A Project Report

On

Concept of Demonetization “Effect and Causes”

Submitted by

Ashwani Kumar

In partial fulfillment for the award of the degree

of

MASTER OF BUSINESS ADMINISTRATION

SCHOOL OF BUSINESS MANAGEMENT

SHOOLINI UNIVERSITY

OF LIFE SCIENCES AND BUSINESS MANAGEMENT SCIENCES

BAJHOL, SOLAN, HP – 173212

MONTH OF SUBMISSION: April, 2018

 CERTIFICATE

This is to certify that the Project work entitled (Concept of Demonetization ‘effect and
causes’)submitted in partial fulfillment of the requirement for the award of degree of Master
of Business Administration to Shoolini University of Biotechnology and Management
Sciences, Bajhol, Solan (H.P.) is a bonafide Project work carried out by Ashwani Kumar
(1671401099). No part of this work has been submitted for any other degree or diploma.

Name of Student: Ashwani Kumar Name of the guide: Prof. Narinder Verma

Signature : Signature :

Place: Solan

Date :
 ACKNOWLEDGEMENT

The assistance and help received during the course of investigation has been duly
acknowledged.

A successful project work is a result of the organized and well coordinated teamwork. So I
also get the opportunity to prepare a project on “Concept of Demonetization”. To prepare this
project I would like to thanks Prof. Narinder Verma for their constant support and inspiration
throughout the lifespan of the project. I express my deep sense of gratitude and sincere
thanks to my project guide for his constant guidance, co-operation and advice which helped
me in completing the project successfully. Last but not the least, I would like to thanks all
my family members and friends for their constant co-operation and inspiration and direct or
indirect help without which this project could not be completed.

Name of Student: Ashwani Kumar

Signature:
 Executive Summary

On 8 November 2016, the Government of India announced the demonetisation of all 500
and 1,000 banknotes of the Mahatma Gandhi Series. The government claimed that the action
would curtail the shadow economy and crack down on the use of illicit and counterfeit cash
to fund illegal activity and terrorism. The sudden nature of the announcement—and the
prolonged cash shortages in the weeks that followed—created significant disruption
throughout the economy, threatening economic output. The move was heavily criticised as
poorly planned and unfair, and was met with protests, litigation, and strikes.

Prime Minister of India Narendra Modi announced the demonetisation in an unscheduled live
televised address at 20:00 Indian Standard Time (IST) on 8 November. In the announcement,
Modi declared that use of all 500 and 1000 banknotes of the Mahatma Gandhi Series would
be invalid past midnight, and announced the issuance of new 500 and 2000 banknotes of
the Mahatma Gandhi New Series in exchange for the old banknotes.

In the process of Demonetization there were many factors that get affected. This report is
made to know and interpret the concept of demonetization. In this project we carried out the
activities like: affects, causes, consequences and advantages of demonetization of old
currency.
 Table of Contents:

1. Introduction

1.1 Objective
1.2 Process
1.3 Concept
1.4 Reasons of demonetization
1.5 Evasions attempts after demonetization
1.6 Impacts of demonetization

1.6.1 Positive impacts

1.6.2 Negative impact

2. Research Methodology

3. Analysis and Interpretation

4. Observation and Findings

5. Recommendation

6. Conclusions

7. Bibliography

8. Annexure
 1. Introduction

Meaning

 Demonetization is the act of stripping a currency unit of its status 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.

 Demonetization is the act of stripping a currency unit of its status as legal tender.
 The old unit of currency must be retired and replaced with a new currency unit.

