AF TAB -2 0 2 3 E XE M B A3 4

SUB H ASM ITA-2 0 2 3 E XE MB A3 6

RUHAN-2023EXEMBA25 MARCH 2024
AYA S K A N T- 2 0 2 3 E X E M B A 0 6
S M R U T I - 2 0 2 3 E X E M B A 3 5​

Submitted to :
Prof Ishika Jaiswal

Demonetization
TA B L E O F C O N T E N T S

01 Introduction

02 Implementation of Demonetization

03 Short-Term Impacts

04 Long-Term Effects

05 IS-LM framework

06 Analysis and Critiques

07 Conclusion

08 References
INTRODUCTION
Demonetization in India refers to the sudden policy action taken by the
Government of India on November 8, 2016, where ₹500 and ₹1000 banknotes were
declared invalid as a legal tender with immediate effect. This bold move meant that these notes
could no longer be used for transactions and could only be exchanged at banks and post offices.
This initiative, announced by Prime Minister Narendra Modi, was one of the most significant
financial interventions in recent Indian history, affecting nearly 86% of the country's currency
in circulation at the time.

The primary purpose and goals of the demonetization policy were multifaceted
and aimed at addressing several critical issues within the Indian economy and
society:
• Curbing Black Money
• Fighting Corruption and Illicit Financial Activities
• Promoting Digital Payments
• Counterfeit Currency
Implementation of the Demonetization

S P E C I F I C D E TA I L S O F T H E P R O C E S S C H A L L E N G E S FA C E D D U R I N G I M P L E M E N TAT

1. Currency Notes Demonetized 1. Cash Shortages

2. Deadlines 2. Impact on Banking and ATM
3. Rules for Exchange and Deposit Infrastructure
4. Exemptions 3. Logistical Issues
4. Economic Disruption
Short-Term Impacts of the Demonetization Policy

ON THE ECONOMY ON DIFFERENT SECTORS ON THE PEOPLE

1. GDP Growth 1. Banking 1. Urban vs. Rural Impact

2. Inflation 2. Real Estate 2. Effects on Different Income Groups:
3. Employment 3. Retail and Informal Sector
Long-Term Impacts of the Demonetization Policy

SOCIAL AND POLITICAL

ECONOMIC REFORMS
1. Digital Payment Initiatives
2. Changes in Tax Compliance
E C O N O M I C I M PA C T
1. GDP Growth
2. Cashless Transactions
3. Black Money and Tax Collection
I M P L I C AT I O N S
1. Social Impacts
2. Political Implications
IS-LM framework during The Great Depression at global level and during Demonitisation with respect to Indian Perspective.

Demonetization, a monetary policy enacted by India in 2016 to void certain high-value notes against crime and corruption, directly impacts the
IS-LM model, which links output and interest rates in an economy. Unlike fiscal policies that shift the IS curve, demonetization shifts the LM
curve leftwards by reducing money circulation, thereby lowering output and raising interest rates initially. Its long-term economic effects remain
debated, highlighting the IS-LM model's limitations in capturing policy intricacies.

IS-LM Equilibrium:
Analyzing IS-LM equilibrium changes post-demonetization reveals shifts in both
curves to the left, indicating a decrease in national output (Y). Unexpectedly,
interest rates dropped, contrary to the typical response to reduced money supply.
This anomaly suggests a significant drop in real sector activity, heavily shifting the
IS curve leftward, which decreased aggregate output from Y1 to Y2. This scenario
supports the hypothesis of a GDP decline, as theorized by Manmohan Singh. The
lower interest rate results from reduced demand for money, offsetting the initial
expected rise due to decreased money supply. This period also saw the Indian
government urging the RBI to lower rates, reflecting complex monetary policy
dynamics and their impact on the economy.
Analysis and Critiques of the Demonetization Policy

CRITICISMS OF THE SUPPORT AND DEFENSE OF

D E M O N E T I Z AT I O N P O L I C Y THE POLICY

1. Execution Challenges 1. Long-term Benefits

2. Impact on Economic Growth 2. Curbing Black Money and Corruption
3. Questionable Impact on Black Money 3. Fighting Counterfeit Currency and Terrorism Funding
 THE CONCLUSION

The 2016 demonetization in India aimed to combat black money, encourage

digital transactions, and improve tax compliance, marked a pivotal moment in its
economic history. Despite achieving an accelerated shift towards digital
payments and a more formal economy, its primary goals of eradicating black
money and corruption faced challenges, with significant immediate economic
and social disruptions. Comparative analyses suggest the necessity of meticulous
planning, robust infrastructure, and protective measures for vulnerable groups.
Future policies should adopt a holistic and gradual approach, emphasizing clear
communication and comprehensive support to effectively tackle complex
economic issues while minimizing adverse impacts .
Thank You
2 0 2 3 E X E M B A 3 4 - A F TA B
2 0 2 3 E X E M B A 3 6 - S U B H A S M I TA
2023EXEMBA25-RUHAN
2 0 2 3 E X E M B A 0 6 - AYA S K A N T
2023EXEMBA35-SMRUTI​
REFERENCES

1. Government of India, Ministry of Finance. (2016). Press Release on Demonetization.

2. Reserve Bank of India. (2017). Annual Report.
3. Modi, Narendra. (2016). Address to the Nation on 8 November 2016.
4. Central Statistics Office, India. GDP Quarterly Estimates.
5. World Bank. (2017). India's Economic Update.
6. International Monetary Fund. (2017). Country Report on India.
7. Sharma, R. (2017). "The Effect of Demonetization on the Indian Economy." Journal of Economic Studies.
8. Kumar, A. (2016). "Black Money and Demonetization." Indian Journal of Finance.
9. Patel, U. (2017). Speech on Demonetization Impact. Reserve Bank of India.
10. Das, S. (2018). "Digital Payment Systems and Demonetization: The Indian Experience." Journal of Digital Banking.
11. Economic Times. Various articles on demonetization impacts (2016-2017).
12. Hindustan Times. Analysis on the long-term effects of demonetization (2018).
13. Bloomberg. (2016-2017). Reports on market reactions and economic forecasts post-demonetization.
14. NITI Aayog. (2017). Report on the Digital Payment Revolution Post-Demonetization.
15. PricewaterhouseCoopers (PwC). (2017). Analysis on the Impact of Demonetization on Black Money.
16. KPMG. (2017). "India's Leap Towards Digital Economy."
17. Brookings Institution. (2017). "Demonetization and Its Impact on the Indian Economy."
18. The Indian Express. Op-eds and expert commentaries on demonetization (2016-2017).
19. Joshi, V., & Little, I. M. D. (2017). "India's Long Road: The Search for Prosperity." Oxford University Press. [For comparative economic policies context].
20. Gupta, P. (2017). "Demonetization, Digital Payment Systems, and Cyber Security." Cybersecurity Journal.