International Journal of Commerce and Management Research

International Journal of Commerce and Management Research

Demonetisation: A SWOT analysis

Abstract
On November 8, 2016, India has seen a few historic announcements from the Prime Minister’s office in relation to cancelling the
high denomination of 500 and 1000 rupee notes. The high denomination currency notes make about ~85% of the total cash circulated
in India. In the announcement, PM Narendra Modi declared that use of all 500 and 1,000 banknotes would be invalid after midnight
of that day, and announced the issuance of new 500 and 2,000 banknotes of the New Series in exchange for the old banknotes. This
paper makes an attempt to do an in-depth analysis of the strengths and weaknesses that are integral to this hard-hitting measure.
This paper also analyzes the broader opportunities and threats to identify the potential problems. Here this paper would try to
identify the risks and rewards hidden in this decision and what could have been a better option while implementing this sudden
change without affecting the common people of India.

Keywords: demonetization, strengths, weaknesses, opportunities, threats

1. Introduction against black market money and tax evasions which have now
Demonetization is defined as an act of stripping a currency unit assumed enormous proportions.
of its status as legal tender. Demonetization is a radical
monetary step in which a currency unit’s status as a legal tender 2. Second Demonetization - 16 Jan 1978 (Source: RBI
is declared invalid. This is usually done whenever there is a History 1967-81, RBI Balance Sheet, RBI Currency
change of national currency, replacing the old unit with a new and Finance Report)
one. Demonetization is not a new concept in the past also it has On 16 Jan 1978, the ordinance was announced via All India
been utilized by various countries as well as India to curb Radio at 9 AM. The Ordinance provided that all banks and
currency some failed very badly with this move. Zimbabwe, government treasuries would be closed on 17 January 1978 for
Fiji, Singapore and Philippines were other countries to have transaction of 'all business except the preparation and
opted for currency demonetization. SWOT analysis is a presentation or the receipt of returns' that were needed to be
process that identifies the strengths, weaknesses, opportunities completed in the context of demonetization. This time public
and threats of anything. Specifically, SWOT is a basic, was given even lesser time of 3 days to exchange Rs 1000, Rs
analytical framework that assesses what can be done and 5000 and Rs 10000 notes.
cannot be done, as well as its potential opportunities and
threats. A SWOT analysis takes information from an 1.2 Latest demonetisation in India
environmental analysis and separates it into internal strengths On November 8 evening at 8:15 p.m., Prime Minister Modi, in
and weaknesses, as well as its external opportunities and his televised address to the nation, made Rs 500 and Rs 1000
threats. Strengths describe what a thing excels at, allowing notes invalid, saying that it was aimed at curbing the “disease”
decisions on how to gain a competitive advantage. Weaknesses of corruption and black money which have taken deep root.
stop a thing from performing at its optimum level. They have People holding notes of Rs 500 and Rs 1,000 can deposit the
the potential to reduce progress or to give a competitive edge same in their bank and post office accounts from November 10
to the competition. Opportunities refer to favorable external till December 30. All notes in lower denomination of Rs 100,
factors that a thing can use it its advantage. If utilized Rs 50, Rs 20, Rs 10, Rs 5, Rs 2 and Re 1 and all coins continued
effectively, opportunities have the potential to create a to be valid, and new notes of Rs 2,000 and Rs 500 were
competitive advantage. Threat refers to factors that have the introduced. There was no change in any other form of currency
potential to negatively impact anything. exchange be it cheque, DD, payment via credit or debit cards
etc. The total value of old Rs.500 and Rs.1000 notes in the
1.1 History of demonetisation in India circulation is to the tune of Rs.14.2 trillion, which is about 85%
1. First Demonetization - 12 Jan 1946 (Source: RBI of the total value of currency in circulation. This movement
History 1935-51, pg 706) rendered everyone surprised as this was momentous decision
Following the action in several foreign countries, including and unexpected one which was declared without any prior
France, Belgium and the U.K., the Government of India information.
decided on demonetization of high denomination notes, in
January 1946. It is interesting that as early as April7, 1945, 1.3 Objectives of the study
suggested similar action in India as 'one more concrete 1. To highlight what are the Strengths and Weaknesses of
example for the Indian Government to follow in its fight Demonetization.

