Demonetisation in India and its advantage&limitations .

2. Hierarchy Of Demonetisation
• Legal system refers to a procedure or process for interpreting and enforcing
the law. It elaborates the rights and responsibilities in a variety of ways.
Three major legal systems of the world consist of civil law, common law and
religious law.
• Under the Legal System There Is A Major Division of Legal Tender.
• Legal tender is a medium of payment recognized by a legal system to be
valid for meeting a financial obligation. Paper currency and coins are
common forms of legal tender in many countries.
• Under This group Demonetisation Plays the Static position.

5. Need for demonetization
• High denomination notes are known to facilitate generation/ circulation of
black money
• Total number of bank notes in circulation rose by 40 percent between
2011 and 2016
• Increase in number of notes of INR 500 denomination was 76 percent and
for INR 1,000 denomination was 109 percent during this period
• Infusion of new series bank notes will be monitored and regulated by RBI
• The World Bank in July, 2010 estimated the size of the shadow economy
for India at 20.7 percent of the GDP in 1999 and rising to 23.2 percent in
2007
• A parallel shadow economy corrodes and eats into the vitals of the
country's economy resulting in:
–Inflation adversely affects the poor and the middle classes
–Depriving the Government of its legitimate revenues
–Forged cash used to fund terrorist activities against India

8. Positive side of demonetisation
• One of the biggest benefits of this move is that it is going to drastically
affect the corrupt practices.
• People who are holding black money in cash will not be able to exchange
much as they would be in a fear of getting penalized and prosecuted by
the authorities
• Enemies of the country which are involved in counterfeit currency and
terrorism will not be able to continue it further for quite some time at
least.
• The smuggling of arms and dealing with the terrorist will not sustain
further as all of the money will be on record now.
• Real estate prices dip to be seen in the long run .
• Reduction in inflation
• Increase in GDP .

9. Indirect impact
• Kashmir moved to normalcy - Blow of insurgency, no
more schools being burnt and no stone patters found
• Use of Apps and cards - Initial step towards digitization
in India with the involvement of small vendors leading
to transparency in the system
• Gold Stock - Declaration in the stock maintained by the
jewellers on a day-to-day basis, which if continued
would have control over generation of wealth from
black money
• Increase in revenue collection by the Government
authorities
• Simplification in tax policies and reduction in tax rates
in the upcoming years

11. Negative side of Demonetisation
• The liquidity squeeze caused by demonetization
will be negative across sectors with high level of
cash transactions. Real estate, jewellery, retailing,
restaurants, logistics, consumer durables and
luxury brands, cement and some segments in
retail/SME lending space will be facing short term
instability. Those companies with high level of
debt will face more pressure and can face loan
defaults.
• Secondly, there will be an added replacement
costs of currency. We cannot ignore the increased
cost of operating ATMs need to be refilled more
often and also it will be a huge burden on banks.
Initially, it is very difficult to create a cashless
society as more than 50 percent of Indian
population is not well versed with card
transactions.

12. 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-commerce
E-commerce companies saw up to a 30 percent decline in cash on delivery (COD)
orders.
E-payment options like PayTM and BHIM saw a rise
Real Estate
Primary transactions may not be impacted, secondary sales may to some extent.

13. Municipal and local taxes
Allow ability of use of INR 500 and INR 1000 notes to pay municipal/ local taxes
resulted in increase in revenue collections.
Agriculture
Adverse impact on Input-output channels in agricultural sector.
Sale, transport, marketing and distribution of ready produce to wholesale centres
or mandis, adversely impacted.
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.

14.  Demonetized Bank Notes – Rs.14.5 laks crs
 Printing of Rs.2,000/- cost involved is Rs.3.94 and for Rs.500/- is Rs.3.04.
 Black Money on Account –Rs.3800 plus crs
 Cash & Jewelry on Raid - Rs.440 crs
 New 2000/- Notes – 80 crs (Raid)
 Income tax raid on 650 plus places [Inclusive of Tamilnadu Chief
Secretary Rao]
 Issued notice from Income Tax Depart for 3100 persons for declaration on
source of deposit.
 Only 4 % to 7 % of black money is in form of cash
 Others form of black money in terms of real estate, gold, politician money,
deposit in foreign bank are still not been evaluated

15. Economist’s View
In spite of the initial hiccups and disruptions in the system, eventually this
change will be well assimilated and will prove positive for the economy in the
long run.
Black money hoarders will definitely lose out, eventually boosting the formal
economy in the long run.
Short term fall in real estate prices might benefit middle class citizens.
This move by the Government along with the implementation of the GST will
eventually make the system more accountable and efficient.

16. Conclusion
The government is taking steps to improve liquidity into the system and reduce
inconvenience as much as possible.
The decision of this surgical strike on black money was not taken in a day or two.
Rome was not built in a day and similarly, this plan is the result of Prime Minister's
meticulous planning and never ending fight against corruption.
As a result, he has successfully made the right stroke at the right time. Further, the
penal provisions are hefty enough to ensure that corrupt practices will find it hard
to take roots again. Despite certain short term troubles, demonetization is
certainly going to give a boost to the Indian economy in the long run. As of now, all
of us should stand and support this bold move of our Prime Minister and help
those needy, around us.

17. Thank You!