Impact of Demonetization

1. By:-
Narinder Kumar
CUJammu
Roll NO:-1300715

2. Presentation Overview
Demonetization : The Real Effects
Reasons for Demonetization
Your money will be yours
Percentage share of denominations before
demonetization
Steps taken by the government
Impact of demonetization
Pros & Cons of demonetization
Various modes of payment
Effect of demonetization on Indian Economy
Will demonetization in India impact your loan burden?
Remonetization : A good idea or not?
Conclusion

3. Demonetization is the act of stripping a currency unit of its
status as legal tender. Demonetization is necessary whenever
there is a change of national currency. The old unit of currency
must be retired and replaced with a new currency unit.
Demonetization

4. Reasons for Demonetization
We knew terrorism is a frightening threat, but who funds
these terrorists? Our enemies they use the fake currency
to sponsor terror-this was proven many a times.
Corruption and black money are the major obstacles in
our country. It is weakening the efforts to remove poverty.
Our country is rapidly increasing in terms of growth and
we are in No.1 position in terms of growth but we are
ranked 76 in Global Corruption Perception ranking. It
clearly shows how corruption and black money have
spread their tentacles.

5. “Your Money will be Yours”
It is a transformational decision taken by the government to
ban Rs.500 and Rs.1000 notes from circulation in the
market. The decision was taken to minimize the black money
and corruption. The RBI is issuing Rs.500 and Rs.2000
notes. They have released a statement by saying that all the
Rs.500 and Rs.1000 notes are to be deposited at nearby
banks or post-offices. This will be a regular currency
circulation all throughout India. All those people who are
panicked with this move by the government need not worry
at all as the government has assured that ‘Your money will
be yours’. You will not lose anything so there is no point in
being scared. There will be no restrictions on non-cash
payments by cheques, demand draft’s, and electronic fund
transfer.

6. Percentage share of Denominations before
Demonetization

7. Steps taken by the Government :
In 2016, the Indian government decided to demonetize the
500- and 1000- rupee notes, the two biggest denomination
notes. These notes accounted for 87% of the country’s cash
supply. The government’s goal was to eradicate counterfeit
currency, fight tax evasion, eliminate black money gotten
from money laundering and terrorist financing activities, and
promote a cashless economy. By making the larger
denomination notes worthless, individuals and entities with
huge sums of black money gotten from parallel cash systems
were forced to convert the money at a bank which is by law
required to acquire tax information from the entity. If the
entity could not provide proof of making any tax payments on
the cash, a tax penalty of 200% of the tax owed was imposed.

8. Impact Of Demonetization
Inflation : It will cause deflation in the market as people who
have earned money through illegal ways would be afraid to declare
the money as they may be prosecuted by the Income tax
department on the legitimacy of their income.
Reduction in Monetary Circulation: This will lead to reduction
of money circulation in the economy leading to deflation. Value of
money will be increasing which we have because the total money
supply will be going down but the commodities and things
available in the market have not gone down. It will lead to
inflation slowly but not overnight.

9. Impact Of Demonetization(contd.)
Cash Deposits in Banks: A lot of cash which are legally earned
will be deposited in the banks and now the banks with more
deposits will be able to do more lending.
Easy Loans: Loans will become easier and interest rates may
come down. As banks will have more money so more loans will
be given out which will increase the money supply in the
market and it will create inflation.

10. PROS & CONS OF DEMONETIZATION

11. PROS:
• The major decision which is made by the government will
help us to eradicate black money, corruption to some
extent.
• Due to lack of funding there will be no arms smuggling
and all the terrorist activities will also be choked.
• The government has proposed the new limits on ATM
withdrawals being restricted. It indicates that card
transactions will slowly replace the cash transactions in
our daily prone activities.
• Financial Unit will track all details of the transactions
from the banks. So now it is really difficult to get rid of the
black money.

