send mail to support@abhimanu.com mentioning your email id and mobileno registered with us! if details not recieved
Resend Opt after 60 Sec.
By Loging in you agree to Terms of Services and Privacy Policy
Please specify
Please verify your mobile number
Login not allowed, Please logout from existing browser
Please update your name
Subscribe to Notifications
Stay updated with the latest Current affairs and other important updates regarding video Lectures, Test Schedules, live sessions etc..
Your Free user account at abhipedia has been created.
Remember, success is a journey, not a destination. Stay motivated and keep moving forward!
Refer & Earn
Enquire Now
My Abhipedia Earning
Kindly Login to view your earning
Support
Government announced move of demonetization on 8th November 2016 in which the government declared that currency notes of Rs. 500 and Rs. 1000 denomination, which accounted for more than 85% of the value of notes in circulation (and around 25% in terms of sheer numbers), would not be legal within four hours.
Reasons for Demonetization:
(Related Article: Legal Challenges, by V.Venkatesan, page no. 16)
• Issue of black money and sucking it out from the system • Holding those who hold black or unaccounted wealth • Problem of counterfeiting currency • Flow of counterfeiting notes from across the border that fed terrorist activities are to be stopped
Changing Goalposts:
(Related Article: A Nation in Agony, by V. Sridhar, page no. 5)
• Government modified scheme rules 64 times in 50 days • First demonetization was about black money and its links with counterfeiting and terror financing • Next it was termed as “surgical strike” on black money • The last insertion into objectives of demonetization was dream of cashless society
Questions on Government scheme:
(Related Articles: Legal Challenges, by V. Venkatesan, page no. 16; Interview with Usha Patnaik, by T.K. Rajalakshmi, page no. 20)
• When the government declared high denomination currency notes as not being legal tender in 1978, it did through an ordinance but in November 8 notification came without any legislative support • Article 19(1)(g) of the constitution guarantees one of the FR to practice any profession or to carry on any occupation, trade or business. The restrictions on cash withdrawals of one’s own savings from the banks, insofar infringe one’s right to practice any profession involving cash transactions, are violative of this FR • It is not the FR cannot be restricted but such restrictions must pass the reasonableness and be in the interest of the general public as laid down in Article 19(6) • The mismanagement of scheme was challenged in SC on which SC to control the situation • Another point of referral in SC was regarding Article 300A i.e. right to property and under demonetization government has debarred citizens to use their savings • People who are heavily dependent on cash for their livelihoods are likely to suffer the most as many of them are not included in formal banking system • Notes are having a guarantee from RBI, the highest monetary authority, basically says that note gives guarantee on its own notes. It has confiscated the purchasing power and thus undermining status of RBI
Impact on rural economy and agriculture:
(Related Article: Brakes on Rural economy, by R. Ramakumar, page no. 25; Down and out, page no. 28; Compounding a crisis, byT.K. Rajalakshmi, page no. 50)
• All available information suggests that the impact would be on multiple spheres: agricultural production, rural incomes, rural demand & rural credit. • Ministry of agriculture has claimed that sowing in rabi season is unaffected as dates of sowing are dependent on soil moisture conditions, and a date to date comparison has less meaning but ministry year to year benchmark is inefficient • According to reports even if sowing is on track it is at cost to the peasantry. The cash crunch has limited the ability of farmers to purchase seeds and other inputs on time and reasonable prices. Farmers purchase seeds & fertilizers largely from private traders & cooperatives & not government outlets • Reports suggest that traditional village networks between farmers & traders are being revived to meet the emergency and most transactions are running on credit • Next in many regions where wheat sowing has taken place, farmers have used a part of previous year’s harvest as seeds due to unavailability of cash as no seeds can be purchased • Demonetization has disrupted agricultural chains and hit even the meager incomes agricultural households earn. • A striking indicator of supply chain disruption is the sharp decline of arrivals in agriculture markets • Farm incomes have slumped just when farmers were expecting better returns after 2 consecutive years of poor returns but the cash crunch hurt their returns as per CRISIL agriculture growth was expected at 4% but post demonetization incomes of agricultural households declined by 10% • Quick estimates show that about 68% of India’s population lives in rural areas; 54% of total consumption comes from rural households; about 35-40% of GDP comes from rural areas; and about a third of total savings comes from rural areas and post demonetization consumer goods fell by 30% in November in 2016 as compared to November 2015 • In rural India, cooperatives play an important role in rural savings and investments and post demonetization cooperatives were not allowed to either exchange old notes for new or provide fresh crop loans with new notes or even accept repayments of outstanding debt in old notes • This move of banning transactions of cooperatives has created a major credibility crisis for century old cooperative banking network • Sericulture, which has for long been an avenue of diversification, is also proving disastrous