CONSCIENTIZATION PROGRAMME

1. DEMONETIZATION

2. Demonetization is the act of stripping a currency unit
of its states 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.

3. History

4. Rs. 500 and Rs. 1000 notes were introduced in 1934
After 4 years in 1938, Rs. 10,000 notes were
introduced

5. Notes of 1934

6. 10,000 Notes

7. First currency ban:
In 1946 the currency notes of Rs. 1000
and 10,000 were removed.
Both the notes were reintroduced in 1954
with on additional introduction of Rs.
5000 currency

8. Currency of 5000

9. Second currency ban
 In 1978, the Prime minister of India Morarji Desai
announced the currency ban taking Rs. 1000 and Rs. 10,000
out of circulation.
 Aim: To curb blade money generation in the country.

10. Third currency ban
 The P.M Narendra Modi on November 8, 2016
announced the currencies in the Demonetization
of Rs. 500 and Rs. 1000 will be invalid.
 The lower demonetizations – 10, 20, 50, 100 and
coins will be valid.
 Then the new notes of 500 and 2000 were
introduced.

11. Old Notes

12. New notes

13. Old notes are not accepted anymore
Though old Rs. 500 notes were accepted in places such
as petrol pumps, government hospitals, airports, and for
paying government related utility dues:
Finance ministry will be stopping this arrangement from
Friday (2 December) midnight.

14. Amendments to IT Act
There is a proposal to impose 50 per
cent tax on undeclared income that is
voluntarily disclosed till December 30,
following which 82.5 percent (75 per cent
tax and 10 per cent of Such tax as penalty)
could be levied on undeclared income
detected by authorities.

15. Cashless is the way forward
The Prime Minister has asked young people to
teach mobile banking and other e-commerce
technology to at least 10 families.
Excise duty on Point of Service (POS) machines
have been scrapped.
Transaction charges on card payments till the year
– end have been waived off.
Cancellation of service charges in certain
categories to promote usage of debit card.

16. Withdrawal limits eased
The RBI on November 28, 2016 said that if
deposits had been made in legal tender , then
depositors could withdraw that amount over
and above the weekly limit of Rs. 24,000.

17. BACKGROUND
Demonetization has been done in the past, in India, it has been
done;
In January 1946, wherein banknotes of
INR 1000 and INR 10000 were withdrawn. In January 1978,
wherein banknotes of INR 1000, INR 5000 and INR 10,000 were
demonetized.
In 2012 the Central Board of Direct Taxes
(CBDT) had recommended against demonetization considering
demonetization not to be a solution for tackling black money
or economy, which is largely held in the form of properties,
bullion and jewellery.
Difference with respect to demonetization
in 2016 with that of earlier once obviously is the size previous
one barely impacted common people but this one is huge with
85 percent of currency out of the system.

18. Effect on Prices
Effect on prices price level is expected to be lowered due to
moderation from demand side. This demand driven fall in
prices could be understood as follows:
Consumer goods: Prices are expected to fall only
marginally due to moderation in demand as use of cards and
cheques would compensate for some purchases.
Real estate and Property: Prices in this sector are largely
expected to fall, especially for sales of properties where
major part of the transaction is cash based, rather than based
on banks transfer or cheque transactions.
In the medium term, however the prices
in this sector could regain some levels as developers
rebalance their prices (probably charging more on cheque
payment).

19. Effect on Demand
The overall demand is expected to be affected to an extent.
The demand in following areas is to be impacted particularly:
Consumer goods
Real Estate and Property
Gold and luxury goods
Automobiles (only to a certain limit)
All these mentioned sectors are expected to face certain
moderation in demand from the consumer side, owing to the
significant amount of cash transactions involved in these
sectors.

20. Effect on Banks
As directed by the Government, the 500 and 1000
Rupees notes which now cease to be legal tender are to be
deposited or exchanged in banks (subject to certain limits).
This will automatically lead to more amounts being
deposited in Savings and Current Account of commercial
banks.
This in turn will enhance the liquidity position of the
banks, which can be utilized further for lending purposes.
However, to the extent that households have held on
to these funds for emergency purposes, there would be
withdrawals at the second stage.

21. Effect on GDP
The GDP formation could be impacted by this measure, with
reduction in the consumption demand. However with the recent
rise in festival demand is expected to offset this fall in overall
impact. Moreover, this expected impact on GDP may not be
significant as some of this demand will only be deferred and re-
enter the stream once the cash situation becomes normal.

22. Economic consequences of
demonetization of 500 and 1000
Rupee Notes
In an important move, the Government of India declared on 8th
November 2016 that the Five hundred and one thousand rupee
notes will no longer be legal tender from midnight today.
The RBI will issue Two thousand rupee notes and new notes of
Five hundred rupees which will be placed in circulation by this
decision.
This measure has been taken by the PM in an attempt to
address the resolve against corruption, black money and fake
notes. This move is expected to cleanse the formal economic
system and discard black money from the same.