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Advantages of Demonetization
The biggest advantage of demonetization is that it helps the government to track people who are having large sums of unaccounted cash or cash on which no income tax has been paid because many people who earn black money keep that money as cash in their houses or in some secret place which is very difficult to find and when demonetization happens all that cash is of no value and such people have two options one is to deposit the money in bank accounts and pay taxes on such amount and second option is to let the value of that cash reduced to zero.
Since black money is used for illegal activities like terrorism funding, gambling, money laundering and also inflating the price of major assets classes like real estate, gold and due to demonetization all such activities will get reduced for some time and also it will take years for people to generate that amount of black money again and hence in a way it helps in putting an end this circle of people doing illegal activities to earn black money and using that black money to do more illegal activities.
Another benefit is that due to people disclosing their income by depositing money in their bank accounts government gets a good amount of tax revenue which can be used by the government towards the betterment of society by providing good infrastructure, hospitals, educational institutions, roads and many facilities for poor and needy sections of society.
Demonetization would produce a lot of indirect taxes. Demonetization has made the common man realize that he was the one who though paid his taxes, ended up playing a big role in generation of black money. This was because most of his spending were in cash. Common man is street smart and with this harrowing experience he would change his bad habit of withdrawing cash from ATM and then spending it on purchases. Demonetization seeks to bring in a sharp, sudden but long lasting behavior change that encourages electronic payments. That means a lot many transactions would get reported and that would lead to a direct increase in income taxes.
An aggressive RBI can now reduce base rate by 2 - 3 percentage points that would lead to a reduction in interest burden on farm loans, mudra loans, housing loans and corporate loans thereby benefiting farmers, SME, middle class and Corporates.
Demonetization would lead to generation in employment. Government can now lend massively to infrastructure sector through the recapitalized Public Sector Banks. This would generate a lot of employment opportunities thereby moving more people out of poverty.
Demonetization is advantageous in short, medium and long term.
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