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4 Reasons Demonetization Was A Success Research Team | Posted On Wednesday, November 08,2017, 05:58 PM

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4 Reasons Demonetization Was A Success



It's a year since Prime Minister Narendra Modi scrapped Rs 500 and Rs 1000 notes. This move was intended to break the back of corruption and terrorism in India, funded by black money. Demonetization as this process is known, has since been widely debated. Was it right....Was it wrong....the debate goes on.

While, there are some who believe it was a wrong move, there are many who believe it was right. Let's take a look at the 4 reasons demonetization was a success.

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1. Demonetization curbed tax evasion

One of the main benefits of demonetization has been the increase in the tax base. Simply speaking, more of our citizens are paying tax. A large number of shell Companies have been identified. These Companies will be penalized. Arun Jaitley says that Indians were forced to live with the chalta hai attitude, with respect to corruption and black money.

On November 8th 2016, the Government resolved to cure the country, from the dreaded disease of black money.

Around 91 Lakh new assesses have joined the tax base in FY 2016-17. In past years the number of tax assesses would be around 20-25 Lakhs. The Government has cancelled 2.24 Lakh suspected shell Companies.

SEE ALSO: Why demonetization is a success?

2. India has become a less cash economy

Picture this...India was always a cash obsessed Nation with about 97% of all payments made in cash. This obsession with cash, fueled black money and corruption in India. Cash = anonymity. Cash cannot be traced. But, when most of the high value notes were demonetized, our citizens had no choice but to go cashless or simply adopt a less-cash way of life.

The biggest challenge to cashless was when the new notes came back into the system. Yes, the number of citizens transacting digitally to make/receive payments reduced, as many got back to the old ways. But, the number of cashless transactions, definitely increased after demonetization.

In FY 2016-17, there were a total of 865.9 crore digital transactions across all banking platforms compared to just 254.5 crore digital transactions in FY 2013-14. Yes...It's a tripling. The Indian digital payments industry is projected to reach $500 Billion by 2020.

SEE ALSO: How ELSS benefits from demonetization?

3. Indians are investing in financial assets

Indians love to save and have always believed that  investing must be done in a risk-averse way. Traditionally, Indians have always invested in physical assets like property and gold. A lot of money is invested in  bank FD's. After demonetization banks were flush with cash. With citizens depositing a lot of money in savings bank accounts and current accounts, banks cut down loan rates and also bank FD rates.

With bank FD's and small saving schemes offering lower returns, citizens rushed to mutual funds. More than Rs 1.46 Trillion flowed into mutual funds and mutual funds deployed Rs 0.93 Trillion till October 2017.

Many citizens are investing in mutual funds through SIP's (Systematic Investment Plans) with around Rs 5,000 crore worth of SIPs every month. Not to be left behind, the Government has launched the highly successful Mutual Funds Sahi Hai campaign, where you and other investors can learn about mutual funds and how to invest in them.

After demonetization, citizens have shifted their investments from gold, real estate and simply holding cash to financial assets like mutual funds.

4. Demonetization has boosted financial inclusion in India

In India more than 76% of adults are in need of basic financial literacy and don’t understand the most basic and key financial concepts. In order to promote financial inclusion where the benefits of financial services like banking and insurance reach every citizen of India, Prime Minister Narendra Modi launched the Pradhan Mantri Jan Dhan Yojana (PMJDY) on August 28th 2014.  

You can open a savings bank account at designated branches of a number of public and private sector banks, which are part of the PMJDY scheme. This scheme was a super hit with a number of citizens in rural areas, opening saving bank accounts under PMJDY scheme.

The total number of PMJDY accounts stood at 25.51 Crores as on November 9th 2016. Today, there are 30.56 Crore PMJDY accounts. With so many PMJDY accounts linked to Aadhaar, the Government can easily send subsidies directly to the bank accounts of intended beneficiaries, avoiding pilferage.

Today, there are more than 30 Crore PMJDY accounts, promoting financial inclusion in India.

Today is the first anniversary of demonetization and it is being widely talked about. This move was months in the planning. Maintaining secrecy of the move was very important or demonetization would be meaningless. Finance Minister Arun Jaitley says black money has not been erased completely. Be Wise, Get Rich.

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