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The black and white of the demonetization drive

It has been a week since the notes of Rs. 500 and Rs.1000 were demonetized. The people of India are reeling in aftermath ever since. The pre-midnight hours before the currency notes of Rs. 500 and Rs.1000 ceased to be the legal tender saw frenzied late-night shopping. This may indicate the presence of unaccounted money and intention to get rid of the hoarded money while it was still legal tender. From then on, the banks have seen floodgates open to customers lined up to deposit and exchange old notes for new ones. The deposits in zero balance low income accounts like Jan Dhan have reportedly surged indicating that the black money being distributed among many intermediate agents. Gold prices have shot upwards too with gold sales skyrocketing in a few days.

The demonetization drive aims at targeting the unaccounted black money held in form of cash. If these currency notes are not disgorged in their existing form, demonetization would be successful in its objective of punishing the guilty and curbing black money economy. But this drive can also have an effect on flow of even legal income in the future. The impact of suddenly stooping the flow of money in form of currency that held 85 per cent of the country s money stock is hard. The current currency shortage will have its impact on market in short term economy. There will be an irretrievable loss of output.

The Prime Minister requested the nation to grant him 50 days to conduct his anti-black money demonetization drive and to endure the inconveniences that will come with it. But not getting daily wages and having no money to buy food are not minor inconveniences.

The fact that the demonetization drive could have been better planned couldn t be emphasized more. Introducing Rs. 2000 note in place of Rs. 1000 is another quandary which will have reactions in future. How much is this move able to lash corruption in its face remains to be seen.

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