agriculture economic.

2. Rajmata Vijayaraje Scindia Krishi Vishwa Vidyalaya
College of Agriculture, Gwalior
Department of Agriculture Economics
Submitted to
Dr. O .P .Daipuria
Professor and HOD
Submitted by
Babita Baghel
Roll No. 19112701
Doctoral Seminar – II
on
Demonetization and its impact on Indian economy

3. Contents…….
•Introduction
•History
• Need
•Purpose
•Impact
•Impact Analysis
•Advantage
•Disadvantage
•Conclusion

4. INTRODUCTION
What Is Demonetization ?
 “Demonetization is the withdrawal of a particular form of currency from
circulation.”
 It is a process by which a series of currency will not be legal tender.
 The series of currency will not acceptable as valid currency.
What was the causes of Demonetization?
There could be many causes of Demonetization in any economy some of
them were: Introduction of New Currency, Black Marketing, Currency
Storage, Corruption and others.

5. • November 8, 2016 a day when the Indian Government launched a
“surprise attack”/ “Surgical strike "against black money in the economy
• The Hon’ble Prime Minister of India, in an unscheduled live televised
address to the nation on November 8, 2016 at 20:15 p.m. Indian Standard
Time (IST) declared circulation of all INR 500 and INR 1000 banknotes of
the Mahatma Gandhi Series as invalid with immediate effect.
HISTORY OF DEMONETIZATION IN INDIA

6. • Issuance of new INR 500 and INR 2000 banknotes of the Mahatma
Gandhi New Series in exchange for the old banknotes was announced
With the exchange of new denomination notes of INR 2000 and not
INR 1000, the conversion of black money would be curbed.

7. BACKGROUND
The Indian government had
demonetized bank notes on two prior
occasions—once in 1946 and then
again in 1978—and in both cases, the
goal was to combat tax evasion by
"black money" held outside the formal
economic system.

8. Some other country use Demonetization
List of countries in the world that had done Demonetization
Country Name Year Objective
Nigeria 1984 To fix, debt burdened and inflation-ridden economy
Soviet Union 1991 Fight against unearned income, smuggling
and corruption
Ghana 1982 To control black money
Myanmar 1987 To curb black money
North Korea 2010 To lower down the market of black money
Zimbabwe 2010 Sliding out from Hyperinflation
Australia 1996 To the curb black money crisis and improve security
features on the notes
Britain 1971 To bring uniformity in currency
Zaire 1990 A plan to withdraw obsolescent currency from the system
USA 1969 Due to black money
Pakistan 2015 To get rid from Black Money, Counterfeit Currency
Germany 1923 Due to high domestic prices
Philippines 2016 To preserve the integrity of currency

9. NEED FOR DEMONETISATION
• High denomination notes were known to facilitate generation/ circulation
of black money
• Total number of bank notes in circulation rose by 40 percent between
2012 and 2016
• Increase in number of notes of INR 500 denomination was 72.65
percent and for INR 1,000 denomination was 111.19 percent during this
period.

10. Notes in Circulation
(₹ Billion)
Currency 2012 2013 2014 2015 2016 Percent
increase
500 5128.07 5359.50 6702.48 7563.91 8853.75 72.65
1000 3468.81 4299.00 5081.37 6612.45 7325.68 111.19
Source: RBI report 2017

11. PURPOSE OF DEMONETISATION
Accordingly, steps have been taken to demonetize the high denomination notes
and help to:
1. Curb financing of terrorism through the proceeds of Fake Indian Currency
Notes (FICN).
2. Curb the use of FICN funds for subversive activities such as espionage,
smuggling of arms, drugs and other contrabands into India, and
3. For eliminating Black Money which casts a long shadow of parallel
economy on our real economy.

12. OPERATIONAL GUIDELINES
(i) Old High Denomination Bank Notes might be deposited up till December
30, 2016.
(ii) Old High Denomination Bank Notes could be exchanged as per the
limits fixed by the RBI.
(iii) No limit on the quantity or value of old high denomination Bank Notes to
be credited to the account of the tenderer maintained with the bank on
complying with extant Know Your Customer (KYC) norms and valid
proof of identity.

