DEM O NE T ISAT IO N

DIWAKAR
WHAT IS DEMONETIZATION ?

• “DEMONETIZATION IS THE WITHDRAWAL OF A

PARTICULAR FORM OF CURRENCY FROM
CIRCULATION.”
• IT IS A PROCESS BY WHICH A SERIES OF CURRENCY
WILL NOT BE LEGAL TENDER.
• THE SERIES OF CURRENCY WILL NOT ACCEPTABLE AS
VALID CURRENCY.
 WHAT HAPPENED ON
DEMONETIZATION

• ON 8TH NOVEMBER 2016, GOVERNMENT OF INDIA HAD ANNOUNCED THAT

FROM TODAY ONWARD RUPEES 500 AND1000 RUPEE NOTE WILL NOT BE A
LEGAL TENDER.
• MEANS THAT 500 AND 1000 RUPEE NOTES WILL NOT BE ACCEPTED BY ANYONE
EXCEPT THE ORGANIZATION DECLARED BY THE GOVERNMENT.
• PUBLIC CAN DEPOSIT AND CHANGE THE CURRENCY FROM THE BANKS AND
POST OFFICES TILL 30TH DECEMBER 2016.
 DEMONETISATION OF 1978

• In January 1978, the Indian government demonetized Rs 1,000, Rs 5,000 and Rs 10,000
notes
• The move was enacted under the High Denomination Bank Note (Demonetization) Act,
Under the law all “high denomination bank notes” ceased to be legal tender after January
16, People who possessed these notes were given till January 24 the same year — a
week’s time — to exchange any high denomination bank notes.
• The main difference between then and now is that currency of higher denomination was
barely in circulation, unlike the Rs 500 and Rs 1000 note today.
 THERE CAN BE MANY
CAUSES OF
DEMONETIZATION IN ANY
WHAT ARE THE
ECONOMY SUCH AS :
C AUSES OF
DEMONETIZATION? • BLACK MARKETING,
• CURRENCY STORAGE,
• CORRUPTION,
• FAKE CURRENCY IN THE
ECONOMY ETC
 • In 1978, demonetization was carried out in India but
that policy did not end black money. In fact, black
money possibly increased over time, thereafter.
• So, this time again the demonetization announced on
8 November 2016 may not end or even significantly
dent black money, unless there are structural
D E M O N E T I S AT I O N reforms in the rest of the economy on a sustained
I S N OT S U F F I C I E N T basis to reduce black money.
• There is a need for stricter collection of taxes and
further simplification of tax laws, and reasonable
regulations in areas such as real estate, foreign trade,
remittances, political donations, mining and gold, so
that incentives to deal in black money in the first
place are minimized.
HOW DEMONETIZATION OF INDIA IS
DIFFERENT

• In India’s case, the move has been taken to curb the menace
of black money and fake notes by reducing the amount of
cash available in the system.
• It is also interesting to note that this was not the first time
the Government of India has gone for the demonetization of
high-value currency.
• It was first implemented in 1946 when the Reserve Bank of
India demonetized the then circulated Rs 1,000 and Rs
10,000 notes.
• The government then introduced higher denomination
banknotes in Rs 1000, Rs 5000 and Rs in a fresh avatar eight
years later in 1954 before the Morarji Desai government
demonetized these notes in 1978.
 Check on food inflation: Liquidity crunch led to a substantial
fall in stock piling of food grains.

Elimination of fake currency: There was 100% elimination

of fake currency (counterfeit currency ) from the economy.
P O SIT IV E IM PACT O F
DEM O N ET ISAT IO N
O N IN DIA N Surge in Cash deposits: There was a surge in cash deposits
ECO NO MY: in Jhan Dan Accounts. This promoted financial inclusion to its
top gear.

Realization of Overdues: People rushed to clear their

overdues related to bank loans, property tax, electricity bills
etc. because the government provided a window of clearing the
old dues by using the old (demonetized) currency
 Push towards digitization: This was a big
move towards cashless economy. It also
promoted banking habits of the people, a big
leap towards financial inclusion.

P O SIT IV E IM PACT O F Tax Compliance: A shift from cash to

DEM O N ET ISAT IO N banking transactions led to better tax
O N IN DIA N compliance
ECO NO MY:

Real estate cleansing: Demonetisation led

to a deep cleansing of real estate sector. This
sector served as the centrestage of shadow
economy
 A Deep Hurt to Economic Sentiment: The idea of
banning nearly 86% of the currency in circulation led to a
serious cut in monetary base of the country

Large -scale lay off in unorganized sector: Nearly 90

percent of the workforce in India is engaged in the informal
sector in order to earn their livelihood and they are highly cash
N E GAT I V E I M PACT O F dependent and cash sensitive.
D E MO NE T ISAT IO N
O N INDIA N
ECO NO MY: Dent in GDP growth: Massive lay-off and declining economic
sentiment implied a significant dent in GDP growth.

Slump in Real Estate: Demonetisation has led to slump in

real estate sector of the economy. This sector has been one of
the prime GDP drivers in the Indian economy
 CONCLUSION

• Economists are busy in pointing out the pros and cons of the demonetization policy, but the government
opines that the former outweighs the latter.
• Even though there is suffering and agony among the masses, but the government is very optimistic and point
out that the benefits of this policy will be evident in the long run.
• Note ban in India has shown good result in the elimination of black money and eradication of corruption.
• Government should take all the necessary measures to minimize the hardships being faced by the public.
• It is expected that demonetization policy will bring about positive changes in our economy.