TOPIC :-

EFFECTS OF
DEMONETIZATION
Introduction :-

The Government of India launched a surprise attack (surgical strike on black money) that the Rs.
500 and Rs. 1000 denominated currency notes will cease to be legal tender from 8th November
2016. The move was targeted towards tackling black money, corruption and terrorism. Public
deposit and change the currency from the banks and post offices till 30th December 2016.

What is Demonetization ?
Demonetization is the withdrawal of a particular form of currency from the circulation. It is
process by which a series of currency will not be legal tender. The series of currency will not
acceptable as valid currency. In demonetization, old currency is replaced by the new currency.
There can be many reasons of demonetization in country.

History :-

 Paper money as a legal tender was first introduced in the eighteenth century.
 The Victoria portrait series was initially issued in few denominations of 10, 20, 50, 100
Rs. 1000 and Rs. 10000 currency notes were circulated between 1938 and 1946.
 This not the first time, when Indian currency is demonetized in India.
 Earlier it was done on 12 January 1946 with the complete ban of Rs. 1000 and Rs. 10000
notes to deal with the unaccounted money i.e. Black money.
 Second time, it was done on 16 January 1978 by Government headed by Morarji Desai
when Rs. 1000, Rs. 5000 and Rs. 10000 notes were demonetized.
Third time, demonetization is done on 08 November 2016 by the Prime Minister Narendra
Modi.

These are the pictures of the banned notes which were demonetized in India to stop the black
money in country are as follows:-
These are the old notes which were demonetized before 1946 and 1978.

These two notes of Rs. 1000 and Rs. 500 are banned in India after demonetized.

Purpose of demonetization :-

 High denomination notes are known for generate of Black money.

 Total number of notes in circulation rose by 40% between 2011to2016 and the
percentage increase of Rs. 500 was 76% and increase of Rs. 1000 was 109%.
 The move was claimed as an initiative to curb corruption, trafficking of drugs, and
smuggling across borders.
 For making India cash free society.
 Fake currency in the economy
 The most important purpose of demonetization is to stop the terrorist functioning in India.
As we know huge sums of money was used to fund Islamic terrorists, Naxalites.

Situation in country while demonetization:-

 Banks become overcrowded by people.

 People forget everything else and throng to the places where the banned notes are being
officially exchanged leading to a tremendous chaos.
 The shortage of money mainly with the common people such as laborers, daily wagers
etc.
 Due to currency being sucked out the market coupled with trump’s victory, the mood at
the stock was completely bearish.
 Sensex lost 1600 points at open. This can adversely have a negative effect on trade in
general.
 Many Indian housewives store money secretly so that they could be help during times of
financial crisis in their households.
 The accumulated money of our respected Indian housewives is of no use now until they
exchange in the banks and post offices.
 Due to shortage of money in the market, a short term cost push inflation will occur.
 The price of gold has already become sky high.
 Prices of vegetables and fruits have also soared burdening the common man.
 Difficult for those families those have weddings that time in a situation of demonetizing.
Major benefits of demonetization:-

 Fake currency out of circulation: Due to demonetization all the currency notes in the
circulation are banned and hence it will help the economy of India.
 Affordable real estate prices: Many Economists think that this step will give boost to
affordable housing because real estate sector already suffering from recession.
 Reduction in interest rates: Due to demonetization, a big part of economy will come in
the main stream as people will deposit old currency in bank and as a result bank will
increase the flow of money in market.
 Benefit to new businessman: Due to demonetization, money is blocked with some
person and only few people can invest in new business.

Indirect benefits of demonetization:-

 Kashmir moved to normal state.

 Increase in tax revenue of government.
 Increase in Economy.
 Increased expenditure on public welfare.
 More opportunity for employment.
 Initial step toward cash-less economy.
 Transparency in election process.
 Decreased E.M.I.
 Increased trust towards govt.

Impact of demonetization:-

Positive impacts:

 The removal of these 500 and 1000 notes and replacement of the same with the new 500
and 2000 rupee notes is expected to- remove black money from the economy as they will
be blocked since the owners will not be in a position to deposit the same in banks.
 Temporarily stall the circulation of large volume of counterfeit currency.
 It would curb the funding for anti-social elements like smuggling, terrorism, espionage,
etc.
 Money supply expected to reduce in the short time.
 To the extent that black money does not re enter the system, reserve money and hence
money supply will decrease permanently.
 However gradually as the new notes get circulated in the market and the mismatch gets
corrected, money supply will pick up.
 The overall demand is expected to be affected in following areas is to be impacted
particularly:-
1. Consumer goods
2. Real estate and property
3. Gold and luxury goods
4. Automobiles (only certain limit)
 Price level is expected to be lowered due to moderation from demand side. This demand
driven fall in prices.
 The GDP formation could be impacted by this measure, with reduction in the
consumption demand.
 However with the recent rise in festival demand is expected to offset this fall in overall
impact.
 Moreover, this expected impact on GDP may not be significant as some of this demand
will only be deferred and re-enter the stream once the cash situation become normal.
 With cash transactions facing a reduction, alternatives forms of payment will see a surge
in demand.
 Digital transaction system, E-wallets and apps, online transactions using E-banking,
usage of plastic money (debit and credit cards) etc. will definitely see substantial increase
in demand.
 This will bring more transparency in system and you can easily track online money
transactions.

Negative impacts:

 Daily bread earner faced financial crises: At the time of demonetization, daily wage
laborers faced a lot of problems because they are not getting work and they don’t have
enough money or savings to survive for 50 days without money.
 Poor banking system: In India we are having poor banking system because at the time of
demonetization the supply of new currency is limited so that people are forced to stay for
several hours in the bank.
 Indian wedding: November is the month of weddings in India and the sudden decision of
demonization break several marriages due to scarcity of cash. The RBI has imposed stiff
conditions for withdrawal up to Rs. 250000 only.
 Death recorded: Approx 126 deaths recorded in bank due to huge crowd.
 Transportation
Business

MAJOR
IMPACTS
Banking
Agriculture

Real Estate

Limitations of demonetization:-

 Due to demonetization, there is condition of recession in Indian Economy.

 Due to ban on high denomination notes a close impact on SME.
 Huge decrease in the production of small industries.
 Decrease in sales and other turnover ratios.
 Due to demonetization, approx all the industries are highly impacted and effected due to
scarcity of cash.
Next steps after demonetization:-

details of foreign jewellery and

bank account holder hoarding from
and foreign assets Black money

transforming India
benami proporties into CASHLESS
economy

Conclusion:-

After this exhaustive and logical analysis demonetization seems to be a different ball game while
it is compared to the other economical reforms initiatives by the government to restore or to
replenish the economy from being ruined by the black money and tax evasion. Demonetization
seems to be bitter pill and through the various historical evidences it is clear that the management
of the crisis after the demonetization play a vital role in ensuring the success of it.
Demonetization will help in curbing the black money, corruption, terrorism and hence the
number of tax payer will increase and increase in employment which will lead to better country.
Bibliography:-

 http://en.wikipedia.org/wiki/indian_500_and_1000_ruppee_note_demonetisation
 http://www.scribd.com/document/333281229/demonetisation
 Direct search on google for pictures
 http://www.scribd.com/mobile/document/351359354/research-paper-on-effect-of-
demonetisation#

NAME- SIMRANJEET KAUR

ROLL NUMBER- 3051

CLASS-M.COM