Effects of Demonetization on India’s GDP

Effects of Demonetization on India’s GDP

Modi Government’s fearless move to suck out 86% value of money in circulation by demonetizing Rs.1,000 and Rs.500 currency notes will have a mixed effects on India’s Gross Domestic Product (GDP).

Some experts believe, in the short run, demonetizing Rs.500 and Rs.1,000 currency notes may have adverse impact on India’s economic growth. It may drop country’s GDP growth by one percentage point in 2016-17. Rural India will be affected most due to demonetization move. Urban poor who are dependent on daily wages are also going to see huge difficulty due to this move. However, in the long term some demonetization will have a positive impact on Indian Economy.

The rising inflation in the country will come down and people will get huge relief from it. So, demonetization will bring down inflation in coming term. As money used in the sectors such as higher education and real estate arena will be flushed out of the system, there will be lower money supply in the economy and this will lead to restrict and reduce inflation in the medium term in the country’s economy.

Overall, the demonetization move by Modi Government will have a very positive impact on the economy. In the past, the country has seen several demonetization move-1,000, 5,000, and 10,000 rupee notes were demonetized in 1978 and all 1,000 and 10,000 rupee notes were recalled in 1946.

Recently, responding to a question at a press conference, our Finance minister Mr. Arun Jaitley ruled out any short-term negative impact of recent demonetization move on country’s growth. Further, he said that this move will benefit the growth of the Indian economy in long term.

It is a common sense that the transactions that were happening earlier for years were not the part of GDP and now after demonetization move all those transactions will take place through banking channels, then certainly it will be an addition to the country’s GDP.

Some experts also believe that recent demonetization of Rs.1,000 and Rs.500 currency notes will push GDP growth to 10 per cent, it will have a huge positive impact on India’s growth.

Some experts feel, it may dampen the economic activity of the country whereas many feel it will bring positive changes to the country’s economic activity. The whole ambit of the country’s economic activity will grow by good percentage and it will add to the GDP of the nation. We also feel that Indian economy will keep rising in coming years, thanks to these bold economic decisions.

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