13. (iv) Old High Denomination Bank Notes tendered could be
credited to a third party account on submission of specific
authorization along with proof of identity.
(v) Limits in cash withdrawal and ATM withdrawals.
(Vi) No restriction on the use of any non-cash method of operating
the account which includes cheques, demand drafts, credit/debit
cards, mobile wallets and electronic fund transfer mechanisms.

14. IMPACT OF THE DEMONETIZATION
There was two types:
A. Positive Impact
• Human trafficking
• Hawala
B. Negative Impact
• Cash shortage
• Deaths
• Stock market crash
• Transportation halts
• Unemployment
• NBFCs

15. Positive Impact
Human trafficking
Nobel laureate Kailash Satyarthi and others
working to fight human trafficking said that the
note ban had led to a huge fall in sex
trafficking. Satyarthi said the demonetisation
would be effective in combating exploitation of
children as well as corruption and would be a
great obstacle to traffickers. However, 2 months
later he expressed his disappointment on Rs 2000
notes being pushed into human trafficking in
absence of other concrete steps.

16. Hawala
Traditional system of transferring money
used in Arab countries and South Asia,
whereby the money is paid to an agent
who then instructs an associate in the
relevant country or area to pay the final
recipient.
Mumbai Police reported a setback
to Hawala operations. Hawala dealers in
Kerala were also affected. The Jammu
and Kashmir Police reported the effect of
demonetisation on hawala transactions of
separatists.

17. Negative Impact
Cash shortage
The scarcity of cash due to
demonetisation led to chaos, and most
people holding old banknotes faced
difficulties exchanging them due to
endless lines outside banks and ATMs
across India, which became a daily
routine for millions of people waiting to
deposit or exchange the ₹500 and ₹1000
banknotes since 9 November.

18. ATMs were running out of cash
after a few hours of being
functional, and around half the
ATMs in the country were non-
functional. Sporadic violence was
reported in New Delhi, but there
were no reports of any grievous
injury, people attacked bank
premises and ATMs, and a ration
shop was looted in Madhya
Pradesh after the shop owner
refused to accept ₹500 banknotes.

19. GDP Growth Estimates by Various Agencies
(growth in per cent)
Agency April-Oct2016 Nov. 2016 to March2017
Pre- demonetization Post- demonetization
IMF 7.6 6.6
World Bank 7.6 7.0
ADB 7.4 7.0
Economic Survey,
Government of India 7.5 7.0
Sources: Growth projections by the Financial Institutions and Rating Agencies
were compiled on the basis of media reports published during November and
December 2017

20. Deaths
Several people were reported to have died
from standing in queues for hours to
exchange their old banknotes. Deaths were
also attributed to lack of medical help due to
refusal of old banknotes by hospitals. As of 15
November 2016, the attributed death toll was
25. and 33 deaths as of 18 November.

21. SR. NO. STATE DEATH
1. BHIHAR 5
2. CHANDIGUARH 1
3. CHHATISGUARH 1
4. DELHI 4
5. GUJRAT 5
6. HARYANA 3
7. JAMMU & KASHIMAR 1
8. JHARKHAND 4
9. KARNATAKA 3
10. KERLA 4
11. MADHYA PRADESH 7
12. MAHARASTRA 7
13. MANIPUR 2
14. ODDISHA 2
15. PUNJAB 8
16. RAJASTHAN 5
17. TELANGANA 6
18. UTTAR PRADESH 30
TOTAL 99
SOURCE: IJSER 2017

22. As a combined effect of demonetisation
and US presidential election, the stock
market indices dropped to an around six-
month low in the week following the
announcement. The day after the
demonetisation announcement, BSE
SENSEX crashed nearly 1,689 points
and NIFTY 50 plunged by over 541
points. By the end of the intraday trading
section on 15 November 2016, the BSE
SENSEX index was lower by 565 points and
the NIFTY 50 index was below 8100 intraday.
Stock market crash

