Why was demonetization done? Know its impact on the economy
Demonetization was a bold move made by the Modi government. Demonetization was brought into effect in the year 2016. The move was aimed at making India a cashless economy. It was a historic economic revolution that struck at midnight on November 8, 2016, and was declared by the Prime Minister of India Narendra Modi. After the declaration, the government cancelled the 500 and 1000 rupees note as legal tender. The main motive behind this act was to combat black money, prevent Corruption, movement of illicit counterfeit notes that were circulated illegally It took the entire nation and the world by shock and surprise.
The cash exchange was done through banks and tended to be a tedious process due to the surplus demand for cash. The concept received mixed reviews since people had to do a lot of struggle during its implementation in the initial days to get cash.
Read more: RBI AND ITS ROLE IN INDIA: SSC 2019
Few facts about Demonetisation which are important.
- 500, 1,000 notes were declared legally invalid on January 12, 1946.
- Rs.1000, Rs.5000 and Rs.10000 new notes were brought to the economy in 1954.
- On16January 1978, the party under the leadership of Morarji Desai gave notice of demonetising 1,000, 5000 and 10000 rupees notes, and at that time Finance Minister was HM Patel.
- RBI had introduced new notes of Rs. 500 in1987so that the economy could be reduced to the point of inflation.
- On November8,2016, demonetisation of 500 and 1000 rupees were closed legally once.
- When500rupees and 1000 rupees were banned and PM Modi had given a limit to Rs4000 only to exchange money from the bank. And at that time, ATMs could only run 2000 in a day.
- Afterbanning500 and1,000 rupees notes, the RBI after some time issued new notes of rupees 2000 and 500.
- After demonetisationGDP decreased by 6.1%.
- Thenumber of digital transactions increased by 56% to 1.1 billion between October 2016 and May 2017 with the outcome that Reserve Bank will have to print a lesser quantity of new notes. Government has launched BHIM App and UPI App to increase the number of digital transactions.
- The motive behind this move was to end corruption and it reduced to a certain degree of corruption.
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