HIMACHAL PRADESH NATIONAL LAW

UNIVERSITY, SHIMLA

Assignment of Economics

SESSION: 2017-2018
Assignment 2: Demonetisation & its impact in India

Submitted to : Mr. Hari Chand Thakur

Submitted by : Aditya Dwivedi

B.A. LL.B. (Second Semester)

Roll No. : 31
 ACKNOWLEDGEMENT

It is not possible to prepare a project report without the assistance and encouragement of other
people. This is certainly no exception. I am using this opportunity to express my gratitude to
everyone who supported me throughout the course of this assignment. I am thankful for their
aspiring guidance, invaluably constructive criticism and friendly advice during the assignment
work. I am sincerely grateful to them for sharing their truthful and illuminating views on a
number of issue related to the project. I would like to express my special gratitude to Prof. (Dr.)
S.C. Raina and Assistant Professor Mr. Hari Chand Thakur who gave me the golden
opportunity to do this wonderful project, which also helped me in doing a lot of Research and I
came to know about so many new things for which I am indebted to them from the core of my
heart. I also acknowledge with a deep sense of reverence, my gratitude towards my parents and
member of my family, because of whom I have managed to complete this assignment on time
and who have always supported me morally. At last, my gratitude goes to all of my friends who
directly or indirectly helped me to complete this assignment. Any omission in this brief
acknowledgement does not mean lack of gratitude.

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 Table of contents:

S No. Description Page No.

1. Introduction 3
Demonetisation– Is it the first time
Demonetisation 2016
2. Objectives of demonetisation 4-5

3. Impact on economy 5

4. Impact on citizen 5-6

5. Merits of demonetisation 6

6. Demerits of demonetisation 7

7. Conclusion 7

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 Assignment 2: Demonetisation & its impact in India

INTRODUCTION:

Demonetization – Is it the first time?

There has been two previous occasions of demonetization. The Government announced that Rs.
500, Rs. 1000, and Rs. 10,000 will not be legal tender from Jan 12th, 1946 on the Jan 11th. It was
made with an aim to curb Black market. It was followed by instances, where people died of
shock, a large number of people queued up in front of the banks and the middle classes were hit.
Notes of Rs 1000 and Rs 500 and Rs. 10,000 were demonetised again in January 1978 by the
ruling party then- Janata Dal to curb black money transactions. They gave a week-time for the
people possessing those notes to exchange in the Bank.

Demonetization 2016

This time Narendra Modi led BJP Government has declared the Rs 500 and Rs 1000 notes of the
Mahatma Gandhi series as invalid from midnight on November 8th in a televised address to the
nation, which meant that 86 percent of the cash in circulation was to be withdrawn and he also
announced the issuance of Rs 500 and Rs 2000 banknotes of the Mahatma Gandhi New series in
exchange for old notes in the banks. He claims that it was planned six months ahead and was
done not only to bring out black money, but also to curtail forged cash and funding of terrorist
activities with this forged cash.

Objectives of Demonetization

The government has different objectives behind this demonetization.

The first and foremost objective is to attempt to make India a corruption free country. In his different speech
on demonetization Indian Prime Minister Narendra Modi clearly, points out that this bold step has been
taken to get a control over corruption in the country.
Secondly, it is done to curb black money, thirdly it is also a step to control escalating price rise, fourth
to stop fund flow to illegal activity.
On the other hand demonetization in India is also a very well planned step of govt. of India to earn proper
tax from the citizen. With the help of a different article on demonetization or essay on demonetization in
different media, economist and responsible citizens tried to make the common people aware of the benefit
of this step taken by the government.

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In a demonetization essay or article on demonetization, it is also necessary to put some light in the
background of this process. There is a background to the current decision of demonetization of 500 and
1000 rupees note in India. The government has declared demonetization across the country on 8th
November 2016. But much before the announcement of demonetization, the government has taken few
steps in this direction. As the first and foremost step government had requested the citizens to open free
bank accounts under Jan Dhan Yojna.