23. After the demonetisation was announced, about 800,000 truck drivers were
affected with scarcity of cash, with around 400,000 trucks stranded at major
highways across India were reported. While major highway toll junctions on
the Gujarat and Delhi-Mumbai highways also saw long queues as toll plaza
operators refused the old banknotes.
Nitin Gadkari, the Minister of Transport, subsequently announced a
suspension of toll collections on all national highways across India until
midnight of 11 November, later extended until 14 November and again until
midnight of 18 November, and yet again till 2 December.
Transportation halts

24. Month Unemployment Rate (%)
India Urban Rural
April-
oct.201
6
4.65 5.69 4.12
Nov.201
6
5.04 5.35 4.36
Dec.201
6
4.76 5.43 4.42
Jan.201
7
4.76 5.5 4.38
Feb.201
7
5.05 6.12 4.49
March2
017
6.06 6.84 5.65
Unemployment
“After the demonetization of November 8, it
was evident to the new labour force that
there was a serious dearth of jobs. This is
evident in the drop in the labour participation
rate,” CMIE’s research notes.
Vyas conclusions merit serious consideration:
“The drop in labour participation is in line with
CMIE’s observation that new investments
have been falling. For a developing economy
like India, a drop in labour participation rate is
a sign of an economic slowdown.”
Source:cso report 2017

25. NBFCs
The share prices of most of the large listed NBFCs also registered a significant
decline between November 8, 2016 and December 30, 2016 mainly due to the cash
intensive nature of their businesses and delayed repayments (Table).
However, the share prices of most of such companies have recovered fully/partially
after December 2016. The share prices of most of the large listed NBFCs also
registered a significant decline between November 8, 2016 and December 30, 2016
mainly due to the cash intensive nature of their businesses and delayed repayments
(Table).
the share prices of most of such companies have recovered fully/partially after
December 2016 and before march 2017.

26. Percentage Change in Share Prices of Select NBFC
Name of the Company % Change(December 30, 2016 % Change (March 2017
over November 8, 2016 over November 8, 2016)
Bajaj Holdings &
Investments Limited -16.8 -2.7
Capital First Ltd. (Old Name
Future Capital Holdings Ltd.) -16.8 -8.1
Cholamandalam Investment
and Finance Co. Ltd. -14.6 -12.7
Muthoot Finance Limited -21.9 -2.9
Power Finance Corporation
Ltd. 6.4 19.5
Mahindra and Mahindra
Financial Services Ltd. -22.4 -17.8
Sundaram Finance -15.5 3.5
Source: National Stock Exchange (NSE).

27. IMPACT ANALYSIS
IMPACT ANALYSIS - SHORT TERM
1. Scarcity of cash due to demonetization
2. Sporadic violence wherein people attacked bank premises and
ATMs with no major injuries
3. Large chunk of the population, especially at the bottom of the
pyramid and rural population highly impacted due to poor banking
facilities and extremely higher dependence on hard currency
4. Various tribal areas living in isolation and illiteracy have been
impacted
adversely in the short run

28. IMPACT ANALYSIS - LONG TERM
• Real estate, Jewellery and luxury products •Downward revaluation
Indirect reduction in prices of cement and steel Politics and elections
• Transparency •Appropriate utilization of central exchequer Online
transactions
• Substantial increase leading to transparency •Increase in revenue
collection by there revenue authorities.
• Fear of high costs associated with tax evasion should lead to higher tax
compliances which could lead to reduced overall tax rates by the
Government Reduced interest rates, inflation and strengthening of the
currency marginally Parallel economy to a great extent consolidates with
the main economy, as targeted by the demonetization move Positive
bearing on Governments’ fiscal deficit

