DEMONETIZATION

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 What we will discuss
• WHAT IS DEMONETIZATION?
• ANNOUNCEMENT
• OBJECTIVE
• BACKGROUND
• PERSONS EFFECTED
• REACTION OF PEOPLE
• ADVANTAGES
• PITFALLS
• ANALYSIS OF THE STEP
• SUGGESTIONS
• CONCLUSION OR WAY FORWARD

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 WHAT IS DEMONETIZATION?
Demonetization is the act of stripping a currency unit of its status as
legal tender. It occurs whenever there is a change of national currency.
The current form or forms of money is pulled from circulation and
retired, often to be replaced with new notes or coins.

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 ANNOUNCEMENT
• On 8 November 2016, Modi announced the
demonetisation in an unscheduled live national
television addressed at 20:15.In the
announcement, Modi declared that all ₹500
and ₹1,000 banknotes of the Mahatma Gandhi
Series will not be the legal tender, effective
from the midnight of the same day, and
announced the issuance of new ₹500
and ₹2,000 banknotes of the Mahatma Gandhi
New Series in exchange for the old notes.
Other denomination notes will continue to be
valid.

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 OBJECTIVE
• This step was taken to curtail the shadow(black) economy ,corruption
and crack down on the use of illicit and counterfeit cash to fund illegal
activity and terrorism.

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 BACKGROUND
• It was not the first time when demonetization was done in the
country.
• In 1946 and 1978 also, it has been done.

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 PERSONS EFFECTED
The sudden nature of the announcement and the prolonged cash shortages in the weeks that
followed created significant disruption throughout the economy, threatening economic output.

• Almost every single individual was affected by the decision.

• Poorly and the elderly were the worst hit.
• People working in unorganised sectors.
• People who didn’t have any banking knowledge.

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 REACTION OF PEOPLE
• MIXED RESPONSE- Some people admired the step, while others
criticized it severely.
• Former Senior Vice-President and Chief Economist of the World
Bank, Kaushik Basu, called it a 'major mistake' and said that the
'damage' is likely to be much greater than any possible benefits
• Indian-American economist Jagdish Bhagwati praised the
demonetisation.
Some people called the biggest scam in India’s history.

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 ADVANTAGES(IN DISGUISE)
• Human trafficking- Nobel laureate Kailash Satyarthi and others working to fight human trafficking
said that the note ban had led to a huge fall in sex trafficking, but that the trade had already begun
rebounding by the following month.

• Radical groups- Demonetisation has badly hit Maoist and Naxalites as well. The surrender rate has
reached its highest since demonetisation was announced. It is said that the money these organisations
collected over the years have now lost their value making them take such a decision.

• Financial Inclusion in the banking system.

• Proliferation In Digital transactions and cashless economy-
BHIM,UPI,TEZ,PAYTM,ETC.

• Tax impacts- Increase in the tax base and advance tax payments.
• Reduction in inflation.

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 PITFALLS
• Cash shortage - The scarcity of cash due to demonetisation led to chaos, and most people holding old
banknotes faced difficulties in exchanging them due to endless queues outside banks and ATMs across India.
• GDP(Gross Domestic Product)- India's GDP growth for the quarter Jan-Mar '17 was 6.1% as
against a forecast of 7.1% by economists. The GDP growth for the entire fiscal year was 7.1%, a reduction from the
8% of the previous year
• Deaths- By the end of the year, opposition leaders claimed that over 100 people had died due to
demonetisation. In March 2017, the government stated that they received no official report on deaths connected
to demonetisation.
• Major drop in the industrial output- The Purchasing Managers' Index (PMI) fell to 46.7 in
November from 54.5 in October, recording its sharpest reduction in three years
• People left with the old currency notes.
• Unemployment- particularly in unorganised sectors.
• Decline in the stock market for short term- As a combined effect of demonetisation
and US presidential election, the stock market indices dropped to an around six-month low in the week
following the announcement.

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 TAX EVASION TECHNIQUES
• Donations in temples
• Multiple bank transactions
• Railway bookings
• Backdate Accounting
• Gold purchases
Different steps were taken by the government to combat these
techniques, later on.

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 ANALYSIS OF THE STEP
Black money- The government had estimated that ₹3 trillion, or
approximately 20%, of the demonetised notes would be permanently
removed from circulation. However, by 30 December 2016,
approximately 97% of the demonetised banknotes had been deposited
in the bank.
A Central Bank report released in August 2017 stated that a total 99%
of the ₹ 500 and ₹ 1000 notes that were demonetised returned to the
banking system.

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 SUGGESTIONS
Implementation of demonetization could have been better.
1. Banking infrastructure could have been improved to handle the
crisis peacefully with better computer system and improved
internet speed.Current Banking Infrastructure was not ready to
handle such decision.
2. It was a very big decision, so the government could have
anticipated tax evasion techniques or loopholes that could be used
by the people so that the government could attain its objective and
the faith of people would have remained in the government.

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 CONCLUSION OR WAY FORWARD
• Even though it is Evident from above that due to Demonetization our
Country faced a number of Problems but it should also be noted that
almost all the sectors have recovered from the shock of
Demonetization and we are moving towards digital economy which
has the potential to change the shape of our country for the
betterment of every citizen of India.

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