NAME OF THE SUBJECT : CORPORATE LAW

NAME OF THE TOPIC : DEMONETIZATION

CLASS: MFM ( SEM 4)
BATCH 2015-18
NAME OF THE INSTITUTE : MET INSTITUTE
GROUP NAMES
JANCYRANI NADAR 85
ASHOK ANCHAN 61
MERLYN COELHO 65
SWATI SHETTY 96
OLSON PREIRARA 89
UJWALA TODKAR 102
INTRODUCTION
Demonetization is the act of stripping a currency unit of its status as legal tender.
The demonetisation of 500 and 1,000 banknotes was a policy enacted by the Government
of India on 8 November 2016, ceasing the usage of all 500 (US$7.40) and 1,000 (US$15)
banknotes of the Mahatma Gandhi Series as legal tender in India from 9 November 2016.[1]
The announcement was made by the Prime Minister of India Narendra Modi in an
unscheduled live televised address at 20:00 Indian Standard Time (IST) on 8 November.[2][3]

OBJECTIVES OF STUDY

1) Government was under pressure to control black money

2) Higher tax structure is root cause of black money

3) Role of Tax and Financial Consultants in Black Money

4) RBI Report on alarming NPAs in Public Sector Banks

5) NPAs, Structured Assets and Write off in Gross Advances by Dec. 2015

6) Fake specified bank notes were largely in circulation and it was difficult to
identify genuine bank notes from the fake ones and that the use of fake currency
notes was causing adverse effect to the economy;

7) High denomination bank notes were used for storage of unaccounted wealth as
evident from the large cash recoveries made by law enforcement agencies;

8) Fake currency were causing damage to the economy and security of the country
by financing subversive activities such as drug trafficking and terrorism,

9) To make digital india

 DEMONETIZATION HAS POSITIVE & NEGATIVE EFFECTS

Positives
E-commerce and Fintech
1) Payment gateways
2) Cards
3) Mobile wallets
4) Online retail
5) Net and payment banks
6) e-marketplace

Negatives
Agriculture
Luxury goods
Real Estate
Commodities
Traditional Retail
1) Consumer durables
2) Consumer non-durables

COMPARATIVE ANALYSIS OF IMPACT ON INDIAN STOCK

MARKET AND ASIAN STOCK MARKET
IN PRESENT SCENARIO At the time of writing, the Indian markets have fallen a bit more
than other emerging markets in Asia. The S&P BSE Sensex is down 3.8%, which is more
than more or less all other Asian emerging markets

. The possibility of a Donald Trump win is keeping markets on the edge worldwide. The extra
fall in the Indian markets compared to others could be due to many factors, including high
valuations, but its very likely that the demonetization effect is mainly responsible for the fall.
That is clearly seen if we dig a little deeper

. The Sensex is made up of very large companies which may not be impacted as much by the
demonetization process. BSEs mid-cap and small-cap indices have fallen by over 6% each at
the time of writing. And in truth, the largest impact of the governments move will be in the
unorganized sector,
PROCEDURE FOR DEMONETIZATION
The Reserve Bank of India laid down a detailed procedure for the exchange of the
demonetized banknotes with new Rs.500 and Rs.2000 banknotes of the Mahatma Gandhi
New Series and RsS banknotes of the preceding Mahatma Gandhi Series. Following are the
key points:

Citizens will have until 30 December 2016 to tender their old banknotes at any office
of the RBI or any bank branch and credit the value into their respective bank
accounts.
Cash withdrawals from bank accounts will be restricted to Rs.10, 000 per day and
Rs.20,000 per week from 9 November 2016 till 24 November 2016.

For immediate cash needs, the old banknotes of value up to Rs.4000 per person can be
exchanged for the new Rs.500 and Rs.2000 banknotes as well as Rs.100 banknotes
over the counter of bank branches from 10 November 2016 by filling up a requisition
form along with a valid ID proof
All ATMs will dispense bank notes of only 50 and 100 rupee denominations.
Banks will provide all cash withdrawal transactions at their ATMs free of cost to their
customers till 30 December 2016
Cash withdrawals from ATMs will be restricted to Rs.2000 per day per card up to 18
November 2016 and the limits will be raised to Rs.4000 per day per card from 19
November 2016
However, exceptions were given to petrol pumps, CNG stations, government
hospitals, train and airline booking stations, state-government recognized dairies,
ration shops, and crematoriums to accept the 500 and 1000 rupee notes until 14
November
International airports were also instructed to facilitate an exchange of notes
amounting to a total value of Rs.5, 000 (US$74) for foreign tourists and out-bound
passengers.

DEMONETIZATION HISTORY

The first instance was in 1946 and the second in 1978 when an ordinance was promulgated to
phase out notes with denomination of Rs 1,000, Rs 5,000 and Rs 10,000.

The media in terms of numbers was limited in 1946 and 1978 when compared to 2016. But
given the importance of the decisions, it did trigger coverage.