for farmers. Farmers expect a spike in cocoon prices in winter, the season when the demanded for silk peaks, but clearly cocoon prices are stagnant in the face of a collapse in the offtake by silk reelers • Village without banks have been the worst sufferers as the villagers had to either go to cities or other villages. • The cash crunch in rural areas also hit the local traders of villages as their customers declined sharply as they do not use cashless modes of transactions. • Dalits and other backward class members form the majority of labors in plantations and they are the least covered in banking sector • Potato crop was bumper production and the crop price fell to R. 3-4 kg as due to demonetization no trader is ready to give desired price • Some coriander farmers have not even picked the crop as transportation and other costs are too steep • For agrarian community already grappling with low MSP and crop losses due to natural causes like hailstorms and whitefly invasions, the demonetization and the push to a world of cashless transactions could not have come at a worse time • MGNREGA workers were worst hit as cashless economy is a distant dream and the cash is not disbursed as per demand and needs of workers • The zero balance bank accounts are now full money with unknown cash transactions • Agro based industries are also suffering due to lack of purchasing power of raw materials • Handicrafts are on the verge of closure as they are unable to pay the daily wage in the absence of liquidity
Impact on informal economy:
(Related Articles: Livelihoods in peril, by K.P. Kannan, page no. 59; Lives Put on Hold, page no. 63)
• There is no certainity that even the stock portion of the black money will be eliminated by this action because the underlying assumption that all black money is kept in the form of Rs. 500-1000 notes is seriously flawed • The informal economy is understood not just by the size of the establishments or enterprises but also by the employment dimension, which refers to those working without any employment or social security provided by the employer • Most of the self employed eke out a living in activities such as street vending, rickshaw pulling, auto and taxi driving, small scale trading, women etc. and their livelihood is anchored on cash transactions on daily basis. • In several industrial clusters such as glass industry in Firozabad, Surat in Gujarat, Thane in Maharashtra, Kollam in Kerala etc. the cash crunch has already begun to take its toll by way of loss of work, since employers do not have the cash to pay wages. • The other major category of casual workers lives by their earnings of daily wages. They are paid either on daily or on weekly basis. For them, there are hardly any savings to draw upon. • Migrant labors have not enough cash to spend in urban areas and they are not being paid on regular basis so the workers have shifted back to their homes due to lack of paid work • The corporate honchos are talking about the cashless economy or digital transactions backed by the political class but the ground realities do not permit the adoption of such techniques. The inequalities between urban and rural class is one factor • The pool of illiterate and less educated Indians with less or no banking facilities have suffered a lot during demonetization drive • The links between formal-informal economies work through two main effects a) One is the consumption effect in which people living by the informal economy consume a range of products produced in the formal sector. In turn, people in the formal economy also consume a lot of products of informal economy b) Second is production effect in which the formal economy depends to a significant extent on products and services from informal sector • Foreigners residing in India and tourists were hit hard when the Rs. 500-1000 were declared illegal as no separate provisions were made neither were help desks set up for them. While banks and government remained unhelpful, touts offered to exchange old currency • The tourist season was hurt as the cold season is the peaks season and many tourist cancelled their plans • Construction laborers and transporters have been hit hard
Impact on Industries:
(Related Articles: Corporate, not cashless, by C.P Chandrasekhar, page no. 86; Industry in trouble, page no. 89)
• Corporate India consists of many small and medium units that need cash to pay workers, buy inputs and distribute goods. Hence, the currency shortage has led to workers losing jobs, at least temporarily. • The corporate India will only be affected indirectly by this drive in as much as it is resulting in the liquidity. • The registered manufacturing sector consists of many medium and small enterprises that straddle the thin line between the formal and informal economy and the transactions usually is in cash • Demonetization has depressed demand and inputs which has resulted in decline in manufacturing and sale • Organized and unorganized sectors are interrelated and rather, to reduce costs and circumvent labor legislation they outsource the work and all this work is dependent on cash • The ‘dynamic’ industrial sectors that drive exports or that both contribute to exports as well as satisfy the desires of rich and middle classes are ones in which manufacture and/or sale are based on cash transactions • The migrant workers do not have aadhar cards or ration cards and hence cannot open bank accounts • The withdrawal limits have led many industrial units to reduce their workings • Te labourers are already starving and facing retrenchments as they are on continuous confrontation with the planters and with declaring their savings illegal has caused a lot of troubles.
By: Anuj Sharma ProfileResourcesReport error
Access to prime resources