Demonetization: A Blend of Commerce and Digitization

Demonetization was a greatly debated action since although it was intended to bring back black money and ease the lives of the poor; it did not work in the favour of the intended crowd. This step needs to be analyzed not just be commerce scholars but also by the students of digitalization of the economy. Read along to know more!


The past few months have seen a shift in the minds of the citizens of India regarding money and use of cash ever since November 2016, when Prime Minister Narendra Modi declared demonetization of Rs. 500 and 1000 currency notes. Demonetization means removing the usage of a particular currency as a legal tender in place of which new currency has been issued.

Demonetization: How it can be done and reasons?

There are multiple reasons for demonetization. Demonetization can be done to combat inflation and corruption, to combat crime and discourage a cash-dependent economy and to facilitate trade. The reasons behind demonetization given by the government are as follows, it is an attempt to make India corruption-free and to curb black money; to combat inflation and flowing of cash to illegal activities; to make people responsible for every rupee they possess and pay income tax return and finally, it is government’s attempt to make a cashless society and create a digital India. India has, since forever, been a country which has used cash for their transactions. Even in the 21st century, where online shopping and transactions have seen a significant rise, the use of cash was prominent and significant. Therefore, the sudden move of demonetization was one of the biggest shocks and it created an atmosphere of chaos and rush throughout the country. The Banks and ATM’s witnessed never-ending queues, people missing out on their work due to consumption of all their time in managing their money, due to short of legal cash people had to miss out on important cash transactions and so on.

The dream of a cashless society and digitization in India is no doubt a good one but it will take years and a lot of effort from the people of India to create such a society.

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The After Effects

After the demonetization move, the Central Government is stirring up the general population to utilize Debit Cards, Credit Cards, and so on for their everyday exchanges. Even Prime Minister Narendra Modi Ji, in a Talk Show “Mann Ki Baat” raised the issue and supported the utilization of Plastic Money and changing the nation framework from money exchanges to cashless exchanges. The finance minister said that less than 5% of all payments happen electronically but in his 2016 budget speech, he talked about the idea of making India a cashless economy, with the aim of curbing the flow of black money. An economy where transactions are done using cards and electronic means is a cashless economy. Such an economy involves the circulation of cash or physical currency is minimal. India uses too much cash for transactions, the ratio being 12.42% in 2014, one of the highest in the world. India used 76.47 billion currency notes in circulation in 2012-13. The use of cash even dominated in malls where people are likely to use credit cards.

Pros of Demonetization

There are many advantages that India will have in shifting from cash to cashless economy. It will result in lessened instances of tax evasion because, in a cashless economy, it is a financial institution based economy where transaction trails are left and black money is curbed. A cashless economy will diminish land costs as a result of control on black money as the majority of black money is invested in real estate which inflates the costs of Real estate markets.

In the Financial year 2015, RBI spent Rs. 27 billion simply on the activity of currency issuance and administration. This could be avoided if we get to be a cashless society. It will clearly pave the way for all universal banking services accessibility as no physical infrastructure is required other than digital. There will be more efficiency in welfare programs as cash is wired specifically into the records of beneficiaries. Along these lines, once cash is moved specifically into a recipient’s ledger, the whole procedure gets transparent. Payments can be effortlessly tracked and gathered, and corruption will naturally drop, so individuals will no longer need to pay to gather what is legitimately theirs.

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There will be efficiency gains as exchange expenses over the economy ought to descend. 1 among 7 notes is fake, which has a colossal negative effect on the economy, by going cashless; a strategic distance from such negation can be maintained.  Hygiene is another advantage. Stained, tobacco colored notes loaded with germs is a standard set in India. There are numerous episodes throughout our lives where we purposely or unwittingly give and take germs as rupee notes. A strategic distance from this can be maintained once we move towards the Cashless economy. In a cashless economy, there will be no issue of ruined notes or fake notes. There will also be a decrease in expenses of working of ATMs. Speed and fulfillment of operations for clients, no postponements, and lines, no associations with bank staff required. A Moody’s report pegged the effect of electronic exchanges to 0.8% expansion in GDP for developing markets and 0.3% expansion for created markets on account of the expanded speed of cash. An expanded utilization of credit cards rather than cash would principally enable a more point by point record of the considerable transactions which happen in the society, permitting more transparency in business operations and money transfers.


This will eventually have the following chain impact: Improvement in credit access and monetary incorporation, which will profit the development of SMEs in the medium/long run. Decrease imposes evasion and illegal tax avoidance because of the higher traceability of the considerable number of exchanges. So we can understand that the time of plastic cash has, at last, unfolded in India. Presently, having such cards have to get distinctly vital in India. Furthermore, the day won’t be far away when the entire Indian population will utilize plastic cash for every transaction. Then India might get to be distinctly cashless. Here, we should recollect one thing that Rome was not built in a day. Things require some investment. Give the change, a chance to happen and seek after the best.

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