Introduction
On the evening of 8thNovember 2016, Indian Prime Minister Mr. Narendra Modi
announced a sudden denomination of ₹500 and ₹1000 rupee notes. Instead of RBI
Governor Urjit Patel, surprisingly Prime Minister announced the news of
demonetization that these banknotes would not be legal tender after midnight of the
8thNovember. Means the high value notes will not be legal for transaction. Although
the old notes can be exchanged till 31st December 2016. There were set an upper limit
of cash withdrawals from bank is ₹10,000 per day (up to ₹20,000 per week) per
account and from ATM ₹2000 per day per account from 10 to 13 November which is
changed from 14 Nov. to ₹24,000 per week from bank and ₹2,500 per day from ATM
per account till 31stDec., although a needy person can withdraw with valid reason.
According to RBI report on 31st march 2016, ₹500 and ₹1000 banknotes consist
around 86% of total cash circulation having value of ₹15.44 lakh crore. In this process
97% of old notes around₹14.97 lakh crore were deposited in bank before
31stDecember.
Demonetization is the act of changing the existing currency in another form. The old
units should be retired and replaced by new currency. In other words demonetization
means either introducing new notes or coins of the same currency or fully replacing
 the old currency with new currency. There is an one important thing exist on
economics, which is remonetisation, in which forms of payment is restored as legal
tender. There are so many reasons, why governments demonetized their nation’s
currency. Some reasons are like resisting inflation, resist corruption, and discourage a
cash system in the country.

History of Demonetization in India

In India, there were many occasions when high denomination banknotes were demonetized.
RBI printed the highest denomination notes of ₹10,000 in 1938. After that government
demonetize ₹1,000 and higher denomination banknotes in 1946. Higher denomination
banknotes (₹1,000, ₹5,000, ₹10,000) reintroduced in 1954 and all of them were demonetized
in1978 to curb unaccounted money. First time ₹500 banknotes were introduced in 1987 in
order to restrain over increasing banknotes, due to inflation and in 2000 again ₹1000
banknotes came back in circulation in order to contain the volume of bank notes in
circulation, due to inflation. However, ₹2,000 banknotes were first time introduced in Nov
2016. Along with India many countries in the world had done demonetization in the history.
Almost countries that had done demonetization had some common objectives
demonetizations which were to curb corruption and black money and their government
decided to demonetize their higher denomination notes to rid of these problems. Here is the
list of some countries that had done demonetization:

: Objective of the study

To describe the demonetization concept in India

To analyze the demographic profile of the respondents in Solan District
To identify the people’s impact on demonetization
1.2 Process

 Cash withdrawals from bank accounts were restricted to Rs. 10,000 per day and Rs.
20,000per week per account from 10 to 13 November.

 The limit was increased to Rs. 24,000 per week from 14 November 2016.

 A daily limit on withdrawals from ATM was also imposed varying from Rs.
20,000per day till 14 November, and Rs. 25,000 per day till 31 December.

 This limit was increased to Rs. 4,500 per day from January 1, and again to Rs. 10,000
from January 16, 2017.

 On 17 November 2016, families were allowed to withdraw Rs. 2,50,000 for wedding
expenses from one account provided it was KYC norm.

 The rules were also changed for farmers who are permitted to withdraw Rs. 25,000
per week from their accounts against crop loans.
 1.3 Concept

 A similar exercise was conducted in 1978 under Prime Minister Morarji Desai. When
the government discontinued, the circulation of Rs.1000, Rs.5000 and Rs.10, 000.
 Then finance Minister HM Patel and then the Reserve Bank of India governor IG
Patel oversaw the demonetization exercise.

In a 40 minute long speech Prime Minister Narendra Modi announced the demonetization of
existing notes of Rs 500 and Rs 1000 during a televised address on Tuesday evening.

Modi announced that the notes of Rs 500 and Rs 1000 "will not be legal tender from
midnight tonight" and these will be "just worthless pieces of paper. PM also urged people to
‘join this mahayojna against the ills of corruption.

Here is a guide for explaining everything about the move.

What was the reason?

The reasoning given by Modi was:
1) To tackle black money in the economy.
2) To lower the cash circulation in the country which "is directly related to corruption in
our country,” according to PM Modi.
3) To eliminate fake currency and dodgy funds which have been used by terror groups
to fund terrorism in India.
4) The move is estimated to scoop out more than more than Rs 5 lakh crore black
money from the economy, according to Baba Ramdev, a staunch Modi supporter.

