DEMONETISATION

Amritpal Kaur
DEMONETIZATION
ION
 DEMONETISATION

•Act of removing a currency unit of its status as legal tender

•HISTORY
•1946: Rs. 1,000 and Rs. 10,000
•1978: Rs. 1,000 , Rs. 5,000 and Rs. 10,000

•RECENT
•8th November,2016: Rs. 500 and Rs.1,000
•Amounted to withdrawal of 86% of currency in circulation
 EXTENT OF
DEMONETISATION

•8th November,2016: Dooms day for unaccounted cash holders

•Led to massive loss of liquidity in the economy

•Demonetised currency: valued at Rs. 15.4 trillion

: 86.9% of total currency in circulation
 REASONS OF
DEMONETIZATION
 REASONS OF
DEMONETISATION
• Elimination of black money
• Eradication of Corruption
- High valued notes are generally accepted as bribe
• Elimination of Counterfeit Currency (Imitation Currency)
• Elimination of Terror Funding
• Money Laundering (Hidden transfer of money)
• Cashless Economy
• Rise in Government Revenue
• Fight Tax Evasion
• Financial Inclusion
- Poor people deposit cash in Jan Dhan Accounts
- Can avail loans from banks on the basis of deposits
 GOOD IMPACT
OF
DEMONETIZATIION
 GOOD IMPACT OF
DEMONETISATION

• Check on Food Inflation

- liquidity crunch led to fall in stock piling of food-grains
• Elimination of Fake Currency ( 100% )
• Surge in Cash Deposits
- in Jan Dhan Accounts
- Rs. 11.5 Lakh crore deposited in banks
• Attack on Hawala Transactions
( Hidden transactions and transfer of money )
• Realisation of Overdues
- People rushed to banks to clear loans, property tax, electricity bills etc.
 GOOD IMPACT OF
DEMONETISATION

• Push towards Digitisation

- People driven to digital mode of transactions
- A big move towards cashless economy
- Promoted banking habits
• Tax Compliance ( Compliance : act of confirming)
- A shift from cash transactions to digital led to better tax compliance
- Recorded a noticeable rise in tax to GDP ratio
• Real Estate Cleansing
- This sector served as centre-stage of shadow economy ( economy that is
driven through black money transactions)
- With removal of black money this sector lost its sheen for speculative
investment through black money
 BAD IMPACT
OF
DEMONETIZATION
 BAD IMPACT OF
DEMONETISATION
• A Deep Hurt to Economic Sentiment
- Banning nearly 86% currency : Serious cut in monetary base
- declined from Rs. 22.5 trillion to Rs.13.7 trillion
- Economic sentiment hurt: Economic activities suffered
- Production, Consumption, Investment and Exchange : received big jolt
• Large Scale Lay-off in Unorganised Sector
• Dent in GDP Growth
- Nearly 2% decline in GDP growth rate
• Slump (drop) in Real Estate
• Inconvenience to the Public
- Sudden announcement made situation chaotic
 BAD IMPACT OF
DEMONETISATION

• Costly for the Government

- Replacement of all Rs 500 and Rs. 1,000 notes: cost RBI at least Rs. 12,000 crore
• Difficulty in Non-cash Transactions
- Half of population : not well versed with the card transactions
• Corruption and Fraud
- Baking and Post office personnel : illegally exchanged old currency
- Misuse of Jan Dhan accounts to exchange black money
• Huge Loss to Daily Wage Earners
- Lost jobs: Employers were unable to pay their daily wages