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2. To also highlight what are the Opportunities and Threats  Unaccounted Wealth: Wealth can be created in any form.
of Demonetization. It may be in the form of cash, gold, real estate, foreign
currency, illegal business and many more. The wealth
1.4 SWOT Analysis which is kept in cash is only reduced but the wealth kept
The deadline that the Prime Minister Modi had set is over. So, in other forms is untouched and post demonetization the
now it’s time to identify the strengths, weaknesses, cash form was converted into several other forms. It was
opportunities and threats of a major economic decision of eradication of black cash but not black wealth.
demonetization.  Cashless mode is less: Post demonetization many people
were forced to go to cashless and use of plastic money was
1.5 Strengths publicized. But the infrastructure of getting cashless was
 Black money: The very most important aim of zero.
demonetization is to curb the black money with the people.  Sluggish Economy: Demonetization has made people to
This move was a very shocking for those who had deposit money into banks. There is an increase in the
unaccounted cash of Rs.500 and Rs.1000 notes. deposits, and on those deposits the banker is liable to pay
 Counterfeits: Many numbers of transactions in a parallel the interest. The interest paid on deposits becomes an
economy is being done with the counterfeit notes which expense and those deposits cannot be able to distribute as
are widely circulated. The elimination of fake currency is loans to people in the sluggish economy.
inevitable, and one also hopes that a check is well in place  Banks: For the Banking sector this decision was a very
while these notes are routed through banking channels. It burdensome as there was no prior preparation so they were
will be a tremendous achievement. not ready for such a blast.
 Countering Terror & Crime: Through demonetization
there was a drastic fall down in the terror activities in the 2. Opportunities
country as well as crime rate has also come down because,  Financial Inclusion: Demonetization acts as an overture
people are left with no cash to make the crime happen. towards financial inclusion. As this decision has a lot of
While the government has clearly pointed out the use of impact on people who were not in practices of banking
fake currencies by terror outfits, some have spoken about system and its products and services.
uses of cash by criminals.  Digital economy: This decision can make India cashless
 Timing: No timing is perfect, but in hind-sight, the timing (i.e.,) Digitalized. Almost all the transactions can be made
seems obvious. If we connect the dots, the very first online through this effect and makes India a step forward
decision of Modi Govt was to establish a SIT on Black towards Digital economy. This digitalization also benefits
Money. Then came the massive roll-out of the Pradhan to curb malpractices.
Mantri Jan-Dhan Yojana (PMJDY) nearly completing all  High cost of Future Crimes: Cash facilitates crime
citizens’ access to bank accounts. The next was crack because it is anonymous and big bills are easy to carry. By
down on hoarders /foreign accounts (approximately RS. inflicting a cost, demonetization cripples the ability to
80,000 Cr was collected). Then followed the Income engage in future corruption. It is far easier indulging in
Declaration Scheme, with a deadline of 30th Sept 2016. crime with substantial cash in hand. The costs of crime
Another window of opportunity was given to people to will become much higher and will have an indirect but
declare their amassed wealth. (Rs. 65,000 Cr collected) powerful impact on future corrupt practices committed
Now, if you still have the Black Money, the government with the help of currency.
will ensure that either you declare and become mainstream  Corruption: There will be decrease in the corruption of
or else face the hammer. Commendable chronology! India because people will not be left with enough cash to
 Cashless economy: By ensuring that all transactions are give corruption and also the takers will afraid of taking
digitized, the Modi government is also pushing people to corruption because of getting caught.
opt for a cashless economy. Such an economy aims to  Checks on Loose Sectors: Black money spawns in an
ensure that the corruption is minimized and the money in economy in areas where the checks and balances are weak
circulation can be traced. and have larger cash component in their transactions like
 Special features: The new notes have come up with some commodity hoarding and trading, movie production,
additional features which makes difficult to replicate. campaign finance, and of course real estate. Since liquidity
dries up, hoarders’ and black-marketers’ holding power
1.6 Weaknesses collapses leading to prices collapse. Demonetization will
 Preparedness: The entire banking and postal system were result in a correction in these markets, either by a reduction
caught unaware. The government says that it will now take in prices or a reduction in business. We will see the
two more weeks to configure all ATMs. The situation is outcome in time to come. However, these corrections will
testing in small towns, most ATMs are still not dispensing move the market to equilibrium reflecting genuine demand
cash, and some branches are easily running out of cash. It and supply in the real economy.
seems that the planning ahead of such massive event  Merchant payment gateways and POS terminal economy
lacked matching preparedness. A maximum cap of Rs boosted immensely.
2500 was leveled on withdrawals in a day. The lines were  Higher visibility of the transactions at individual level to
long and unending. People even lost their lives standing in the government.
those lines.  More accurate taxation starting this financial year.
 Real-estate business to be more transparent.
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3. Threats
 Punishment: Demonetization has become a punishment
to the people because; they are facing a lot of problems
due to scarcity of money in an economy. People are living
their daily work to stand for the long queue in front of
banks to get very limited money which will not satisfy
them completely. If the government does not invest all its
energies into replenishing and re-calibrating ATMs,
festering inconvenience will lead to backlash and has
potential to undo the intended good work. Daily wage
earners, truck drivers don’t have much time to stand in line
every day.
 Sluggish Business: The business activities have gone to
very lower point as people are falling short of cash to
purchase the items which they wanted to have. So, people
are postponing all their purchases which has lead to
sluggish in the business.
 Panic and Confusion: This is the biggest threat. The
political discourse is at the lowest. The opposition parties
have been quick to fuel and magnify public annoyance
over the teething problems. Misinformation and confusion
is being propagated on an hourly basis to see to it that
somehow this move is unsuccessful. Even majority of the
TV channels, instead of being helpful or providing tips to
people, are indulging in fear-mongering. OpIndia.com has
busted many such rumor mongering.
 Illegal exchange of Demonetized cash.
 Proposals to reintroduce some high value currency may
bring back the black money market into business.
 Confusion: Several people died of heart attack when they
got to know that there hard earned money could not be
used anymore. Though the Govt. has been trying to quell
confusions, frequent change in policies and notifications
by the RBI has infused panic among people.

4. Conclusion
I conclude this paper saying ‘no gain without pain’. The
Government has tried something different to make the country
better place to live in. The decisions may cause a lot of pain
but in the future periods it will benefit a lot. The Govt. and RBI
are working on it to make life normal as it was earlier.
The Govt. and RBI should take necessary steps to flood the
banks and ATMs with cash, eradicating that scarcity.
Watchmen, carpenters, maids, shopkeepers, cooks, sweepers,
almost all are showing relatively calm, positive and mature
understanding of the after effect. The people standing in queues
in front of banks and ATMs are taking it very easy and acting
boldly towards the decision.

5. References
1. http://indianexpress.com/article/business/economy/what-
is-demonetisation-what-are-different-ways-of-
demonetisation-and-demonetisation-in-india-by-pm-
modi-explained-4374115/
2. http://blogs.timesofindia.indiatimes.com/cash-
flow/demonetization-in-1946-and-1978-stories-from-the-
past/
3. http://www.inuth.com/india/50-days-of-demonetisation-
swot-analysis-of-modis-economic-decision/
4. http://www.opindia.com/2016/11/swot-analysis-of-the-
demonetisation-move/

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