Demonetisation

Meaning: Demonetisation is the act of removing a currency unit of its status a legal tender

Demonetization:
• The Government of India, made an announcement on November 8, 2016 with thoughtful
implications for the Indian economy.
• The two largest denomination notes, Rs 500 Rs 1,000, were ‘demonetized’ with immediate
effect, ceasing to be legal tender except for a few specified purposes such as paying utility
bills.
• This led to eighty six per cent of the money in circulation invalid
• The people of India had to deposit the invalid currency in the banks which came along with
the restrictions placed on cash withdrawals.
Aim of demonetization
1. Form a less-cash or cash-lite economy: - Channeling more savings through the formal
financial system and improving tax compliance.
2. Adding savings into the formal financial system. Though, much of the cash that has been
deposited in the banking system is bound to be withdrawn but some of the new deposits
schemes offered by the banks will continue to provide a base loan, at lower interest rates.
3. Check on tax evasion: -following demonetization, people were forced to declare their
unaccounted cash balance.
4. Rise in government revenue: Cash holdings arising from declared income was deposited in
banks and exchanged for new notes. But those with black money had to declare their
unaccounted wealth and pay taxes at a penalty rate. Accordingly government revenue was
expected to rise.
5. To eradicate counterfeit currency: Counterfeit currency enhances money in circulation and
contributes to inflationary spiral. It destabilizes the economy
6. To tackle black money in the country: It refers to unaccounted money. Holders of black
money avoid payment of tax on this money. By demonetizing high value currency notes, the
government wanted to eliminate the stock of black money in the economy.

Positive Impact
1. Check on food inflation
2. Elimination of fake currency
3. Surge in cash deposits
4. Push towards digitization
5. Tax compliance
6. Real estate cleansing

Negative Impact of demonetization

1. Inconvenience to the public
2. Adverse on trade business and consumption
3. Huge loss to daily wage earners because they were left with no jobs and their
employers were unable to pay their daily wages
4. Dent in GDP growth: There was 2% decline in country’s GDP growth as a
consequence of demonetization.
5. Slump in real estate: Sale and purchase in this sector has touched the rock-
bottom.
Conclusion: Note ban in India has shown good result in the elimination of black
money and eradication of corruption, it has certainly dented our GDP.