PROJECT WORKK

PROJECT 1
Demonetisation In India
INTRODUCTION

On the 8th of November, 2016, when the had

sun descended below the horizon and the
d day had completely faded, light
a
misty light of a new economy was brewing over the
It was decided to demonetise high value currency notes of denomination of 500 andcountry.
1,000
called specified bank notes SBNs).
This decision caused sensation in the whole
country. Social Media was flooded with messages
and information. People started counting the trash
they had accumulated for years legally or
illegally.
Rumours became rife. Some tried to invest their
dying currency in gold. Some contacted their
near and dear ones in this miserable hour.
People could get only 4,000 of old denomination
exchanged with the new one. Big queues before the banks and ATMs became the order of the day.
Instead of getting shorter, these queues were
getting longer with every passing day. The last
date for the whole process was 30th December, 2016.

MEANING OF DEMONETISATION
Demonetisation is the act of removing a currency unit of its status as Legal Tender. Legal Tender
Money is the money which can be legally used to make payment of debts or other obligations.
Demonetisation is necessary whenever there is a change of national currency. The old unit of
Currency must be retired and replaced with a new currency unit. The decision of demonetisation
was in continuation of a series of measures taken by the Government of India during 2014-16,
which aimed at eliminating corruption, black money, counterfeit currency and terror funding.
The main aim of the decision was to reduce corruption, encourage greater digitisation of the

economy, increase flow of financial savings and greater formalisation of the economy. All
of these were expected to increase GDP growth and tax revenues that could be used by the
Vernment for inclusive and stronger economic growth within the norms of fiscal prudence,
besides contributing to overall improvement in business environment

P.1
 P.2 Introductory Macroeeconomi

ATMs Shut For 2 Days Not More Than 2K A 0ay Per Card Deposit Notes At Bants New tS00& 2,000 Notes
Banks Closed Today From ATMs Till Nov 18. 4k Ater That Post Offices Til Dec 31 November 10 To Chech From
Fakes
Black Out? R500, 1000 Notes N0 Longer Valid
Surgical Strike On C IOURC ATMs run dry as
error Funding. people rush to
ndisclosed Money draw 00 notes

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The big bonanza...

Demonetisation promises to be the
opportunity for the company biggest
ginnlng F a
PauTm
Cleanlndia
4
months Sudarsan Pattnaik, famous sand artist,
mn ahead of lauds Govt's
demonetisation move.
transactions worth its targets
7120 crore a day
is the
is what Paytm saw
in the first 12 immediate gain
days
Black
of demonetisation according to
Paytm

IS THE ESTIMATED
LGOP Moneey
ANNUAL
GROWTH IN MOBILE PAYMENT PAY
TRANSACTIONS TILL 2021-22 oN
TERROR BANNED P

DIVI NOTE 8 PRO

Proyect W o r k

EMONETISATION IN INDIA
On
th November,
2016, the Indian
Government decided to demonetise
notes, the two biHest denomination the f ) ar
If
notes. These notes accounted for
r u p e e

country's cash supply. alrnert #, *

.
As per the scheme, people
ald notes of 500 and 7
can
deposit the
1,000 in banks or
nOstoffice accounts till 31st
December, 2016.
However, government has asked banks and
post offices to report to the UDD
Income Tax
Department all deposits above 2.50 lakh
in savings accounts and more than T 12.50
lakh in current accounts, made
500 and 1,000 rupee notes.
during the 50-day window provided to tender the
scrapped
.The aim of the
government's was to eradicate
counterfeit currency, fight
eliminate black money and terrorist financing activities tax
evasion,
and to promote a cashless
By making the larger denomination notes econom.
sums of black worthless, individuals and entities with
money were forced to convert the huge
to acquire tax money bank which is by law
at
information from the entity. required
India's Past Experience with
Demonetisation: The term Demonetisation' is not
Indian economy. India has new to the
carried out demonetisation
1978. The highest denomination exercises twice before, in 1946 and
note ever
10,000 note in 1938 and again in 1954. But printed by the Reserve Bank of India was the
these notes were demonetised
and again in
January 1978, according to RBI data. However, demonetisation in January 1946
did not have a in the past
big impact on the country as less than 5%
of population in India had
access to such notes and most
banks never had such
currency notes.
However, with the latest round of demonetisation, the
common public and bankers are
undoubtedly facing
hardship as around 86% of currency in circulation has been
rendered illegal in one single stroke. It has resulted in a
Significant decrease in liquidity in the short-term, which People had to wait to exchange or
IS deposit their old high denomination
expected to ease gradually with the introduction and
bank notes.
circulation of the new currency notes.

REASONs FOR DEMONETISATION

e r e are multiple reasons why nations demonetise their local units of currency. Some reasons
include:
To eliminate Black Money
To eradicate Counterfeit Currency
P.4 IntroductoryMacroeconomics
To fight Tax Evasion
To discourage Cash Systenm in theeconomy
To combat Inflation

MUCH BEFORE THE DECISION OF DEMONETISATION

1here is a background to the decision of Demonetisation of 500 and 7 1,000 notes. The
government has taken few steps in this direction much before 8th November, 2016 announcenment

As a first step the government had urged people to create bank accounts under Jan Dhan
Yojana. They were asked to deposit all the money in their Jan Dhan accounts and to do

their future transactions through banking methods only.

