Read the passage carefully and answer the questions based on the passage: DEMONETISATION Demonetisation was a initiative taken by the Government of India in November 2016 to tackle the problem of corruption, black money, terrorism and circulation of fake currency in the economy. Old currency notes of Rs 500, and Rs 1000 were no longer legal tender. New currency notes in the denomination of Rs 500 and Rs 2000 were launched. The public were advised to deposit old currency notes in their bank account till 31 December 2016 without any declaration and upto 31 March 2017 with the RBI with declaration. Further to avoid a complete breakdown and cash crunch, notes government had allowed exchange of Rs 4000 old currency the by new currency per person and per day. Further till 12 December 2016, old currency notes were acceptable as legal tender at petrol pumps, government hospitals and for payment of government dues, like taxes, power bills, etc. This move has had positive impact also. It improved tax compliance as a large number of people were bought in the tax ambit. The savings of an individual were channelised into the formal financial system. As a result, banks have more resources at their disposal which can be used to provide more loans at lower interest rates. It is a demonstration of State's decision to put a curb on black money, showing that tax evasion will no longer be tolerated. Tax evasion will result in financial penalty and social condemnation. Tax compliance will improve and corruption will decrease. Demonetisation could also help tax administration in another way, by shifting transactions out of the cash economy into the formal payment system. Households and firms have begun to shift from cash to electronic payment technologies. |
What was the negative impact of demonetization? |
Banks have more resources at their disposal which can be used to provide more loans at higher rate of interest. The savings of an individual were channelised into the formal financial system. Shifted transactions out of the cash economy into the formal payment system. It improved tax compliance. |
Banks have more resources at their disposal which can be used to provide more loans at higher rate of interest. |
The correct answer is Option (1) → Banks have more resources at their disposal which can be used to provide more loans at higher rate of interest. According to the passage, demonetisation led to positive impacts such as better tax compliance, savings being channelised into the formal financial system, increased bank liquidity (allowing loans at lower, not higher, interest rates), and a shift towards electronic payments. Therefore, the statement that banks could provide loans at a higher rate of interest is incorrect. Note: There is a flaw in the framing of this question. Option (1) does not represent a negative impact of demonetisation. The question should have been phrased as “Which of the following is not a positive impact of demonetisation?” However, given the current wording of the question, the most plausible answer remains Option (1) → Banks have more resources at their disposal which can be used to provide more loans at higher rate of interest, since demonetisation actually led to lower interest rates, not higher ones. |