Demonetization and

its impact on indian

Economy
BY To
Ritvik Tyagi Ms Ritu Redhu
XI-Commerce-B
Learning Paths School
Certificate

This is to certify that Ritvik Tyagi,a student of XI-Commerce-B of Learning

Paths School has successfully completed the practical during the academic
session 2023-24 for economics under the guidance of subject Teacher,Mrs Ritu
Redhu
ACKNOWLEDGEMENT

I would want to convey my gratitude to everyone who has assisted me in finishing my

practical successfully. Firstly, I would like to thank CBSE for giving me this opportunity and

learn more about this subject. Secondly, I would like to express special thanks of gratitude

to Mrs. Ritu Redhu, my Economics teacher for her able guidance and support. Finally, I

would like to thank everyone who has helped me along the way, including my parents and

friends in completion of this practical within the limited time frame.

It was a great learning experience.

Introduction
Definition of Demonetization

Demonetization is a process undertaken by a government or central bank

to declare certain currency notes or coins as no longer legal tender or as
invalid for transactions. In other words, it is the act of stripping a specific
currency unit of its status as a valid medium of exchange.
Explanation of the Demonetization event in
India

The demonetization event in India refers to a major economic policy

move undertaken by the Indian government on November 8, 2016. The
Prime Minister at the time, Narendra Modi, announced the immediate
demonetization of ₹500 and ₹1,000 banknotes, which constituted a
significant portion of the country's cash circulation.
Objectives of
Demonetization
Explanation of the objectives behind the
demonetization move in India

The demonetization move in India, announced on November 8, 2016, had several objectives. The
primary objectives behind this Action were:

● Curbing black money

● Combating corruption
● Curbing counterfeit currency
● Promoting digital transactions
● Enhancing tax compliance
● Promoting financial inclusion
Curbing black money and corruption

Curbing black money and corruption were significant objectives behind the demonetization move in
India. Here's how demonetization aimed to address these issues:

● Exposing unaccounted wealth

● Disrupting hoarding of illicit funds
● Promoting digital transactions and traceability
● Enhancing tax compliance
● Reducing corruption opportunities
Encouraging a shift towards digital
transactions

One of the objectives behind the demonetization move in India was to encourage a shift towards digital
transactions. Here's how demonetization aimed to achieve this goal:

● Cash scarcity
● Promotion of digital infrastructure
● Incentives and Promotions
● Financial inclusion
Demonetization Process
Timeline of the demonetization process in
India

Here is a timeline of the demonetization process in India:

● November 8 2016
● November 9 2016
● November 10 2016
● November 11-13 2016
● November 24 2016
● December 19 2016
● December 30 2016
● January 2 2017
● March 31 2017
Demonetized currency notes and the
introduction of new currency

Demonetized Currency Notes: ₹500 notes: The ₹500 banknotes, which were the highest denomination
at the time, were demonetized. They ceased to be legal tender from midnight on November 8, 2016.
₹1,000 notes: The ₹1,000 banknotes, which were also high-value currency notes, were demonetized
along with the ₹500 notes.

Introduction of New Currency Notes: ₹2,000 notes: As part of the demonetization process, new ₹2,000
banknotes were introduced. These notes had enhanced security features and were of higher value than
the demonetized ₹500 and ₹1,000 notes. Revised ₹500 notes: In addition to the ₹2,000 notes, the
Reserve Bank of India (RBI) introduced new ₹500 banknotes to replace the demonetized ₹500 notes.
These revised ₹500 notes featured updated security elements.
2000 rupee note withdraw

The Reserve Bank of India (RBI) on Friday(19 May 2023) decided that it will withdraw
the Rs 2,000 denomination banknote from circulation, a move that has triggered mixed
reactions across the country.

The RBI has asked all the banks to provide deposit and/or exchange facility for Rs 2,000
banknotes till September 30, 2023.
Immediate Impact on Cash
Transactions
Disruption of cash-based transactions in the
economy

the demonetization of ₹500 and ₹1,000 banknotes in India caused a significant disruption to cash-
based transactions in the economy. Here are some key aspects of this disruption:

● Cash shortage and liquidity crunch

● Impact on consumer spending
● Disruption in retail and informal sector
● Impact on agricultural activities
● Challenges for informal workers
Long queues at banks and ATMs

Following the demonetization of ₹500 and ₹1,000 banknotes in India, long queues formed outside
banks and ATMs as people rushed to exchange their old notes or deposit them into their bank accounts.
Here are some key points regarding the long queues at banks and ATMs
Impact on Black Money and
Corruption
Efforts to unearth black money and curb
corruption

The demonetization move in India was aimed at unearthing black money and curbing corruption. Here
are some of the efforts made to achieve these objectives:

● Scrutiny of Deposits
● Income Tax Department Investigations
● Demonetization Data Analysis
Demonetization impact on undisclosed
income and illegal activities

Demonetization in India had an impact on undisclosed income and illegal activities. Here are some key
aspects of this impact:

● Unearthing undisclosed income

● Increased tax compliance
● Reduction in cash based activities
● Impact in fake currency
● Disruption of financing illegal activites
Impact on Tax Compliance
and Formalization of
Economy
Increase in tax compliance and formalization
of the economy

Demonetization in India had a significant impact on increasing tax compliance and promoting the
formalization of the economy. Here are some key aspects of this impact:

● Widening of tax base

● Enhanced monitoring and data Analysis
● Increased tax fillings
● Transitions to digital payments
● Integration with GST
● Voluntary Disclosure Schemes
● Improved Tax Administration
Growth in tax collections and widening of
the tax base

Demonetization in India had an impact on the growth in tax collections and the widening of the tax
base. Here are some key aspects of this impact:

● Increased Tax Revenues

● Expansion of tax base
● Identification of Non-Compliant Taxpayers
● Integration with GST
Effect on Economic Growth
Short-term impact on economic growth and
GDP

The short-term impact of demonetization on economic growth and GDP in India was a subject of
intense debate and analysis. Here are some key points regarding the short-term impact:

● Temporary Economic Disruption

● Decline in GDP Growth
● Slowdown in consumption and investment
● Cas dependent Sectors affected
● Disruption in informal economy
● Impact on employment
Disruptions in various sectors of the
economy

Demonetization in India caused disruptions in various sectors of the economy. Here are some key
sectors that were particularly affected:

● Informal and Small-scale Businesses

● Agriculture
● Real estate
● Retail and customer goods
● Construction and Infrastructure

etc