Who needs to worry?

Not the honest taxpayers. Even if you have Rs 10 lakhs as cash with you and you can
prove its legitimacy, you don’t need to worry.

The surprise move by government is a disaster for people who have accumulated
lakhs and crores of unaccounted cash under their pillows and mattresses. The winter is
coming and these worthless pieces of paper can provide the corrupt some ephemeral
warmth.

What experts think?

Almost all the stalwarts of the banking sector including Deepak Parekh, Chanda
Kocchar think that the move will help curb black money in the economy.

According to MD & CEO, ICICI BankBSE -1.37 % Chanda Kochhar who told ET
Now, "this move will definitely bring about a whole amount of transition to no cash
or low cash kind of transactions,".

"A parallel black economy will collapse," one of the leading lawyers in taxation laws,
Harish Salve told ET Now.

Narayana Murthy, founder of the InfosysBSE -1.79 %, welcomed the government's

move in its fight against corruption. Murthy also added that "the dishonest will have
to suffer, absolutely that is the right thing."

HDFC Chairman Deepak Parekh anticipated that the Land will become cheaper and
"one expects that real estate price will come down in medium term."
1.4 Reasons for Demonetization

We knew terrorism is a frightening threat, but who funds these terrorists? Our enemies
they use the fake currency to sponsor terror-this was proven many a times.
Corruption and black money are the major obstacles in our country. It is weakening the
efforts to remove poverty. Our country is rapidly increasing in terms of growth and we
are in No.1 position in terms of growth but we are ranked 76 in Global Corruption
Perception ranking. It clearly shows how corruption and black money have spread their
tentacles.

 To tackle black money in the economy.

 To lower the cash circulation in the country which is directly related to the corruption
in our country.
 To eliminate fake currency and dodgy funds which have been used by terror groups to
fund terrorism in India.
 To fight black money, corruption, terrorism and counterfeit currency with one single
decision.
 Boost deposit base and savings.
 Improve monetary transmission and reduce lending rates.
 The demonetization drive of higher denominated notes should give a push to cash
deposits in Jan Dhan accounts.
 Benefits from higher income tax collections.
 Rise in GDP growth potential.
 Support government finance.
1.5 Evasion attempts after Demonetization

 Converting black money into Gold.

 Donations in temples and other.
 Multiple bank transactions.
 Booking large number of tickets in railways and airways.
 Depositing money in the accounts of their parents, relatives and friends.
 Enticing people with some percentage of money for exchange.
 Paying bank loans.
 Paying a few months salaries in advance.
 Using their links with bank employees to exchange of notes.
1.6 Impact of Demonetization

1.6.1 Positive Impacts

 Inflation: It will cause deflation in the market as people who have earned money
through illegal ways would be afraid to declare the money as they may be
prosecuted by the Income tax department on the legitimacy of their income.
 Reduction in Monetary Circulation: This will lead to reduction of money
circulation in the economy leading to deflation. Value of money will be increasing
which we have because the total money supply will be going down but the
commodities and things available in the market have not gone down. It will lead
to inflation slowly but not overnight.
 Cash Deposits in Banks: A lot of cash which are legally earned will be deposited
in the banks and now the banks with more deposits will be able to do more
lending.
 Easy Loans: Loans will become easier and interest rates may come down. As
banks will have more money so more loans will be given out which will increase
the money supply in the market and it will create inflation.
Other Positive Impact

 Demonetization impacted 20 trillion human trafficking industries.

 Other sectors like drug trafficking, illegal trade and the money use in it,
funding of election and involvement of various terrorist groups effected badly.
 Steps towards cashless economy.
 Real estate can see significant course of correction.
 Less chance of avoiding taxes.
 Parallel economy.

