DEMONETIZATION

CHARAK RAY
libra.charak@gmail.com
 THE GOVERNMENT OF INDIA, MADE AN
ANNOUNCEMENT ON NOVEMBER 8, 2016 WITH
PROFOUND IMPLICATIONS FOR THE INDIAN
ECONOMY.
 LEARNING OBJECTIVES
• Understand the concept of demonetization
• Examine the economic environment in India and
the impact of Government policies on business and
industry.
Demonetization refers to an economic policy
where a certain currency unit ceases to be
recognized or used as a form of legal
tender. In other words, a currency unit still
loses its legal tender status as a new one
comes into circulation.
 The two largest denomination notes, ‘500’ &
‘1000’, were demonetized’ with immediate effect,
ceasing to be legal tender except for a few
specified purposes such as paying utility bill.

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.

Restrictions were placed on the convertibility of domestic money

and bank deposits.
WHAT ALL IS THERE IN
DEMONETIZATION ?
RECAPITULATION

Q-1 WHAT IS DEMONETIZATION?

Q-2 WHAT IS THE PURPOSE OF DEMONETIZATION?
Q-3 WHAT IS THE IMPACT OF DEMONETIZATION OF TAX
COLLECTION?
Q-4 HOW THE BUSINESS OF REAL ESTATE DECLINE
AFTER DEMONETIZATION?
 DEMONETIZATION HISTORY

• Many countries have experimented with the

process of demonetization in the past. Some
countries benefited tremendously from the move
while some terribly failed at it.
Although the history of demonetization in India dates back to the time when various rulers
ruled this country, the freshest and most significant instances of demonetization in India are:

1.On 12th January 1946, 500, Rs. 1,000 and Rs. 10,000 notes were declared invalid as legal
tender.

2. New notes of Rs. 1000, Rs. 5000 and Rs. 10,000 came into economy in 1954.

3. On 16th January 1978, the Morarji Desai led-Janata Party demonetized banknotes of Rs.
1000, 5000 and 10000. Note that, the finance minister at that time was H.M. Patel.

4. RBI introduced a new banknote of Rs. 500 into the economy in 1987 to contain inflation

5. On 8th November 2016, the old banknotes of Rs. 500 and Rs. 1000 were barred from
being legal tender and new notes of Rs. 2000 were soon introduced.
 The High Denomination Bank Notes (Demonetisation) Act, 1978
THE HIGH DENOMINATION BANK NOTES (DEMONETISATION) ACT, 1978

ACT NO. 11 OF 1978 [ 30th March, 1978.]

An Act to provide in the public interest for the demonetisation of certain high
denomination bank notes and for matters connected therewith or incidental thereto.

WHEREAS the availability of high denomination bank notes facilitates the illicit
transfer of money for financing transactions which are harmful to the national
economy or which are for illegal purposes and it is therefore necessary in the public
interest to demonetise high denomination bank notes;
 RESERVE BANK OF INDIA ACT,
1934
• Legal tender character of notes. (1) Subject to the provisions of sub-
section (2), every bank note shall be legal tender at any place in 1
[India] in payment or on account for the amount expressed therein,
and shall be guaranteed by the 2 [Central Government]. (2) On
recommendation of the Central Board the 3 [Central Government]
may, by notification in the Gazette of India, declare that, with effect
from such date as may be specified in the notification, any series of
bank notes of any denomination shall cease to be legal tender 4 [save
at such office or agency of the Bank and to such extent as may be
specified in the notification].
1. On which date Prime minister of India announced
Demonetisation ?
 07,November
 13,November
 09,November
 08,November
 19,November
In India for the first time demonetisation announced in which year ?
 A.1946
 B.1974
 C.1999
 D.1962
 KEY WORDS
• End of the License-Permit-Quota Raj.
• Freedom in deciding the scale of business activities
• Making it easier to attract foreign capital and technology to India.
• Policy of planned disinvestments
• Dilution of stake of the Government in the public enterprise
• Increased level of interaction and interdependence among the various
nations of the global economy.
• Import liberalization, export promotion
• Tax evasion will no longer be tolerated or accepted.
• Rise in income tax collection because of increased disclosure
THANK YOU…