Curb Currency Circulation To Ensure Success Of Demonetisation In India

Modi government is now feverishly printing and releasing high value currency notes to replace the 85% of Indian currency in the form of high value notes that have been devalued and withdrawn.


by N.S.Venkataraman

( November 27, 2016, Chennai, Sri Lanka Guardian) Modi government has been receiving bouquets and brickbats ever since it announced demonetization of high value currency on 8th November,2016.

Doomsayers seem to be of the view that demonetization will result in fall in GDP growth and cause stress and anxiety for people due to cash shortage for atleast next one year. However, those supporting demonetization stress that this move is necessary and inevitable to restore the social and economic strength of India and defeat corrupt forces at all level.

Political parties & black money holders disturbed :

The opposition political parties are caught unaware and are highly disturbed after hearing the announcement on demonetization, for whatever reasons . They paralysed the functioning of the parliament for several days and have gone to the extent of announcing national strike on 28th November as a mark of protest.

While the black money holders and those used to corrupt practices are pleased about the critical stand of the opposition parties, there appear to be overwhelming view amongst the common man that demonetization should succeed, so that their present sufferings due to widespread corrupt practices in government departments and other agencies like educational institutions, hospitals , real estate agencies etc. will stop.
Resolve towards cashless economy :

Obviously, Modi government believes that India should rapidly move towards a cash less economy , which would be the only way to ultimately wipe out corrupt practices in the country.

The demonetization move of the government is a firm and definite step towards achieving the objective of cashless economy.

Steep increase in currency circulation :

Generation of black money in the country during the last several years have happened due to several reasons including characterless administration and lack of sense of probity amongst the people themselves. Apart from these reasons, the huge increase in the circulation of currency have also caused increase in corrupt practices and consequent generation of black money.

Increase in currency circulation during the last few years is very steep as given below

As on March,2010 – Rs. 7,883 billion
As on March,2011 Rs. 9,358 billion
As on March,2012 Rs. 10,528 billion
As on March,2013 Rs. 11,648 billion
As on March,2014 Rs. 12,829 billion
As on March,2015 Rs. 14,284 billion
As on March,2016 Rs. 16,400 billion

While currency circulation has been steadily increasing year after year, the circulation increased by 11.4% by end March,2015 over the previous year and continue to increase until recently. India’s currency GDP ratio stands at 10.6% at the end of March, 2016, which is highest in the last sixteen years and also highest among BRICS nations.

Need to remove excess currency in circulation:

Obviously, the governments in the past have been increasing the money circulation to meet the shortfall due to the deficit budget, as they have been announcing number of populist welfare measures such as Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) and others.
It is reported that around 20% of currency in circulation are black money generated due to tax evasion.

It is clear that this around 20% of the black money in circulation is the excess money supply , which is harming the economy . This excess money supply need to be removed from circulation.

With the strategy of Modi government to make every Indian to have bank account and ensure non cash transaction in a very big way in the coming years, the need for currency would get significantly reduced.

Modi government is now feverishly printing and releasing high value currency notes to replace the 85% of Indian currency in the form of high value notes that have been devalued and withdrawn.

Without succumbing to the pressure of political parties and business houses to increase the currency circulation in the market to the present level, Modi government should stand by it’s commitment to remonetize the country’s economy, for which the reduction in the currency circulation is a pre requisite.

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