From Underground Economies to Digital Transactions: Unveiling the Eight Profound Impacts of ₹2000/- Soft Demonetization

Date: May 21, 2023

In a bold move aimed at curbing black money and promoting a formal economy, the implementation of ₹2000/- soft demonetization is poised to bring significant changes to India’s economic landscape.

2000 note — BY – Deshabhimani / Source- Google Images

In this news article, we will thoroughly analyze the impacts of the ₹2000/- soft demonetization on India’s economy, backed by concrete facts and statistics. At CurrencyVeda, we aim to provide you with a comprehensive understanding of the far-reaching consequences of this significant economic decision.

By examining each impact in detail, we shed light on how this move can shape the formal economy, tax collection, stock markets, lending rates, and the political landscape.

Let us delve into the eight profound impacts this decision is expected to have:

Black Money Holders Forced to Deposit:

Black money — BY-economictimes.indiatimes.com / Source- Google Images

With the demonetization initiative, holders of undisclosed wealth are compelled to deposit their cash holdings into banks. This influx of funds into the formal banking system will bolster liquidity, leading to an expansion of the formal economy.

Fact: During the 2016 demonetization, approximately ₹15.28 lakh crore ($206 billion) worth of high-denomination notes were deposited into banks, revealing the magnitude of undisclosed wealth held in cash.

Increased Tax Collection:

growing tax — BY – a2ztaxcorp / Source- Google Images

As cash transactions decrease due to the push toward digital payments, tax evasion becomes more challenging. This, in turn, is expected to lead to a surge in tax collections, including Goods and Services Tax (GST) and Income Tax.

Fact: Following the 2016 demonetization, the number of income tax return filings increased by 25%, reaching an all-time high of 6.85 crore (68.5 million) in the financial year 2017-2018.

Boost to Stock Markets:

stock market boost — BY – pymnts / Source- Google Images

As funds previously held in cash find their way into formal channels, there will be a surge in investments. This increased liquidity is expected to drive stock market growth, benefiting investors, and strengthening the overall economy.

Fact: In the aftermath of the 2016 demonetization, the Bombay Stock Exchange (BSE) Sensex index witnessed a significant surge of over 2,000 points within days, highlighting the positive impact on investor sentiment.

Lower Loan Rates and Increased Liquidity:

lower loan rates — BY – istockphoto / Source- Google Images

The infusion of cash into banks due to demonetization ensures enhanced liquidity. In the short term, this liquidity surplus is likely to result in lower loan interest rates, making borrowing more accessible for businesses and individuals alike.

Fact: Post the 2016 demonetization, banks witnessed a substantial increase in deposits, leading to a decrease in lending rates by an average of 0.5% to 1%.

Overall Positive Impact on the Country:

positive country effects — BY – moneycontrol / Source- Google Images

The ₹2000/- soft demonetization is expected to yield positive outcomes for the country, such as reducing the prevalence of black money, boosting tax revenues, and promoting a formal economy. These factors contribute to the nation’s economic growth and stability.

Political Gain for BJP:

bjp profit — BY – messageforbirthday / Source- Google Images

Taking a strong stance against corruption and black money, the Bharatiya Janata Party (BJP) stands to gain politically. Such measures resonate with the party’s core agenda, reinforcing their claim of effectively combating corruption.

Fact: The 2016 demonetization move by the BJP government garnered significant public support, showcasing their commitment to eradicating corruption and leading to a strong electoral performance in subsequent state and national elections.

Financial Difficulties for Opposition:

negative effects to congress — BY – deccanherald / Source- Google Images

The demonetization exercise may pose challenges for opposition parties in funding their election campaigns. As cash-intensive transactions become increasingly difficult, traditional avenues for unaccounted-for funding may dry up, potentially impacting their campaign financing.

Increased Voter Confidence and BJP’s 2024 Prospects:

people voting — BY – deccanherald / Source- Google Images

Undertaking a hard-hitting measure like demonetization for the second time could bolster voter confidence in the BJP’s ability to take decisive action against corruption. This, in turn, could contribute to their prospects in the 2024 elections.

Fact: The 2016 demonetization move led to a surge in public support for the BJP, with the party securing a significant victory in the 2017 Uttar Pradesh assembly elections. This electoral success further solidified the BJP’s position and increased the confidence of voters in their governance.

The ₹2000/- soft demonetization has the potential to bring about significant economic and political transformations in India. While it aims to formalize the economy and curb black money, its far-reaching effects on various aspects of the nation cannot be understated.

This move not only compels individuals holding black money to disclose their wealth, but it also promotes transparency and accountability in financial transactions. As a result, the formal economy is expected to grow, with more transactions being conducted through official channels rather than the shadow economy.

The increased emphasis on digital transactions and reduced dependence on cash also leads to higher tax collections. With fewer opportunities for tax evasion, the government is better positioned to collect GST and income tax, providing a much-needed boost to revenue generation.

Furthermore, the infusion of funds into the formal banking system improves liquidity and lowers interest rates in the short term. This stimulates borrowing and investment, enabling businesses and individuals to access credit at more favorable terms. The resultant economic activity and increased consumption contribute to overall economic growth.

From a political standpoint, the demonetization move presents a significant advantage for the ruling BJP. By taking a firm stance against corruption, the party aligns itself with the aspirations of the electorate and showcases its commitment to good governance. This can enhance their image as a party dedicated to eradicating corruption, ultimately translating into increased voter support.

Conversely, opposition parties may face difficulties in funding their election campaigns due to the reduced availability of cash-based funding options. This poses a challenge as they seek alternative sources of financing and adapt to the changing landscape of campaign financing.

As the government takes a hard-hitting step like demonetization for the second time, it has the potential to reinforce voter confidence in the BJP’s ability to make tough decisions in the interest of the nation. This could have a positive impact on the party’s prospects in the 2024 elections, with voters perceiving the BJP as a party committed to taking bold actions for the betterment of the country.

Currency Veda’s Prediction

The ₹2000/- soft demonetization has far-reaching implications for India’s economy and political landscape. While promoting formalization, curbing black money, and increasing tax revenues, it also presents political advantages for the ruling party. As the nation adapts to this transformative measure, only time will reveal the full extent of its impact on India’s path toward economic progress and political stability.

Disclaimer: The content titled “From Underground Economies to Digital Transactions: Unveiling the Eight Profound Impacts of ₹2000/- Soft Demonetization – An Exclusive Revelation by CurrencyVeda, Pioneers of Currency Insights!” is for informational purposes only. The views expressed are those of CurrencyVeda and may not represent the views of others. The information provided is based on data available up to September 2021 and may change. It is not financial or professional advice, and readers should verify the information before making any decisions. CurrencyVeda is not liable for any loss or damages resulting from the use of this information. External links or references do not imply endorsement. Readers should use their own judgment and conduct further research.