This document discusses the history and purpose of demonetization in India. It provides context on past demonetization efforts and explains the goals of the 2016 demonetization, which aimed to curb black money, corruption, and counterfeiting. The document outlines both the advantages, like reducing unaccounted cash and increasing tax revenue, and disadvantages, such as implementation costs and temporary economic slowdown, of the demonetization policy.

1. M O N A L G U P TA
DEMONETIZATION

2. Content
 Introduction
 History
 Purpose of Demonetization
 Need of Demonetization
 Challenges
 Advantages
 Disadvantages
 Effect of Demonetization

3. Introduction
 Demonetization is the act of stripping a currency unit of its status as legal tender. It
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.
 November 8, 2016 a day when the Indian Government launched a Surgical strike
against black money in the economy.
 The Hon’ble Prime Minister of India, in an unscheduled live televised address to the
nation on november 8, 2016 at 20:15 Indian Standard Time(IST) declared
circulation of all INR 500 and INR 1000 banknotes of the Mahatma Gandhi series as
invalid with immediate effect.
 Demonetization has been done is an effort to:
 Stop counterfeiting of the current banknotes allegedly used for funding
terrorism
 Crack down on black money in the country

4. History
 Demonetization also has been done in the past. In India, it has been done :
 In January 1946, where in banknotes of INR 1000 and INR 10000 were
withdrawn.
 In January 1978, where in banknotes of INR 1000, INR 5000 and INR 10000
demonetized.
 In 2012, the Central Board of Direct Taxes (CBDT) had recommended against
demonetization, considering demonetization not be a solution for tackling black money
or economy, which is largely held in the form of benami properties, bullion and
jewelry.
 Difference with respect to demonetization in 2016 with that of earlier once obviously is
the size.

5. Purpose of Demonetization
 The real purpose of demonetization is to eradicate black money.
 To eradicate shadow economy or hawala transactions.
 To eradicate corruption from the face of our country.
 To bring in revolutionary change in tax structure.
 To make our economy more cashless.
 To secure better ratings in various indicators.

6. Need of Demonetization
 High demonetization notes are known to circulation of black money.
 Infusion of new series bank notes will be monitored and regulated by RBI.
 A parallel shadow economy corrodes and eats into 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.

7. Challenges
 It is claimed that India’s cash to GDP ratio is around 11–12% of GDP is too high
but china also has approx 9.5% of GDP similarly Germany.
 There is no correlation between corruption and the cash to GDP ratio as, nigeria
widely regarded as most corrupt country has cash to GDP ratio only 3% being a
cashless country .
 “cashless economy” does not ensure “terror free” global research has now found that
terrorist seldom use tax dodgers or hawala agents of target countries as they known
to local agencies.

8. Advantage
 The biggest advantage of demonetization is that it helps the government to track people
who are having large sums of unaccounted cash or cash on which no income tax has
been paid.
 Black money is used for illegal activities like terrorism funding, gambling, money
laundering and also inflating the price of major assets classes like real estate, gold and
due to demonetization all such activities will get reduced for some time and also it will
take years for people to generate that amount of black money again.
 People disclosing their income by depositing money in their bank accounts government
gets a good amount of tax revenue which can be used by the government towards the
betterment of society by providing good infrastructure, hospitals, educational
institutions, roads and many facilities for poor and needy sections of society.

9. Disadvantage
 The biggest disadvantage of demonetization is that once people in the country gets to
know about it than initially for few days there is chaos and frenzy among public.
 Destruction of old currency units and printing of new currency new units involve costs
which has to be borne by the government and if the costs are higher than benefits then
there is no use of demonetization.
 Majority of times this move is targeted towards black money but if people have not
kept cash as their black money and rotated or used that money in other asset classes
like real estate, gold and so on then there is no guarantee that demonetization will help
in catching corrupt people.

10. Effect of Demonetization
 There are both positive or negative impact/effect of demonetization.
 Positive Impact
 Counterfeit Currency
 Funding
 Security Features
 Parallel Economy
 Misc

11.  Negative Impact
 Cash crunch
 Economic slowdown
 Real Estate
 Corruption at different levels
 The new digital Laws
 Recalibration of ATM's
 Death's