what is demonetisation demonetisation in India reasons for demonetisation impact of demonetisation conclusion

1. SUBMITTED BY :- ISHITA

2. WHAT IS DEMONETISATION ?
– Demonetization refers to an economic policy where a certain currency unit
ceases to be recognized or used as a form of legal tender. In other words, a
currency unit still loses its legal tender status as a new one comes into
circulation.
– Demonetization can also be referred to as the process of moving people from a
cash-based system to a cashless system (digital system). To demonetize in its
simplest definition is thus to do away with cash.

3. Demonetisation in India
– The Indian government had demonetised bank notes on two prior occasions—once
in 1946 and then in 1978—and in both cases, the goal was to combat tax evasion by
"black money" held outside the formal economic system . In 1946, the pre-
independence government hoped demonetisation would penalise Indian businesses
that were concealing the fortunes amassed supplying the Allies in World War II. In
1978, the Janata Party coalition government demonetised banknotes of 1000, 5000
and 10,000 rupees, again in the hopes of curbing counterfeit money and black
money.
– On 8 November 2016, Indian Prime Minister Narendra Modi announced the
demonetisation in an unscheduled live national televised address at 20:15 Indian
Standard Time .In the announcement, Modi declared circulation of all ₹500 and
₹1,000 banknotes of the Mahatma Gandhi Series as invalid effective from the
midnight of the same day, and announced the issuance of new ₹500
and ₹2,000 banknotes of the Mahatma Gandhi New Series in exchange for the old
notes.
– According to RBI Report ,demonetised currency (on Nov. 8th ,2016) valued at ₹ 15.4
trillion . It amounted to 86.9% of the value of total currency in circulation.
86.90
%
13.10
% currency that
lost its status as
legal tender
currency which
continued to
hold its legal
status

4. Why was Demonetisation done ?
 To eliminate Black Money
 To eradicate Corruption
 To eliminate Counterfeit Money , Terror Funding & Money Laundering
 To increase Government Revenue
 To increase Financial Inclusion
 To promote Cashless Economy

5. Process of
Demonetisati
on in India
– The old 500 and 1000 rupee notes were to be deposited with bank within 31st
December, 2016. That meant that money, in the form of old 50o and 1000 rupee
notes, were to become useless post 31st December, 2016.
– The cancelled notes were to be deposited with the bank and /or replaced with new
500 and 2000 rupees.
– New types of notes which are of the same currency were introduced in the market.
– The challenge had been the slow circulation of the new currency.
– Most of the banks didn’t had enough new currencies. Even today, this new challenge
is still there and is expected to continue for a certain period of time.
– At ATMs there was some daily cash withdrawal limit. In addition, there was a weekly
withdrawal limit as well (for example rupees 24000 per week).
– In the business world, there had been a cash crunch since not many customers had
access to the large amount of the new currencies.
Specimen of new notes
People were advised to go to bank to replace old notes with new one . There were long queues inside and outside the banks

6. Actual Impact of
Demonetisation
on Indian Economy

7. 1. On GDP Growth
The Indian economy is a cash-driven economy and demonetisation has
largely affected its growth. The GDP growth rate of 8.01% in 2015-2016 fell to
7.11% in 2016-2017 after demonetisation. This was largely due to less
availability of cash in cash-intensive industries like manufacturing and
construction. It has also adversely impacted the primary function of banks to
issue loans and has put pressure on them as current account holders
demand0 large sums of cash.

8. 2.On Employment Generation
A major portion of the Indian workforce is a part of the informal economy. They
use cash to meet all their expenses and demonetisation has resulted in a lot of
them losing their jobs due to unavailability of cash. According to CMIE’s
Consumer Pyramids Household Surveys (CPHS), approximately 1.5 million jobs
were lost during the final quarter of the financial year 2016-17. The estimated
employment during this period was 405 million as compared to 406.5 million
during the previous four months.

9. 3.On Small & Medium
Businesses
Businesses like the textile industry, salons, restaurants, and seasonal businesses
are low capital enterprises and work on the basis of liquidity preference.
Demonetisation gravely impacted their revenue collection and threatened their
existence to an extent. It is a big chunk of the economy, contributing to 8 % of
the GDP while employing more than 80 million people year on year. The labour
wages in this sector are largely paid in cash and wages have been adversely
affected by the demonetisation move.

10. 4.On Black Money
Though only a small portion of black money is stored in the form of cash and
majority is in the form of physical assets like gold, land, and building,
demonetisation of the rupee 500 and 1000 notes might take out a lot of black
money from the economy. But demonetisation cannot and will not prevent
future generation of black money since black money problem is more of a
cultural mindset in India than a legal problem.

11. 5. On Terror Funding
Demonetisation was aimed as a clean-up of the economy where Fake Indian
Currency Notes (FICN) would be checked. It is aimed at rendering all fake notes
of rupees 500 and 1000 useless and thus drastically affecting illegal funding of
terror groups in Jammu and Kashmir, states in the North-East, and Naxalism-
influenced states.

12. 6.On Agriculture
This is one sector where all transactions are in cash and, given the values
involved, involve the higher denomination notes. The withdrawal of the old
currency notes has put pressure on the mandis ; farmers are having problems in
selling their produce as both the parties have to agree on the mode of payment.
Also since there is acute shortage of Rs 500 denomination notes
presently, change for the high denomination Rs 2000 notes is not
readily available with the vegetable and fruit vendors. This is also taking the
buyers away from these vendors to big retail markets thus impacting the
livelihood of the unorganised sector.

13. 7. On Cashless Transactions
Absence of liquid cash has led to people making transactions using cheques or
account transfers. They have also switched to virtual wallets like Paytm,Bhim
which allows electronic transfer of money. All this might result in a digital
economy where transactions are being recorded and the economy has more
white money. This might increase the government’s tax revenue.

15. Demonetisation has been praised as well as criticised on various grounds. There
has been a lot of opposition regarding the implementation of this policy. In the
short run, there have been problems related to liquidity crunch,
unemployment, loss of growth momentum, and a temporary halt to major
economic activities. All this is evident from the data provided by the RBI. The
long term effects of Demonetisation are yet to be ascertained. It is expected
that it can improve the Indian economy in the long run by increasing tax
compliance, financial inclusion, consequently improving the state of the
economy. It can boost the GDP by increasing the availability of funds for lending
and also by reducing transaction costs if the economy moves to digital modes of
payments.