The second step that the government initiated was tax declaration of the income and
government had given 30th October, 2016 deadline for this purpose. Through this method,
the government was able to mop up a huge amount of undeclared income.

However, there were many who still hoarded the black money and in order to tackle them,
the government announced the demonetisation of 500 and 1,000 currency notes.
The Demonetisation Policy is being seen as a financial reform in the country but this decision
is fraught with its own pros and cons.

PROS OR BENEFITS OF DEMONETISATION

1. Reduction in Black Money: One of the biggest advantage of demonetisation is that it is
expected to drastically affect the corrupt practices. It will help the government to track
people who are having large sums of unaccounted cash or cash on which no income tax
has been paid. After demonetisation, all the unaccounted cash is of no value and people
will have only two options: (i) Either to deposit it in their bank accounts and pay taxes on
such amount; (i) Or to let the value of that cash reduced to zero.
2. Reduction in Illegal Activities: Black money is used for illegal activities like terrorism
funding, gambling, money laundering and also inflating the price of major assets classes
like real estate, gold, etc. Due to demonetisation, all such activities will get reduced for
some time and it will take years for people to generate that amount of black money again.
3. Redution in Counterfeit (Forged) Currency: Most of the fake currencies used to be in
the denominations of 500 and 7 1,000 notes. Withdrawing them and introducing new
currency definitely tantamount to a surgical strike on these groups.
4. Cashless Economy: It is practically impossible to have a 100% cashless economy. Howeves,
the proportion of hard cash in the economy will decrease and our economy will get mor
digitized. Alternative payment methods, such as e-wallets, online transactions using
e-banking, debit and credit card usage will increase significantly. This will increase usage
such
of payment systems and enable a shift towards an efficient cashless economy. it will
also result in greater transparency.
Oecl bork P.5

No Cash! Go Digitai

Surging From Cash to a Cashless Economy

5. Reduclion in Ciovernment Liability: The old currency will become worthless for those
people, who choose not to disclose their income. Thus, it will reduce government's liability
to that extent. It is expected approximately 7 5 lakh crore may come to the government in
the form of extinguished RBI liability, taxes and penalties.
6. Increase in Tax Revenue: There is an incredible rise in tax collections. Property Tax, Water
Tax and other Corporation Levies in all states have risen considerably. The Income Tax
collections have also risen rapidly. The provision of Income Tax department monitoring
the accounts with more than 2,50,000 deposit and collecting tax with penalties will also
increase the tax revenue for the government.
CONS OR ADVERSE EFFECTS OF DEMONETISATION
1. Inconvenience to Public: This scheme has caused huge
inconvenience to the people. They had to run to the banks
to exchange, deposit or withdraw notes. The sudden
announcement made the situation chaotic.
2. Adverse Effect Economic Activities: Our economy
on
is heavily dependent on cash as more than half of
the population uses cash for monetary transactions.
Demonetisation has deeply affected trade, business and ATMs in the country received crowd
like never before.
Consumption. With people scrambling for cash to pay for
goods and services, the move is likely to take a big toll on
the country's growth and output.
3. for the Government: Replacement
Costly of all the
500
as ordered by the government, could cost the RBI at least
and12,000
7 1,000crore.
denomination notes,

4.
Difficulty in
Non-Cash Transactions:
It will be
are not well versed with the card transactions.
very difficultfor halfofthe populationwho

5. Corruption and Fraud: There have been

many instances of fraudulent activities where
banking and post office personnel were illegally exchanging the old currency for new
currency for a commission amount. The misuse ot Jan Dhan accounts to exchange black

money was also revealed.

ECMLC
P.6
Introductory Macroeconom
6.Dti l t n
niplementation: The government is finding it hard to
t
implement thic.
his policy
has to bear the cost of also
printing of the new currency notes. It is als it finding
Put new curreney into circulation. The 2,000 rupees note is a burden on the difficul to
peonla-
one likes to do transaction
with such high value currency. Some critics think it as no
will
help people to use black money more easily in future. only
7. Hugeloss to Daily
Wage Earners: Many poor daily wage workers were left
with no
nd their
daily income stopped because employers were unable to pay their daily joh
wages
Conclusion
Economists busy in listing out many more merits (pros) and demerits (cons) of this
are
The poliey
government is saying that there are only advantages of demonetisation
will be seen in the and policy this
long-term.
However, if we
compare the merits
demerits, it will be safe to conclude that the former
verses
outweighs the latter. Even
though there is
forecast is that its benefits will be seen in thesuffering
arnd agony among the masses, but
the
long run.
Removal of old 500 and
1,000 notes and replacement of same with
notes is new 500 and 2,000
expected to remove black money and temporarily stall the circulation of
of counterfeit
currency and curb the funding for anti-social elemernts large volume
espionage, etc. like smuggling, terrorism,
Government should take all necessary
steps to minimise the hardships being faced
It is expected that demonetisation will bring positive by the public
change in our
economy.

LJA CALRA