The document summarizes a lecture on demonetization in India given on February 4, 2017. It provides background on demonetization, discusses the objectives and impacts of India's 2016 demonetization, and covers both views that it is a boon or bane. Specifically, it aims to curb black money, reduce corruption, and remove fake currency, but it also caused short-term economic difficulties and disproportionately impacted common citizens and small businesses. While it targeted illegal activities, some experts question how much black money it actually eradicated.

1. Lecture on
“Demonetisation in India – Boon or Bane”
@ APA College of Arts and Culture, Palani
February 4, 2017
1
Dr.K.Karthikeyan
Associate Professor of Commerce
Vivekananda College
Tiruvedakam West – 625 234
Mobile: +91-9865074994
Email: karthikeyan.madurai@gmail.com

2. Demonetisation in India

3. Demonetisation
- Act of stripping a currency unit of its status
as legal tender
- Process of removing a currency from
general usage or circulation of money in a
country
- Act where the old unit of currency gets
retired and replaced with a new currency
unit
- Withdrawal of a specific currency from
market

4. What is Demonetisation?
 Stripping Currency unit
of its status as legal
tender.
 Removing a currency
from circulation in a
country
 The old unit of currency
gets retired and replaced
with a new currency unit.

5. History of Demonetisation in India
Year Withdrawn Introduced
1946
Jan. 12
` 500
` 1,000
` 10,000
1954
` 1,000
` 5,000
` 10,000
1978
Jan. 16
` 1,000
` 5,000
` 10,000
1987 ` 500
2016
Nov. 8
` 500
` 1,000
` 500
` 2,000

6. Demonetisation 1946

7. Demonetisation 1978

8. Demonetisation 2016

9. Demonetisation Abroad
Year Country
1969 USA
1971 Britain
1984 Nigeria
1987 Myanmar
1991 Soviet Union
1996 Australia
2010 North Korea
2015 Pakistan

10. Demonetisation - Connect the Dots
Steps taken by Government of India before Demonetisation
Forming Special Investigation Team over black money in May
2014
Enacting law on undisclosed foreign income and assets
Amending the Double Taxation Avoidance Agreement between
India and Mauritius and India and Cyprus
Reaching an understanding with Switzerland for getting
information on Bank accounts held by Indians with HSBC
Encouraging the use of non-cash and digital payments
Amending the Benami Transactions Act
Implementing the Income Declaration Scheme 2016

11. Demonetisation – Connect the Dots
Steps taken by Government of India before Demonetisation
Opening of accounts under Jan Dhan Yojna to provide bank
accounts to all unbanked population
Linking of all accounts with Adhaar Card
Crack down on hoarders by foreign income disclosure
scheme resulted into collection of ` 80,000 crore
Income Declaration Scheme – a platform to convert black
money to white money by giving 40% tax punishment
IDS ended September 30, 2016 lead to collection of ` 65,000
crore

12. Demonetisation 2016
Nov.8 – ` 500/` 1,000 in Circulation
- ` 15.44 Trillion
(` 500 – ` 17.7 Trillion and ` 1000 – ` 8.86 Trillion)
Notes Scrapped–86% of notes in circulation (22 billion)
- ` 500 – ` 15.7 billion notes
- ` 1000 – ` 6.3 billion notes
Estimated Black Money – ` 3 to ` 5 lakh crore
Value of New Notes Issued (` 2000 and ` 500) during Nov.10
and Dec.19 – ` 5.93 Trillion
Notes Deposited in Banks till Dec. 30
- ` 14.97 Trillion
( 97% of notes in circulation on Nov.8)

13. Why
Demonetisation? Illegal/Anti Social
activities
1. Terrorism
2. Drug Trade
3. Corruption
Undisclosed Income
Cash hoarding
Fake currency
Check Tax Evasions

14. Objectives of Demonetisation
 To curb Black Money
 To reduce Corruption
 To Remove Fake Currency

16. Demonetisation 2016
-A Move against Corruption and Terrorism
 To check use of large-value notes to finance
corruption and terrorism
 To prevent use of high-value notes in money
laundering schemes, racketeering, and drug and
people trafficking
 To control money spent by governments,
political parties and candidates during general
elections
 ` 30,000 crore was spent during 2014 Election

17. Demonetisation 2016
- Surgical Strike on Black Money
 To check black money hoarders
 To reduce inflation
 World Bank Estimated (July 2010) the size of
shadow economy for India is 20.7% of GDP in
1999 and 23.2% in 2007
 A parallel shadow economy generates inflation
which adversely affect poor and middle class
 It also reduces the government revenue which
otherwise could be used for welfare and
development activities

18. Demonetisation 2016
- A Step Forward
Section 26 (2) of RBI Act, 1934 –
„Union Government is given the power to
declare that any notes issued by RBI will
no longer be legal tender‟
In 1978, demonetisation was carried under
High Denomination Bank Notes
(Demonetisation) Act, 1978
In 2014 – PMJDY and Income Disclosure
Scheme (ended September 30, 2016)

19. Demonetisation 2016
- Impact on Indian Economy
Online retail stores temporarily stopped
cash on delivery facility
Disbursement Rate of MFIs slow down
Effect on MSMEs
E-Wallet firms could gain good business
– Paytm, PayU, MobiKwik, Freecharge
Bullion and Real Estate Sectors affected

20. Demonetisation 2016 - Challenges
 Lack of look ahead in the situation
 Stopping the economic growth abruptly
 Fall in the rupee value to all-time low
 Common man is suffered by bringing different
rules into effect
 Negative impact on working class, small and rural
businesses in the short run
 Printing the new currencies
 Replacing of old notes
 Temporary Disruption to trade of ordinary
purchase of household items

