Demonetization ruined Farmers?

Introduction 

Demonetization of currency means discontinuity of the currency from circulation and replacing it with a new currency. India has witnessed a sudden demonetization, when Indian government announced the banning of the 500 and 1000 currency notes as a legal tender.

The objective behind the demonetization was to make India corruption free. Second reason was to curb black money, third to control escalating price rise of commodities, fourth to stop funds flow through illegal activity, and fifth to make India more accountable for every rupee its citizens possess. 

It was expected that demonetization would further increase the income tax return. Moreover, it was an attempt to make India as cashless economy and promote digital India concept.

Discontinued Currency during Demonetization in India 

How Did Indian government initiate the process of demonetization?

First step by Indian government towards demonetization was to create bank accounts under Jan dhan yojana. Government wanted a mass financial inclusion of Indian citizens who were left isolated from banking services.

 Because of their non- inclusion in the banking sector, they were trapped by the private money launders, constantly they stayed deprived of the benefits which government wanted to give them. 

Other initiative was a tax declaration of the income and during the months before demonetization. Through this method, the government was able to mop a huge amount of undeclared income.

However, there were many offenders and fraudulent who kept the black money, until there was the announcement of demonetization.The demonetization policy was one among the radical financial reform in the country. But it had its own merits and demerits.

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How demonetisation, impacted on farmers?
Millions of Indian famer had faced huge problem, they were unable to buy to seeds and fertilizers for their winter crops because of demonetization.
According to a report the union Agriculture Ministry to the parliamentary standing committee on finance.

What was the exact problem Indian farmer had face?

According to the report submitted by Ministry of Agriculture, stated that demonetisation came at a time when farmers were engaged in either selling their kharif crops or sowing the Rabi crops. Both these operations needed huge amounts of cash, which demonetisation removed from the market. India’s 263 million farmers live mostly in the cash economy. Even bigger landlords faced a problem such as paying daily wages to the farmers and purchasing agriculture needs for growing crops.

Moreover even the national seeds corporation had failed to sell nearly 1.38 lakh quintals of wheat seeds because of the cash crunch. The sale failed to pick up even after the government, subsequently, allowed the use of old currency notes of 500 and 1,000 for wheat seed sales.

Merits of Demonetization- As Claimed By the Government 

According to the Indian government there are several merits of changing currency notes. India intended to become corruption- free and track those indulging in taking bribe. As demonetization intended to keep the record of most of the money so it was expected that people will refrain from corrupt practices.

This helped the government to monitor the flow of the money. Those citizens who have unaccounted cash were required to show their income and submit PAN for any authentic financial transaction, and government could get income tax return for the income on which tax had not been paid.

It was also expected that the Banning high-value currency would reduce criminal activities like terrorism etc, while there is evidence that terrorism still haunts the country.

Next intention was to curb the menace of money laundering. In market there were prominent people who used their black money as money laundering tool and generated more black income as well as harmed the poor people who fell in to the traps of money launders. Since demonetization happened so activities like money laundering were expected to be tracked easily. 

Even though deposit up to 2.5 lakh was not under the income tax scrutiny, as citizens were required to submit PAN for any deposit of above Rs 50,000 in cash. This helped the income tax department to monitor the citizens with high demonetizations currency.

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Demerits of the demonetization- The Opinion of the Critique 

Demonetization brought great destruction and inconvenience to the people. Especially because uninformed announcement caused huge chaos to small medium industries. November 2016 was historically radical as it included some mishaps to the innocent and unprepared labourers, workers who were associated with unorganized sector. These daily wagers did not get salary and many families got affected. There was unavailability of cash; high currency notes like 2000 rupees note could not be exchanged in to lower currency notes due unpreparedness and unavailability of the lower currency notes. The reason was not limited till here, new currency notes also needed the change in entire ATM transaction machine which were not compatible with the new currency notes. So, the results were that 'the population' needed money which was already going through delay in circulation.

There was a huge shortage and long queues outside of the ATMs across the country. This caused high level of discomforts and some deaths too. Due to the cash crunch, the entire economy had been shaken.

Considering the above stated factors based on facts this is understood that demonetization brought the cash crunch which shook entire economy, poor and daily wage workers, and various unnoticed people.

How did the world's financial institutions react to it?

IMF and Asian Development Bank- The latest reports of  IMF and Asian development Bank have a common observation of structural reforms of GST and demonetization implemented by Indian government. Both of the institutions supported the demonetization and Goods and Services Tax. 

IMF stated that due to recovery from currency exchange initiative, there should be positive growth in the near term. Implementation of the national goods and services tax supported by strong private consumption growth would further help in economic growth.

World Bank – India’s economy, which witnessed a slowdown after demonetization and the GST, has recovered from the impact of the twin policies, the World Bank stated in its latest South Asia Economic Focus Spring Report. It is that said India’s economy has bottomed out from the declaration caused by one-time policy events such as demonetization and GST introduction.

Forbes magazine called demonetization a theft of India’s money & property

The outcome of the demonetization was not as well as it had been expected, few corrupt citizens had been caught. Forbes claimed that Indian bureaucracy is well known for corruption, red tape and laziness. 

Forbes has criticized the Indian Government’s assurance of success and revealed that the businesses faced negative challenges. 

A way forward

Currently India has been facing high unemployment rate. It has been years of demonetization. However, the long-term consequences of this step India are still paying off. Though the results were a bit positive. All together it had created massive destruction.

It affected import and export business, slowdown in Foreign Direct Investment. Several companies are still struggling to maintain the pace. 

India should take better alternatives and make better tax system, which is the main reason for evasion. Best economist and experts should be hired for making better policies. Government should balance income and business tax and simplify the whole tax structure so that India can improve the economic growth and attract more FDI, and create employment.  

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