Newspaper and magazine archives of the 1946 decision do not seem to be available online.
Therefore, I relied on Reserve Bank of India commissioned history of Indias central bank to
get an idea of how a stakeholder perceived the decision.
A Times of India report (sourced in-house) published on 17th January 1978 said:
A press note issued tonight said that the ordinance had been promulgated because there
was reason to think that high-denomination notes were facilitating the illegal transfer of
money for financing transactions which are harmful to the national economy or which are for
illegal purposes.. The demonetisation of high denomination currency notes will hit black
money hard.

Indias demonetization initiative

long lines of people looking to exchange notes still spew out of banks, some sectors of the
economy continue struggling with the lack of readily available cash, grassroots businesses are
still being revolutionized with electronic payment capabilities, and masses of people continue
transitioning towards new ways of paying for basic goods and services.
On Nov. 8, 86% of Indias currency was nullified in a great demonetization effort that aimed
to clean out the black market's cash supply and counterfeit notes which completely disrupted
the social, political, and economic spheres of the worlds second largest emerging market. All
500 and 1,000 rupee notes were instantaneously voided, and a 50 day period ensued where
the population could (ideally) redeem their canceled cash for newly designed 500 and 2,000
rupee notes or deposit them into bank accounts.

India has done this before. In 1946, all 1,000 and 10,000 rupee notes were recalled. In 1978,
1,000, 5,000, and 10,000 rupee notes were demonetized.

This recent bout of demonetization was planned in secret by a small, tight-knit group led by
Prime Minister Modi, and it overtook the country like a flash flood. This surprise was by
design, as it was feared that if the black market caught wind of what the government was
planning they would find ways to rapidly unload their illicit cash, and the initiative would
flop on one of its initially-stated goals.
Of course, this meant that the rest of Indian society was also caught in
the demonetization crossfire. Not even the banks who would be required to do the heavy
lifting on the ground were in the loop. In the days following Modis announcement, the
banks didnt have enough of the newly designed banknotes on-hand to distribute in exchange
for the canceled notes, and there simply wasnt an adequate supply of smaller denominations
in circulation to run the cash economy. Far from being a 50 day transition, it is estimated that
even if Indias printing presses were to run 24/7 it would take upwards of four months to a
year before the currency supply was adequately restored.
More articles about Modi demonetization initiative here and here.
 Recommended by Forbes

I personally think it's a chicken or egg situation because the more prepared you are, the more
people who are aware, the more opportunity you're giving to people to find loopholes in the
system, said Arpan Nangia, the head of the India desk for HSBCs commercial banking
division. Whereas the downside of making it a surprise was [that] the government and the
central bank were severely unprepared to manage the whole situation.

Modis demonetization initiative caused a sudden breakdown in Indias commercial

ecosystem. Trade across all facets of the economy was disrupted, and cash-centric sectors
like agriculture, fishing, and the voluminous informal market were virtually shutdown, with
many businesses and livelihoods going under completely -- not to mention the economic
impact of millions of people standing in line for hours to exchange or deposit canceled
banknotes rather than working or doing business.

"The unbanked and informal economy is hard hit," explained Monishankar Prasad, the New
Delhi-based author and editor for Alochonaa, an Australian current events publication. "The
poor do not have the access to structural and cultural resources to adapt to shock doctrine
economics. The poor were taken totally off guard and the banking infrastructure in the
hinterland is rather limited. The tech class has poor exposure to critical social theory in order
to understand the impact on the ground. There is an empathy deficit."
However, although Indias demonetization initiative was seemingly severely mismanaged,
this doesnt mean that the entire endeavor was a complete failure. 35 days in, there are some
positive indicators.

Like most other above-ground industries, Indias shadow economy had its financial legs
taken out from under it with Modis currency purge. Similar to the other financial sectors
mentioned above, the cash-centric black market for the most part ceased to function with the
nullification of the bulk of its currency.

I think, in the immediate term all sorts of illegal activities, like terrorist financing, etc... have
been completely hit, Nangia said.

While, like in other sectors, this virtual shutdown of the black market is more than likely only
temporary, there may be some longer-lasting impacts. Cashless transaction systems have
been encouraged across the board, which will not rid India of its massive shadow economy
but may make it a little tougher to conduct business. Also, this initiative indicates that such
wide-ranging, deep-striking governmental actions to combat what it sees as corruption could
happen again.
The demonetization process has also repaired India's counterfeiting problem for the near to
mid-term. It was previously estimated that 250 out of every million Indian bank notes were
fakes. This recent culling of the bulk of the country's currency instantly rendered counterfeits
as valuable as the paper theyre printed on. It has also been reported that the new 500 and
2,000 rupee notes are less vulnerable to counterfeiting, having advanced security features
with one report claiming that it will be impossible for Pakistan (Indias counterfeiting
bogeyman) to fake them.

It is also thought that Modis demonetization drive will wipe out a measure of corruption and
tax evasion in Indias real estate market.

In certain parts of the country there used to be always an official amount and an unofficial
amount for property, Nangia explained. Now with this so-called black money going out of
the window people are expecting that the price of real estate is going to fall, which is going to
make it more affordable for honest, tax paying people.

