The Great Indian

Demonetization
Author: Amartya Lahiri

Published by: American Economic Association

Presentation by: Kashish Bhambri and Aishwarya Mahesh

DEMONETIZATION
What? When? Who? Why? How?
 Why was demonetisation brought about?

4 major reasons:

● Reduce corruption

● Eliminate counterfeit currency

● Push India to become a modern digitalised economy

● Bring unaccounted income into the tax network

 History of

demonetisation
January 12, 1946 and January

16, 1978
 What were some of the concerns that came with
this move?

Preparedness of Achieving the Economic costs of

RBI stated goals the move
 The story of the ticking clock
99% of old cash was returned- what did people do?

The public had 2 methods of exchanging money:

● Swap currency
● Deposit old cash in bank account
 Was RBI prepared for this?

➔ Deputy governor recommended demonetization

● the supply of 500- and 1,000-rupee bills had grown
by 76 and 108 percent
● black money

➔ The RBI issued 57 official circulars

between November 9 and December 31,
2016.
➔ Importance of KYC and declaration of
income
 Achieving the Stated Goals

Jaitely in his speech said,

“To integrate the informal economy into the formal sector- There is

greater integration of informal economy taking place with formal economy

that leads to larger and cleaner GDP, that was our objective behind the

decision on demonitisation.”
Some of the early stated goals were:

● To seize the black wealth created through undeclared income that was
stored in the form of cash holdings

● Increase the tax base by forcing people to exchange demonetized bills

through the banking sector

● To convert the economy into a more digitized one that was less dependent
on cash
 Impact on Tax Revenues

1. Seizing black wealth- Direct and Indirect Method

2. Changes in tax/GDP ratio

3. Comparison of direct tax ratio before and after demonetization

4. Assessment of the impact on tax revenues

 Creating a more digitized India

1. Converting into a cashless economy

2. Effect on the labour force and informal sector

3. Evaluation of the impact on digital transaction

4. Analysis of the digitization goal

 Economic costs of Demonetization

1. Unemployment after demonitisation

2. Implication for the labour market as a whole

3. Diminished supply of cash

4. Impact on Interest rates and Bank credit conditions

 Conclusion
● Evidence suggests that demonetisation did not lead to a significant

change in taxes
● 3.5 million jobs lost
● Central Statistical Organization reported GDP growth in the fiscal year
2016–2017 was 8.2 percent
● Suggestion: Demonetized just the 1,000-rupee bills
THANK YOU