21. Demonetisation 2016-Opportunities
 Get the unpaid taxes
 Cashless Transactions
 Digitization
 Curb Black Money
 Improving Bank‘s strength to give
loans
 Issue notices by IT Department
 Financial Inclusion

22. Demonetisation 2016-A Step Forward
Section 26 (2) of RBI Act, 1934 –
„Union Government is given the power to
declare that any notes issued by RBI will
no longer be legal tender‟
In 1978, demonetisation was carried under
High Denomination Bank Notes
(Demonetisation) Act, 1978
In 2014 – PMJDY and Income Disclosure
Scheme (ended September 30, 2016)

23. Impact of Demonetisation 2016
1. Effect on Parallel Economy
2. Effect on Money Supply
3. Effect on Demand
4. Effect on Prices of consumer goods
5. Effect on Real Estate and Property
Sector
6. Effect on various economic entities
7. Effect on GDP
8. Effect on Banks

24. Are people
supporting the
bold move?
“Larger Interest of society is always bigger than individual interest”

25. Demonetisation 2016 - Boon
 IT Department has carried out 586 searches across
the country and seized ` 300 crore cash and caught
unaccounted income of ` 2,600 crore as per The
Economic Times on Dec. 16, 2016
 The Tax Net is widened and major cash inflow in
terms of cash and penalties is expected in FY 2017
 It has hit the illegal activities like terrorist financing,
at least in the short-term.
 The advanced security features in new ` 500 and `
2000 prevent counterfeit notes to creep into
markets

26. Demonetisation 2016 - Boon
 Restrictions on cash economy and increase in
government are expected to improve the GDP
in long run
 It has lowered the inflation much to the relief
of common man
 More assessees and tax evaders are expected to
come within the tax net, further widening the
tax base and increase tax revenue of Govt.
 Steps taken against black money instilled a sense
of confidence towards government among the
people.

27. Demonetisation 2016 - Bane
Small traders, labour intensive industries (textiles,
construction), transport, etc. were severely
affected
Agriculture and small scale industries relying on
informal source of finance were hit
GDP growth rate has come down to 6.9%
Affected collections of MFIs and NBFCs
Cost of the Scheme is around ` 1,28 lakh crore for
50 day period
FDI is affected temporarily – Schemes like Digital
India and Make in India faced a set back

28. Demonetisation 2016
- A Roadmap for Resurgent India
On Dec. 16, 2016, Government notified the Pradhan
Mantri Garib Kalyan Deposit Scheme, 2016 –
effective from December 17 till March 31, 2017 for
people to declare their undisclosed income and
escape prosecution
The unclosed income is chargeable at the rate of 30%
with a surcharge 33% and penalty of 10%
Thus, total amount will be 50% of undisclosed
income
25% of undisclosed income in non-interest bearing
deposit and is refundable after 4 years

29. Demonetisation 2016
- A Roadmap for Make in India
Demonetisation combined with Income Disclosure
Scheme, Benami Property Act and GST will force
tax evaders to mend their ways
Demonetisation have given boost to digital payments
towards less-cash economy at least and not cashless
India
News on searches, seizures, arrests and disclosures of
lakhs and crores of rupees across cities and towns
It is a ‗big bang‘ reform India is looking for, if it is
successful

30. Eight Myths of Demonetisation
 A large amount of black money will be eradicated
 The rich will be brought to heel and the common man
will gain
 This will wipe out black money in the future
 Counterfeit money will be curtailed
 This move will encourage a cashless and therefore more
accountable/traceable economy
 GDP growth will go up
 The government says ` 25,000 every week against crop
loan is allowed
 All inconveniences will be over in 50 days and 'acchhe
din' will manifest

31. Opinions on Demonetisation
Amartya Sen Calls the move Authoritarian
―Only an authoritarian
government can calmly cause
such misery to the people — with
millions of innocent people being
deprived of their money and
being subjected to suffering,
inconvenience and indignity in
trying to get their own money
back.‖

32. Opinions on Demonetisation
Dr.Manmohan Singh “organised loot”,
“legalised plunder”,
“monumental mismanagement”
that might bring GDP down by
2 per cent. Asked why people
weren‟t allowed to withdraw
their own money

33. Opinions on Demonetisation
Kaushik Basu
Chief Economist,
World Bank
Cannot wipe out black money;
hoarders have already found
Loopholes
the move is hurting people who aren‘t
its
intended targets as many individuals
who have no illegal money could have
build up cash reserves over time.
―Relatively poor women stash away cash
beyond their husbands‘ reach, as savings
for the children or the household,‖

34. Opinions on Demonetisation
Raghuram Rajan
Former Governor of RBI
“Black money hoarders
find ways to divide their hoard
into many smaller pieces. You
find that people who haven‟t
thought of a way to convert
black to white, throw it into the
hundi in some temples. I think
there are ways around
demonetisation. It is not that
easy to flush out the black
money.”

35. Opinions on Demonetisation
Arun Jaitley
Finance Minister
―A lot of money that operates in
the shadow economy will now become a
part of the banking structure itself.
Banks will have a lot more money to
support the economy. Private sector
investment, which was so far lacking,
will now get back into the economy. The
banks which were struggling because of
the NPA problem will have a lot more
money to lend for agriculture,
infrastructure sector, social sector, trade
and industry.‖

36. Demonetisation 2016 – Boon or Bane

37. ANY QUESTIONS?

39. THANK YOU