Negative Impacts

 Cash shortage.
 Stock market crash.
 Dumping of agricultural produce.
 Drop in industrial output.
 Queues outside of bank.
 People faced difficulties in marriage occasions and other.
 Many people done have bank accounts in rural areas.
Research methodology

The methods adopted to collect information on small market were through primary as well as
secondary data. I did a survey in District Solan which is the most important IT hub of India. I
made questionnaires and did survey. The areas I visited were those where most of the people
visit often likes shopping malls, parks and Banks. The people I surveyed were the age above
of 20 years, who were employed in government, industrial and agricultural sector and faced
the consequences of demonetization of bank notes.
 2. Analysis and Interpretation

1. Do you think black money exists in India?

Male Female
Yes 97% 100%
No 3% 0%
Table no. 3.1.1

1
120%

100%

80%

60%

40%

20%

0%
Yes No

Male Female Column2

Bar Diagram no. 3.1.1

Interpretation: After surveying the respondents. It was found that 97% of total respondents
are view that they are think that black, money exist in India. A few numbers that are 3% were
think that black money did not exist in India (Male). After surveying the respondents. It was
found that 100% of total respondents are view that they are think that black, money exist in
India (Female).
2. Do you think the evil of corruption and black money needs to be fought and
eliminated?
Male Female
Yes 67% 73%
No 33% 27%

Table no. 3.2.1

2
80%

70%

60%

50%

40%

30%

20%

10%

0%
Yes No

Male Female

Bar Diagram no.3.2.1

Interpretation: - 67% of the respondents think that evil of corruption and black
money needs to be fought and eliminated. And 33% think that there is no need the
evil of corruption and black money needs to be fought and eliminated (Male). 73% of
the respondents think that evil of corruption and black money needs to be fought and
eliminated. And 27% think that there is no need the evil of corruption and black
money needs to be fought and eliminated ( Female).
 3. What do you think about the government’s efforts against corruption so far?
Male Female
Very Good 17% 27%
Good 41% 33%
Ok 35% 20%
Useless 7% 20%

Table no.3.3.1

3
45%

40%

35%

30%

25%

20%

15%

10%

5%

0%
Very Good Good Ok Useless

Male Female

Bar Diagram no.3.3.1

Interpretation – 17% males think that government effort’s against corruption are
very good and 7% think that the effort’s of government against corruption are useless.
While 27% females think that government efforts against corruption are very good
and 20% think that the efforts of government against corruption are useless
4. What do you think of government’s move of banning old 500 and 1000 notes?

Male Female
Great Move 54% 50%
Good Move 17% 17%
Can’t Say 29% 33%

Table no.3.4.1

4
60%

50%

40%

30%

20%

10%

0%
Great Move Good Move Can’t Say

Male Female

Bar Diagram no.3.4.1

Interpretation- 54% of males think that it’s a great move by government of banning
old 500 and 1000 notes while 50% of females think it’s a great move by government
of banning old 500 and 1000 notes.
5. Do you think demonetization will help in curbing black, corruption and terrorism?

Male Female
Immediate Impact 31% 23%
Medium-long term Impact 48% 40%
Minimal Impact 18% 17%
Don’t know 3% 20%

Table no.3.5.1

5
60%

50%

40%

30%

20%

10%

0%
Immediate Impact Medium-long term Impact Minimal Impact Don’t know

Male Female

Bar Diagram no.3.5.1

Interpretation- 31% of males and 23% of females think that demonetization will
have immediate impact on curbing black, corruption and terrorism while 18% of
males and 17% of females think that demonetization will have minimal impact on
curbing black, corruption and terrorism.
 6. Demonetization will bring real estate, higher education, healthcare in the common
man’s reach?

Male Female
Completely Agree 11% 17%
Partially Agree 37% 37%
Can’t say 52% 46%

Table no.3.6.1

6
60%

50%

40%

30%

20%

10%

0%
Completely Agree Partially Agree Can’t say

Male Female

Bar Diagram no.3.6.1

Interpretation-11% of males and 17% females completely agree that demonetization

will bring real estate, higher education, healthcare in the common man’s reach while
37% of males and females partially agreed.
7. Did you mind the inconvenience faced in our fight to curb corruption, black money, and
terrorism and counterfeiting of currency?

