The document discusses India's recent demonetization of Rs 500 and Rs 1000 banknotes. It provides reasons for the demonetization including tackling black money, lowering cash circulation, and eliminating fake currency. It also discusses India's past experiences with demonetization in 1946 and 1978. The document outlines some potential positive and negative effects on various industries and the economy. It discusses short-term impacts on GDP and consumption as well as longer-term impacts. The document also examines effects on parallel economies, money supply, and several key initiatives by the government.

1. DEEPAK SHUKLA

2. DEMONATISATION
The term
demonetization
become a house
hold name since the
government pulled
the old Rs 500 and
Rs 1000 note out of
circulation. While as
per dictionary
demonetization
mean

3. .
“ending something (eg.
Gold or silver) that is
no longer the legal
tender of a country”,
one need to see if
there is anything
more to the word.ET
share details of the
wordthat has got all
indians up over the
the past three
weeks.

4. Reason for demonetization
1.To tackle black money in
the economy.
2. To lower the cash
circulation.
3. To eliminate fake currency.
4. To eliminate dodgy fund.
5. Boost deposit base and
saving
6. Support government
finance.
7. Rise in GDP growth
potential.

5. INDIA’S PAST EXPERIENCE
WITH DEMONATIZATION
INDIA has carried out
demonetization
exercise twice before, in
1946 and 1978.
In Jan 1978 episode,
currency worth INR
1.46bn (17% of total
notes in circulation was
demonetized of this INR
1.obn (or 68%) was
tendered back

6. .
Pros
Passenger vehicles: short
term impact due to
purchase deferment
demand; will receive in
medium term.
Tractors: demand to be
materially impacted;
plus questionable trade
practices like over
invoicing to moderate.
Due to increase in bank
leading rates , the sale
might be boosted as the
bike and car EMIs
become much more
affordable

7. .
Cones
Two wheelers: high
impact on two
wheelers sales as
large percent of rural
2wtransection are in
cash, percentage
transaction backed
by loan is lower
Luxury cars & SUV:
sales will see
significant impact
due to

8. .
wealth deterioration
and decline in rural
transaction (cash
based)
Commercial vehicles:
negatively
impacted. Second
hand truck sales,
which has higher %
of cash transaction
while decline
sharply (both
number of
transaction and
pricing)

9. Effect on GDP
The GDP formation
could be impacted
by this measure,
with reduction in
consumption
demand. However
with the recent rise
in festival demand
is expected to
offset this fall in
overall impact.

10. Effect on GDP (cont.)
Moreover, this
expected impact on
GDP may not be
significant as some
of this demand will
only be deferred and
re-enter the stream
ones the cash
situation become
normal.

11. Key initiative by the government
In the budget 2015-2016, the
capital outlays for roads,
and railways have been
increased by Rs140.3
billions (US $ 2.05 billions)
and Rs 100.5 billion (US $
1.47 billion)respectively.
Government of INDIA plans to
launch the National
Infrastructure Investment
Fund (NIFF) with an initial
corpus of at least Rs
40,000 crore ( US $ 5.87
billion).

12. Key initiative by the government (cont.)
The NITI Aaoga has
instructed central public
sector units to release
75 % of the amount due
to construction
constructors and
concessionaries of gov.
projects, which is
expected to release
over Rs 40,000 crore
(US $ 6.02 billion) for
project that are under
dispute.

13. Market size
Total fuel consumption is
expected to grow around
5-6 % in FY 2016-17 and
thereafter ,while
consumption of gasoline is
expected to grow around
9-10% over the medium
term ,supported by robust
passenger vehicles sale
amid low crude oil prices.
INDIA is the fourth-largest
liquefied Natural gas (LNG)
importer and accounts for
5.8%of global trade.

14. .
The country’s gas production
is expected to touch 90
billion cubic meter (BCM)
in 2040 from 35 BCM in
2013 gas pipeline
infrastructure in the
country stood at 15,808km
in December 2015.
According to data released by
department of industrial
policy and promotion
(DIPP) ,the petroleum and
natural gas attracted FDI
worth US $ 6.67 billion
between April 2000 and
march 2016

15. Impact on RBI balance sheet*
e

16. Consumer prospective
d
No black
component in
deals
Interest rates
coming down
Lots of ready
built stock
Values flat
for two years
and dropping
Deals
sweetened
by sellers

17. Will Demonetization in India impact on
loan burden
.

18. Effect on parallel economy
The removal of these
500and 1000 notes and
replacement of same with
new 500 and 2000 rupee
is expected to
- remove black
money from the economy
as they will be blocked
since the owner will not be
in a position to deposit the
same the same in bank

19. Effect on parallel economy (cont.)
- temporarily stall the
circulation of large
volume of
counterfeit currency
and
- curb the
funding for anti-
social element like
smuggling,
terrorism,
Espionage
India
26

20. Effect on money supply
With the older 500 and
1000 Rs note scrapped ,
until the new 500 and
2000 Rs notes gets
widely circulated in the
market , money supply
is expected to reduce in
the short run .
To the extent by black
money (which is not
counterfeit ) does not
reenter the system,
reserve money and
hence money supply will
decrease permanently