Impact of Demonetization on Economy

As the demonetization initiative encourages the use of plastic and electronic money, cash transactions will become less. The aim is to wash the stock of “black money” out of the economy and get it into the licit, banked and taxable, part of the economy.

The transition to a cashless economy will also improve savings in financial assets which will benefit intermediaries such as banks, NBFCs, microfinance and digital money operators.

But there are also some negative impact of Demonetization on the economy:-

  • Less Business Activities
  • Chance of losing Business Customers
  • Insufficient funds for Trade
  • Delayed payment of debts by firms which leads to liquidity crunch
  • Foreign money still remains untapped

To sum up, demonetization can only be a part of a comprehensive strategy to tackle corruption and generation of black income. Progress on these would make a real contribution to reducing the long- term gain of black income over time and Demonetization benefits to the society will only visible in long-term.

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