1. Effects of demonetization in
indian economy
Group Number:4
SYAMRAJ T-B200444CH
RIDHU MANURAM -B200452CH
PANDEY SHIV JITENDRA-B200495CH
VYSHNAV TM-B200445CH
VIGNESH M-B200507CH
KOLA AHSWINI – B200512CH
2. Definition of demonetization
Demonetization of Currency -
Demonetization is a process by
which a series of currency will not be
a legal tender. The series of currency
will not acceptable as valid currency.
The same thing happened with
the Rs. 500 and Rs. 1000 note
demonetization.The old unit of
currency must be retired and
replaced with a new currency unit.
3. What Happened on Demonetization in
India?
On 8th November 2016, Government of India had announced that from today
onward rupees 500 and 1000 rupee note will not be a legal tender.
This means that 500 and 1000 rupee note will be accepted by anyone except the
organisation declared by government.
They can change the currency from the banks and post offices till 30th December
2016.
4. Background
There is a background to the current decision of demonetization of 500 and 1000 rupee notes. The government
has taken few steps in this direction much before its November 8, 2016 announcement.
1)government had urged people to create bank accounts under Jan Dhan Yojana. They were asked to deposit all
the money in their Jan Dhan accounts and do their future transaction through banking methods only.
2)Government initiated was a TAX DECLARATION SCHEME of the income and had given October 30, 2016
deadline for this purpose. Through this method, the government was able to mop up a huge amount of
undeclared income.
3)However, there were many who still hoarded the black money, and in order to tackle them; the government
announced the demonetization of 500 and 1000 currency notes.
5. Objectives behind demonetisation
The government’s stated objective behind the demonetization policy are as
follows;
1) Attempt to make India corruption free.
2) To curb black money,
3) To control escalating price rise,
4) To stop funds flow to illegal activity,
5) To make people accountable for every rupee they possess and pay income tax
return.
6) Finally, it is an attempt to make a cashless society and create a Digital India.
6. Causes
There can be many causes of
Demonetization in any economy some
of them are : Introduction of New
Currency ,Black Marketing, Currency
Storage, Corruption and others.
There will be excess fake currency in
the economy is main reason of
demonetization.
7. Impact of demonetization
1) Effect on parallel economy: The removal of these 500 and 1000 notes and
replacement of the same with new 500 and 2000 Rupee Notes is expected to -
remove black money from the economy as they will be blocked since the
owners will not be in a position to deposit the same in the banks, - Temporarily
stall the circulation of large volume of counterfeit currency and - curb the
funding for anti-social elements like smuggling, terrorism, espionage, etc.
8. .
2) Effect on Money Supply: With the older 500 and 1000 Rupees notes
being scrapped, until the new 500 and 2000 Rupees notes get widely
circulated in the market, money supply is expected to reduce in the short
run. To the extent that black money (which is not counterfeit) does not re-
enter the system, reserve money and hence money supply will decrease
permanently. However gradually as the new notes get circulated in the
market and the mismatch gets corrected, money supply will pick up.
9. Advantages
Demonetisation can help to minimize fraudulent or criminal activities in the nation by changing the existing
currency.
Demonetisation will revolutionize the banking system with the implementation of Demonisation schemes,
and investment and procurement of cash would be smoother.
The risks of fluid cash handling by the Government would be diminished as liability for existing currency
would decrease.
Demonetisation can result in a decrease in tax evasion by individuals and ensure the implementation of
practical public measures.
The Gross Domestic Product would increase with a decrease in tax evasion
10. Disadvantages
Disadvantages can often come off as confusing to the common public and be
inconvenient for primarily those associated with large businesses.
After Demonetisation, the economy will halt for a period without any growth.
The trading sectors will face massive predicaments trying to adjust to the new
currency system. Difficulty in bill payments will arise as a cause of the sudden
implementation of Demonetisation.
Every ATM in the country needs to be modified to allow the exchange of
currency.
The needy population of the nation will . Face a fiscal crisis for a while after the
implementation.