Male Female
Not at all 17% 10%
Little 18% 37%
It was worth it 43% 27%
Yes 22% 26%

Table no.3.7.1

7
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Not at all Little It was worth it Yes

Male Female

Bar Diagram no.3.7.1

Interpretation- 17% of males and 10% of females think that there is no

inconvenience faced in our fight to curb corruption, black money, and terrorism and
counterfeiting of currency while 22% and 26% of females answered yes.
8. Do you believe some anti-corruption activists are now actually fighting in support of
black money, corruption and terrorism?

Male Female
Yes 68% 63%
No 32% 37%

Table no.3.8.1

8
80%

70%

60%

50%

40%

30%

20%

10%

0%
Yes No

Male Female

Bar Diagram no.3.8.1

Interpretation- 68% of males and 63% of females believed that some anti-corruption
activists are now actually fighting in support of black money, corruption and terrorism
while 32% of males and 37% of females disagreed.
9. According to you what would be the impact of Demonetization on the Indian
economy in the upcoming time?

Male Female
Positive Impact 48% 53%
Negative Impact 28% 27%
No Impact at all 14% 13%
Can’t say 10% 7%

Table no.3.9.1
60%
9
50%

40%

30%

20%

10%

0%
Positive Impact Negative Impact No Impact at all Can’t say

Male Female

Bar Diagram no.3.9.1

Interpretation- 48% of males and 53% of females think that demonetization will
have positive impact on the Indian economy in the upcoming time while 28% of
males and 27% of females think that it will have negative impact.
10. According to what factor should be eliminated by the demonetization in India?

Male Female
Parallel Economy 26% 13%
Terrorism 32% 14%
Poverty 14% 10%
Corruption 28% 63%

Table no.3.10.1

10
70%

60%

50%

40%

30%

20%

10%

0%
Parallel Economy Terrorism Poverty Corruption

Male Female

Bar Diagram no.3.10.1

Interpretation- 26% of males and 17% of females think that parallel economy should
be eliminated by the demonetization in India while 32% males and 14% of females
think that terrorism should be eliminated by the demonetization in India.
 Observation and Findings

It is found that 56 % of respondents are male and rest 44% is female.

It is found that 98% respondents agree that black money exist in India whereas only 2% of
the respondents says black money do not exist in India.

It is found that 67% of the respondents think that evil of corruption and black money needs
to be fought and eliminated. And 33% think that there is no need the evil of corruption and
black money needs to be fought and eliminated (Male). 73% of the respondents think that evil
of corruption and black money needs to be fought and eliminated. And 27% think that there
is no need the evil of corruption and black money needs to be fought and eliminated (
Female).

It is found that 54% of males think that it’s a great move by government of banning old 500
and 1000 notes while 50% of females think it’s a great move by government of banning old
500 and 1000 notes.

It is found that 31% of males and 23% of females think that demonetization will have
immediate impact on curbing black, corruption and terrorism while 18% of males and 17% of
females think that demonetization will have minimal impact on curbing black, corruption and
terrorism.

It is found that 11% of males and 17% females completely agree that demonetization will
bring real estate, higher education, healthcare in the common man’s reach while 37% of
males and females partially agreed.

It is found that - 68% of males and 63% of females believed that some anti-corruption
activists are now actually fighting in support of black money, corruption and terrorism while
32% of males and 37% of females disagreed.

It is found that 48% of males and 53% of females think that demonetization will have
positive impact on the Indian economy in the upcoming time while 28% of males and 27% of
females think that it will have negative impact.

It is found that 26% of males and 17% of females think that parallel economy should be
eliminated by the demonetization in India while 32% males and 14% of females think that
terrorism should be eliminated by the demonetization in India.
 Recommendation and Suggestions

First priority should be preserve cash. Only use cash to buy things which are essential.

If you have higher number of Rs 500 and Rs1000 currency notes, deposit them in your bank
accounts rather than waiting on long queues to exchange for Rs 4000 worth notes. There is
no restriction for depositing cash in your account.