12. PROS (CONTD.):
• Exchange of money in banks can only be done producing a
valid identity cards like PAN, aadhar card and electoral card.
By doing so it will be easy for the government to track the
money which is being exchanged in banks. There is no limit
if the amount which we are exchanging is legal amount.
• Real estate industry is totally corrupted and now by this
stringent decision the real estate sector will bring in more
transparency. By doing it in this way we will have more
credibility, making it more attractive to the foreign investors
as well as domestic investors.

13. CONS:
• It will cause great inconvenience to common man who will
start running to bank to exchange Rs.500 and Rs.1000 notes.
• By replacing all the Rs.500 and Rs.1000 denomination notes,
as ordered by the government, could cost the RBI at least
Rs.12000 crore.
• It will be very difficult for half of the population who are not
well versed with the card transactions.
• The major problem is that big fishes will be left out whose
black money is in the form of foreign currency, gold and
property and stashed in tax havens.

14. Mode of
payments
Cash
E-Payment
Barter System
Various modes of Payment:

15. CASH :
India’s economy relies predominantly on cash, the effects
will be far greater. ATMs are scarce, and few rural Indians
have a credit or debit card. An estimated 600 million
Indians—nearly half the country’s population—are without
a bank account. Three hundred million have no
government identification, necessary to open an account.
By comparison, about 7 percent of Americans are
unbanked, with an additional 20 percent underbanked,
according to the Federal Deposit Insurance Corporation
(FDIC).

16. CASH (CONTD.) :

17. Electronic Payment is a financial exchange that takes
place online between buyers and sellers. The content of this
exchange is usually some form of digital financial instrument
(such as encrypted credit card numbers, electronic cheques or
digital cash) that is backed by a bank or an intermediary, or by a
legal tender.
• All Central Government Departments
and Public Sector Enterprises are being
instructed to use the method of e-
payments to the maximum extent
possible.
• RBI has advised National Payments
Corporation of India (NPCI) to waive its
transaction charges on transactions
settled through National Financial
Switch(NFS) till 31st December, 2016.
• Banks are also being advised to waive
similar charges currently levied by them.

18. BARTER SYSTEM :
TRADE WHAT YOU HAVE, TO GET WHAT YOU WANT.!!
 Inevitably, low-income and rural households have been
hardest hit by Modi’s currency reform. Barter economies
have reportedly sprung up in many towns and villages.
Banks have limited the amount that can be withdrawn.

19. Effect of Demonetization on Indian
Economy
• It will likely hit the economy hard in the short term.. The
service sector, which dominates economic activity and
involves a sizable chunk of cash transactions, will likely
be hit the hardest.
• GDP growth in the quarters from September to
December 2016 and January to March 2017 could be
significantly lower than previous years. Some bounce
back should be seen in the first quarter of fiscal 2017–
2018.
• The demonetization that has been in effect since
November 9 is expected to have a negative impact on
inflation. Consumer spending activity fell to a near halt.

20. India Impact Your Loan
Burden?
 Rates are already on the decline
After the demonetization announcement on November 8,
Indian banks saw a rise in deposits.
Banks also saw a rise in term deposit accounts since the
demonetization. Due to these factors, commercial banks
sharply reduced their deposit rates.
 Loan burden will also fall
Apart from cutting deposit rates, banks reduced their lending rates
as well. In India, loans sanctioned from April 1,2016 are with
reference to the MCLR (Marginal Cost of funds-based Lending
Rate), instead of the Base Rate, which was used earlier.
It will translate into lower interest rates on existing floating rate
loans and new loans.

21. India Impact Your Loan
Burden?(Contd.)

22. Remonetization : A good idea or
not??
This question mark is really difficult to answer and the opinion
may vary from person to person.
The roadmap for remonetization is what the markets are
anxiously waiting to hear from the Reserve Bank of India (RBI)
governor Urjit Patel, who has barely spoken on the subject.
So, clearly, there is a cash crunch. And there could be just one
solution to ensure that the economy does not suffer for too
long: supply of more cash in the market.
How about this for a solution: since most of the currency in
circulation is already in the banks — and not lying buried
under pillows or being thrown into the Ganges — why not
introduce the old Rs. 500 currency notes back into the market,
make them legitimate tender again?

23. CONCLUSION
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.

24. THANK YOU