However, the biggest potentially positive impact of the demonetization campaign for India's
government is its inherent push to get more people onto the dominant economic grid, where
they can be more readily regulated and taxed. Indias economy is essentially rooted in the
cash-centric informal market, which is responsible for up to 45% of GDP and 80% of
employment. Beyond that, up until the demonetization campaign, upwards of 95% of all
monetary transactions were conducted in cash and upwards of 40% of the population were
completely unbanked. By disrupting the engine which drove the cash economy, Modi hopes
that more of the population can be brought into the fold by using taxable systems of
economic exchange, such as bank accounts and e-wallets.

"A lot more retail outlets are accepting e-wallets, including my laundry provider and
my dabbawala," commented Prasad. "This is revolutionary, and survival of the fittest."
If a large amount of people and businesses are brought into the bosom of the formal economy
via the demonetization program, then India could be in for a boost in liquidity and an
apparent increase in its recorded economic growth rate. Forbes contributor Naazneen Karmali
stated that Indias banks could get turbocharged, as $75 billion in old currency pours into
the system in the form of new deposits.
"If you are moving the informal economy into the formal economy and if the transactions
which for years were never reported as part of GDP are now transacted through banking
channels, it will only add to the GDP," Minister of State Piyush Goyal told the Economic
Times.
However, this doesn't make anyone better off--we are after all already insisting that the
economic activity was already taking place, and also insisting that we're just changing
whether we count it or not, Forbes contributor Tim Worstall pointed out.

This potentially broad swath of people being push onto the economic grid also theoretically
means more revenue for the government coffers.

A digital economy is an economy which is tracked in real time. Each transaction is mapped.
Every taxman likes numbers. It will certainly help expand the tax net, Prasad proclaimed.

SUGGESTIONS

With an intention to rid the country of black money and dig out tax defaulters and black
money hoarders, government has taken step to demonetized Rs 500 and 1000 notes. This
move will have major impact on the parallel economy but sudden announcement and failure
to prepare in advance has created temporary chaos and discomfort among the general public.
Common Men are finding it difficult to buy with no money in pocket, wasting hours in
queues which although could have been avoided if planned in advance.

Apart from temporary hardship, it will also have some negative ramification on economy like
contraction in money supply and thus a slight deflationary impact, disruption in liquidity
situation, making unorganized sector volatile etc. These effects are short term in nature and
but in longer run this move will promises larger benefit to India. Some of the benefits are:

Move will help government to fight menace of Black money and help in to root out
counterfeit currency being circulated by non-state actors in India.

Boost deposit base and saving in formal sector: With this move, people are forced to deposit
money into the banks. With this monetary transmission, will improve and interest rates will
fall.

With lots of cash with bank, this could drive a virtuous cycle in the economy where industry
could borrow money at cheaper rates from formal financial system, boosting production and
demand and giving employment which in turn will feed the cycle.

Demonetization move will help to institutionalize the real estate sector bringing more
transparency in the Indian real estate industry as much of money being invested in this sector
was unaccounted cash which fueled prices here.

Non-Performing Asset will go down :

Ushering cashless economy: The demonetisation scheme would result not only in people
reviewing their need for hoarding cashboth for transaction and precautionary purposes
but also in quicker adoption of the digital technology that enables cash-less transaction
RECOMMENDATION

1) As it is very obvious and convenient to carry and store huge money (unaccounted) in
high denomination, banning old notes will certainly give nightmares to black money
hoarders as they wont be able to convert it into new legal tenders very easily and
without leaving any footprints. Thus the total cash flow for political parties will be
reduced.

2) With the reduced cash flow Political parties will be forced to cut down there expenses
and the malpractices like distribution of cash ,drugs, liquors to lure voters will be
stopped as they will have to use the limited cash for actual election related work.

3) Also big corporate houses and Industrialist who used to donate huge money to political
parties in the name of election funds by force or by choice with some vested interest
(expecting favors) wont be able to contribute any money and thus we can expect
political parties wont extend any favors to them ultimately curbing crony
capitalism leading to creation of atmosphere conducive for perfect competition.

CONCLUSION

Parallel economy is a new threat for the Indian economy. In India parallel economy is
expanding very rapidly.. There are many factors like Controls and Licensing System, Higher
Rates of Taxes, Ineffective Enforcement of Tax Laws, Inflation, Funding of political parties
etc. that influence its growth. In India amount of black money are increasing continuously
which badly impacts the economic growth of the nation. Such money is a new challenge for
Indian economy. Indian economy is badly affected by black money as it is underestimating
GDP, increasing inequality of income, increasing illegal activities etc.

BIBLOGRAPHY

http://www.business-standard.com/article/economy-policy/five-likely-effects-of-
demonetisation-on-economy- 116110901411_1.html

http://www.business-standard.com/article/economy-policy/five-likely-effects-of-
demonetisation-on-economy-

http://economictimes.indiatimes.com/articleshow/55348597.cms?utm_source=contentofintere
st&utm_medium= text&utm_campaign=cppst

http://www.financialexpress.com/economy/history-of-demonetisation-when-morarji-desai-
government-ceasedrs-500-rs-1000-and-rs

Newspapers: The Economics Time, NOVEMBER 2016 The Business Line, DECEMBER
2016