If you have received a large amount as cash in real estate transaction or gold sales, you
should deposit that in your bank account. You will have to give your PAN for any cash
deposit above Rs50000 in a day. You should consult a charged account that will help you
file your tax returns. You may have to pay tax but it is better to pay tax than losing your
money.

If somebody asks you to deposit their cash in your bank account and later withdraw cash
and return to them, please do not do it. Tomorrow you will be answerable to the tax
authorities for the source such money.

If you are used to making chit payments or repaying some borrowing in cash, give cheques
in the place of cash or do fund transfer to their bank account either through bank branch or
net banking.

Try to use debit card as far as possible while purchasing in super markets or for bill
payments.
 CONCLUSION
Demonetization is the act of stripping a currency unit of its status as legal tender.
Demonetization has been implemented in our country by our Prime Minister Narendra Modi
on 08 November 2016 in order to fight against corruption, black money, terrorism and
counterfeiting of currency.
From the above study I would like to conclude that demonetization has both positive and
negative impact.
The move was not properly planned and hence the middle and lower income group people
had to suffer a lot from the move. The people had to stand in a queue for hours to exchange
or withdraw their own money that too not as per their requirements and there were no
separate rules made for woman and senior citizens to easy the withdrawal /deposit process.
The banks/ ATM’s were not regularly filled with cash due to the high demand of cash
throughout the country. People had to forego their potential opportunities retaining to
carrier/personal life because of insufficient money supply. The people also faced difficulties
in using the new currency notes in the market the higher currency notes are thought to be
corruption friendly and make it easier to hold black money it also increase the risk of entry of
fake notes in the market as the new notes do not possess any additional security feature.
However, this step has to be taken in order to eliminate many legal activities that were taking
place in a country and in the country with more than 125crore population the outcome could
be nothing else than this .
 BIBILIOGRAPHY
1. http://en.eikipedia.org/wiki/Indian_500_and_1000_rupee_note_demonetisation
2. http://www.gpedia.com/en/gpedia/indian_500_and_1000_rupee_note_demonetisation
3. http://jaipuria-jaipur.forumotion.org/t33p75-do-good-intentions-matter-ifthey-lead-tobad-
outcomes
4. http://www.trendingnews.co.in/search/pradhan-mantri-garib-kalyan-yojan/2
5. http://www.ndtv.com/topic/pradhan-mantri-garib-kalyan-yojana
 Annexure
A questionnaire on the effects, causes and consequences of Demonetization
in India

Age_________ Gender__________ Profession________________

1. Do you think black money exists in India?

Yes ( ) No ( )

2. Do you think the evil of corruption and black money needs to be fought and
eliminated?
Yes ( ) No ( )

3. What do you think about the government’s efforts against corruption so far?
Very good ( ) Good ( )
Ok ( ) Useless ( )

4. What do you think of government’s move of banning old 500 and 1000 notes?
Great move ( ) Good move ( ) will make no difference ( )

5. Do you think demonetization will help in curbing black, corruption and terrorism?
Immediate impact ( ) Medium to long term impact ( )
Minimal impact ( ) don’t know ( )
6. Demonetization will bring real estate, higher education, healthcare in the common
man’s reach?
Completely agree ( ) partially agree ( ) can’t say ( )

7. Did you mind the inconvenience faced in our fight to curb corruption, black money,
terrorism and counterfeiting of currency?
Not at all ( ) little ( )
Somewhat, but it was worth it ( ) Yes ( )

8. Do you believe some anti-corruption activist are now actually fighting in support of
black money, corruption and terrorism?
Yes ( ) No ( )

9. According to you what would be the impact of Demonetization on the Indian

economy in the upcoming time?
Positive Impact ( ) Negative Impact ( )
No Impact at all ( ) can’t say ( )

10. According to what factor should be eliminated by the demonetization in India?

Parallel Economy ( ) terrorism ( )
Poverty ( ) Corruption ( )