CONSEQUENCES OF DEMONETIZATION ON INDIAN ECONOMY

Abstract

In an effort to promote a digital economy and reduce the prevalence of black money, corruption, and counterfeit currency, the Indian government implemented a major economic policy initiative in November 2016 known as demonetization. This article delves into the many ways in which demonetization has affected different parts of the Indian economy. Demonetization has had mixed effects, according to the research. In short term, it caused problems like a liquidity shortage and a slowdown in economic activity. But in the long run, it helped with things like making the economy more formal, broadening the tax base, and digitizing more transactions. While deposits surged, new problems including rising non-performing assets (NPAs) surfaced in the banking system. Digital payment platforms and organized sectors witnessed growth, while sectors dependent on cash transactions had temporary setbacks. This had an impact on employment patterns. Although it took some time, the informal sector—which deals mostly in cash—was able to adjust to the new circumstances. Many people have different opinions on how effective demonetization was in fighting corruption and black money. Demonetization, despite its critics, sparked efforts to move away from a cash-based economy, which in turn increased financial inclusion and transparency. The Indian economy underwent substantial changes due to demonetization, albeit there were temporary difficulties. In the long run, it will lead to more people paying their taxes, the economy will become more structured, and more people will use digital transactions. Yet, in the age after demonetization, inclusive growth can only be achieved with cautious policy adjustment and support measures.