Topic– Indian Economy : Issues
3) In light of the recent RBI report regarding demonetization, critically analyze whether demonetization helped in curbing black money?(250 words)
Why this question
The issue of demonetization is back in the news due to RBI report highlighting that 99.2% of 500 and 1000 Rs notes in circulation have found their own back into the formal system. One of the key objective of demonetization was tackling the issue of black money and the article examines the effectiveness of demonetization in tackling black money.
Key demand of the question
The question expects us to discuss the findings of RBI report, examine the success of demonetization in tackling black money, discussing why it failed to curb black money evident by the released reports. Finally we need to provide a fair and balanced view on demonetization effectiveness in tackling black money.
Critically examine – When you are asked to examine, you have to probe deeper into the topic, get into details, and find out the causes or implications if any . When ‘critically’ is suffixed or prefixed to a directive, all you need to do is look at the good and bad of something and give a fair judgement.
Structure of the answer
Introduction – Highlight that tackling black money was one of the key objectives of demonetization.
- Bring out the findings of RBI report and assess what it implies.
- Discuss the rationale given that suggests that demonetization has been moderately successful in tackling black money – increasing tax base, formalization of economy etc
- Discuss why demonetization was an abject failure in tackling black money. Highlight reasons such as logistical difficulty in penalising all those who converted unaccounted money into legal tender, demonetisation worked as an unintended amnesty scheme etc
- Examine the other impacts of demonetization which negated any small gains that were made – slow down in GDP, loss of jobs, hit the informal sector etc
Conclusions – Give a fair and balanced view on the success of demonetization.