Demonetization – Effect On Elections

The demonetization move has already been analysed quite extensively on this website. It’s effect on agriculture, banking sector, digitalization regime and on economy as a whole have already been elaborated (Read this to know more). The only aspect that has yet not been highlighted is election.

Demonetization has reduced the stash of unaccounted currency notes throughout the country into waste paper dumps. Earlier paper currency influenced the elections heavily. This move, if not completely blocked than at least has momentarily paused the practice. Elections involve a long phase of campaigning. In this process huge sums of money, (sometimes even crossing a couple of crores) is spent by the candidates which is clearly a breach in the limit set by the Election Commission. Quota limit of 54-70 lakh for Lok Sabha and 20-28 lakh for state assembly is set by EC. Hence, the guidelines issued by the EC of India are hardly followed by any political party. But keeping in view the present stance of Election Commission, any breach in the model code of conduct or non-compliance of any guideline will invite stern action from the Commission.


Let us analyse the effect of demonetization on elections.

Grey Area In Implementation Of Demonetization

Intense criticism followed demonetization policy, with several reputed economists & politicians denouncing the method of implementation of the policy. This was due to the inconvenience caused to general public following the move. Criticism points out the deficiencies & always improves the standards. Actually it performed its duties this time too & hence the loopholes in section 13A in IT ACT 1995 were spotted. Eventhough the situation was not that grim as it was portrayed but it helped the Govt. to plug the hole and prevent further complications.

The Problem

The background and present situation have been introduced in the text. Now let us fit in the numbers. The current limit on undisclosed donations inviting scrutiny is Rs. 20,000. Any donation made under Rs. 20,000 will require no identification of donor & donations. Post demonetization after realizing this to be a loose screw in the governance machine, the ECI has finally taken cognizance of the situation. ECI has proposed to lower the limit of such donations & to be set at Rs. 2,000.

Anticipations From The MOVE

  1. The step will promote transparency in elections. Earlier those who had fat wallets filled with unaccounted money were influential in politics. This proposal would put a check on this practice.
  2. With the reduced influence of money in elections freshers as well as deserving candidates will get a chance. In short, talent will replace money in politics.
  3. The festival of election will become meek. The bombastic rallies costing crores would become rare. Hence, the wastage of funds will reduce. The same could then be diverted to improve social conditions.

The anticipations are high, but even if one of the aforesaid is realized, will definitely change the face of nation drastically. Revolutions don’t happen over-night.

Fixing The Hoax

Hoax – Section 13A of IT Act -1995, contains some provisions which helped the political parties to convert their black money into white.

The rumors spread by several notorious elements were immediately clarified by the Finance Minister on Dec 17, 2016. In an explicit manner he declared that no political party enjoys exemption from demonetization rule. The demonetized currency notes were supposed to be accepted by only a few institutions such as hospitals.

Let us analyse this systematically.

500 & 1000 denomination notes were declared illegal tenders from Nov 8, 2016. Post this, dealing in 500 & 1000 notes would be illegal except for few purposes such as paying electricity bills, an refueling gas tanks. This means that any donation made after Nov 8 to the political parties in old currency notes would be illegal.


Creating backdate receipts is quite difficult or nearly impossible for the political parties as their accounts are audited regularly. Moreover keeping an eye on 1866 political entities is not a big deal. Discrepancies in any one of them would invite criticism as well as legal proceedings.


Donations in new currency notes is a possibility. But in order to exchange 4 crore Rupees, you need atleast 10,000 people. Let us assume a political party with its 110 million primary membership holders tries to mobilize its members to exchange its black money. 110 million people cannot be mobilized altogether. The human tsunami would definitely depict a gloomy picture and bust the nefarious designs of petty politics. The party thus cannot even distribute its stash of cash. For that it will have to reach out to the people. Hence mass blunder is not possible.

Fourth option is convincing a corporation to do the dirty job on behalf of the political party with promised benefits on assuming power in future. The assumption looks quite easy but it is too risky. Balance sheets never lie and hence a large undisclosed sum would invite penalty. Therefore, this scheme is also not viable. 

Hence, no such way of converting black into white under the IT Act – 1995 exists. En-route every way, one reaches a dead end.

Upcoming Elections In Seven States


Election in seven state assemblies will take place in year 2017. The most important one being in Uttar Pradesh followed by Punjab. The elections like any other competition are hard to predict. But, the environment should be conducive for a healthy and fair competition. Demonetization has flushed the unaccounted paper currency from the system. This will definitely affect the upcoming elections in state assemblies. Transparency will increase. We may even see emergence of new faces in coming years. The elections would no longer be a money investment scheme but a struggle to assume power and serve the country. The day we realize type of system, the country will then  grow by leap and bounds. Then truly this nation will change & we will definitely witness Achhe Din.

Demonetization is the first step towards it. The proposed electoral reforms will take the movement further and help us realize the dream of making India great.

Presuming a winner is minifying others’ talent & hardwork. Hence, no specific political party is supported in the text. The policy which could impact the results has been discussed adequately.    



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