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What Was Actual Banking Crisis?

by Arpita Wadhawan
Banking Crisis

When it comes to a question of a banking crisis, the whole economy, as well as all levels of society, is impacted from the ground up. The more enmeshed the economy, the greater the impact would be and all modern economies are enmeshed with each other, so much so that a banking crisis affecting one would soon affect the other. This is one of the reasons that the mortgage crisis of 2008 soon affected world economies all over the word. But when it comes to a question of the banking crisis, it is hard not to consider the demonetization drive undertaken by the current dispensation which soon started a series of bank runs.

Demonetization

The government of India abruptly withdrew high denomination notes such as 1000 rs notes, with immediate effect from November 8th, 2016. The end result started a banking crisis with several banking customers queuing urgently in front of various banks to try and withdraw their money, before 12 am, after which the high denomination notes would no longer be considered as legal tender. To say that the demonetization drive caused a banking crisis, unprecedented in the country’s banking annals for the last two decades would be an understatement. The main objective of the exercise was to eliminate all the fake currency from the system but the real purpose was to get more of the citizens to register and pay up their taxes on time.

The results

While there are many who may claim that a banking crisis is not the way to go about achieving this main objective, the fact remains that India remains one of the few nations where only a paltry percentage of the working population remit taxes. But thanks to demonetization and other banking-related bills, more citizens are registering to pay their taxes on time. In fact, the direct tax collection had jumped up by nearly 17% post demo and it is expected that this number would further increase in the coming year as well. Simply put, the tax base is growing fast, as more public seek ways to become tax compliant without having to break any rules.

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