29. IMPACT ON ECONOMY - SECTOR WISE
1. Banking
• About 3 trillion rupees in the form of old INR 500 and INR 1000 banknotes
deposited in the banking system
• 500 billion rupees dispensed via withdrawals from bank accounts, ATMs
as well as exchanges over the bank counters
• Spike in the usage of debit card and credit card post demonetization was
also reported Business
• E-payment options like PayTM and PayUMoney saw a rise • Real Estate
– Primary transactions may not be impacted, secondary sales may to
some extent

30. 3. OVERALL IMPACT
• Whooping increase in cash deposits at banks and reduction in black money
• No affect on stock of black money which had been invested and held in other
forms of assets like benami properties in land and real estate, gold, diamonds,
precious gems, foreign currency, artifacts, paintings, etc
• Increase in the proportion of other assets in which black money is held, with
different level of difficulties and challenges to trace the same Long Run
• The thought remains unanswered/ un-warranted whether there is any way to
prevent the generation of black money again and not re-enter the system?

31. Advantages of Demonetization
1.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.

32. 2.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

33. 3.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

34. Disadvantages of Demonetization
1.The biggest disadvantage of demonetization is that once people in the
country gets to know about it than initially for few days there is chaos and
frenzy among public as everybody wants to get rid of demonetized notes
which in turn sometimes can lead to law and order problem and chaotic
situation especially in banks and ATMs which are the only medium to
change the old currency units to new currency units

35. 3.Another problem is that majority of times this move is targeted
towards black money but if people have not kept cash as their black
money and rotated or used that money in other asset classes like
real estate, gold and so on then there is no guarantee that
demonetization will help in catching corrupt peopless

36. • Reports of stress in agriculture have begun
to appear because of demonetization.
• Cash is the primary mode of transaction in
agriculture sector which contributes 15% to
India’s total output.
• Prices of agricultural commodities
increased due to demonetization
Impact on agriculture

37. Daily average price (Rs/kg)
Commodity April-Oct-16 Nov-16 Dec-16 Jan-17 Feb-17
Rice 27.4 27.7 28.1 28.3 28.8
Wheat 23.4 24.0 24.5 24.5 24.6
Atta(wheat) 25.4 26.1 27.1 27.1 26.9
Gram Dal 112.3 123.3 123.6 114.7 100.6
Tur/Arhar Dal 121.7 118.9 113.2 103.1 96.2
Urad Dal 126.3 119.7 113.9 108.0 103.6
Moong Dal 86.8 84.4 82.8 80.7 79.4
Masoor Dal 83.6 82.0 80.3 78.7 77.1
Ground Nut Oil 136.0 135.6 135.4 135.4 133.8
Mustard Oil 109.4 110.5 111.4 110.2 109.8
Vanaspati 76.6 76.7 77.6 77.6 77.8
Soya Oil 82.8 83.9 85.3 86.2 86.4
Sunflower Oil 93.8 93.9 94.4 94.5 94.0
Source: Price Monitoring Cell, Department of Consumer Affairs, Ministry of Consumer Affairs, Food and Public
Distribution.

38. • Notably, this is a time of kharif harvest and start of rabi sowing, partly
explaining why this period is dubbed the ‘busy season’ from a
standpoint of credit demand, the other being bunching of festivals
and weddings.
• Agriculture is impacted through the input-output channels as well as
price and output feedback effects.
• Sale, transport, marketing and distribution of ready produce to
wholesale centres or mandis, is dominantly cash-dependent.
• Disruptions, breaks in the supply chains feedback to farmers as
sales fall, increased wastage of perishables, lower revenues that
show up as trade dues instead of cash in hand and when credited
into bank accounts with limited access affect the sector.

39. • The advantages are much dominating and it will be in the long
term interest of our country comfortably outweighing the
disadvantages. Government need to take all the necessary
steps so as to ensure that there will be a smooth flow of
currency exchanges.
• It would turn into chaos if government takes no necessary
steps to circulate money correctly.
• It will make a massive change in our economy. We
congratulate the entire government and those hidden brains of
our democracy who brought this decision.
Conclusions

40. Reference
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