article on demonetisation : pros and cons
Answers
Benefits of Demonetisation
GDP in the long-term is likely to get a boost with a tax net widening to include non income agricultural households after restriction on cash economy.
In the short term, withdrawal of SBNs (specified bank notes) would boost financial services and soften inflation by 10-15 basis points.
Larger crackdown on black money and its resolve to check tax evasion will yield two distinct sets of benefits: A lower cost of capital and higher flows into the financial services sector.
Tax collections would improve the country’s fiscal situation with likely increase in size of the formal economy.as banks, non-banking financial companies (NBFCs) and stockbrokers.
Negatives of Demonetisation
The decision to demonetise the Rs 500 and Rs 1,000 notes has created an immediate impact in terms of creating a shortage of hard currency. As a large mass of India does not know how to digitally transact money and many small dealers were used to transact money in the form of hard cash, people are facing inconvenience due to less availability of cash as well as due to the cash withdrawal limit from ATMs and banks.
Any slow down in the economy or investment in bonds and securities due to demonetisation is going to affect the business firms especially the retail sector to a large extent in the short term.
Industrial activity is going to slow down in the short term that will going to result in delay in payment of wages and purchases of input.
Demonetisation has also affected media and advertising industry to a large extent as consumers have become more choosy about where to spend their money after demonetisation.