money hoarded in cash, and curb funding of terrorism. It was expected that demonetization of high value currency notes would come as a major assault on black money, fake currency, and corruption. At the end of 50 days after demonetization, many Indian banks had received huge amounts of money in old currency. A number of bank accounts were also opened, connecting many people with the financial system of the country. The demonetization program signaled that the Government of India was ready to take any extreme step to prevent illicit activities in the country. However, the move was criticized for causing more harm than good to a large segment of Indian society. Analysts across the world debated on pros and cons of the demonetization program. Most of them found the move a temporary solution and described the decision as a miscalculated and misconceived one. There were concerns about whether the program had been implemented after all the necessary measures to be taken had been considered. Post demonetization, the Government of India was left to address the queries of common people, bankers, economists, and policy makers of other countries. Though there was appreciation for the motive behind the move, there was criticism about the way it was implemented. The government countered the criticism stating that in any such large scale measure, some short-term pain was to be expected. This had to be accepted considering the long-term gains.
Buy this case study (Please select any one of the payment options)
| Price: Rs.500 |
Price: Rs.500 | PayPal (11 USD) |