Again the government has asked the people to deposit their money in Jan Dhan account and do their
transactions through sparing money procedure or proper banking procedure only. Thereafter the step that
the government started was an obligation declaration of the compensation and had given October 30, 2016,
due date consequently. This can be considered a major step by the government in the process of
demonetization. (In order to write a complete demonetization essay or article on demonetization or essay
on demonetization the essay would be incomplete without mentioning this major point). Through this
procedure, the government or administration could tidy up a gigantic measure of undeclared wage.
Regardless, there were various who still aggregated the dim money, and remembering the ultimate objective
to deal with them; the administration detailed the demonetization of 500 and 1000 money notes.

Impact on Economy

▪ The Demonetization linked cash crisis is definitely going to affect the economic activity in
the short-term. Long-term gains would depend on the follow-up measures.
▪ Nearly half of the non- tax paying businesses in the informal sector, which account for 40%
of the GDP are likely to become unviable and yield market share to the organized sector
which is likely to crimp the GDP.
▪ The inflow of money into banks could reduce the interest rates offered by the banks which
can stimulate economic growth.
▪ The budget deficit can be reduced as more amount of black money gets taxed, which will
result in lowering inflation rates, which is beneficial.
▪ Indian Equity investors are set to gain.
▪ It checks misuse of money during elections and selling of tickets for money and clean up the
political system.
▪ The value of the Indian rupee is set to record an all-time low, but it may be reversed due to
transparent business practices in the long run.

Impact on Citizens

▪ Cash crunch has forced the citizens to learn about net banking and other methods of legal
transactions,however, at present it has led to large queues in front of the banks for long
hours to receive their hard earned money from the bank.
▪ Breadwinners for the family on daily wages are forced to lose their wages for the day and
stand in the queue either to exchange or draw money from the bank as the announcement
was sudden.

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 ▪ Small time merchants, small shops and transport service providers such as autos are likely to
lose business until they adopt Cash – less style of functioning.
▪ The limits set for withdrawal are low and will stress up people who have planned weddings
or people who need money for emergency reasons.
▪ Though the Prime minister has announced that these notes can be accepted in the petrol
bunks and government offices in practice, these people are skeptical about accepting them
▪ The need to alter many ATMs to deliver the new notes, has posed hardships to ATM users.
▪ The Banks are grossly understaffed and are unable to handle this heavy crowd.

The demonetization approach is being seen as a monetary change in the nation yet this
decision is brimming with its own particular advantages and negative imprints as well.

Merits of Demonetization
▪ The demonetization technique will help India to twist up sans corruption. Those appreciating taking
result will quit worsening rehearses as it will be hard for them to keep their unaccounted money. In his
different speech on demonetization PM Modi openly says that it is a process to trap the black money
holders to track out their money.
▪ This move will help the governing body to track the dim or black money. After the declaration of
demonetization, as per new govt. rule. Those individuals who have unaccounted money are by and by
required to show pay and submit PAN for any genuine budgetary transactions. The governing body can
get pay cost share for the wage on which force has not been paid.
▪ The move will stop financing to the unlawful activities that are thriving a result of unaccounted pay.
Denying high-regard money will deal with criminal activities like dread based oppression et cetera. The
prohibition on high regard money will in like manner check the threat of money laundering. By and by
such development can without a doubt be taken after and compensation charge division can catch such
people who are in the matter of money laundering.
▪ This move will stop the circulation of fake money. A vast portion of the fake money put in circulation is
of the high regard notes and the restricting of 500 and 1000 notes will get rid of the circulation of fake
money. This move has made excitement among those people who had opened Jan Dhan accounts under
the Prime Minister’s Jan Dhan Yojana. They can now store their money under this arrangement and this
money can be used for the developmental development of the nation.
▪ The demonetization approach will drive people to pay compensation evaluation frames. Most by far of
the overall public who have been concealing their wage is by and by constrained to way to deal with
pronounce their compensation and pay force on the same.
▪ Regardless of the way that stockpiles to Rs 2.5 lakh won’t gone under Income survey investigation,
individuals are required to submit PAN for any store of above Rs 50,000 in genuine money. This will
help the compensation evaluate office to track individuals with high denominations money.
▪ A conclusive objective is to make India a cashless society. All the monetary transaction must be through
the dealing with a record system and individuals must be responsible for each penny they have. It is a
monster wander towards the dream of making an automated India. If, despite everything that these are
the advantages, there are terrible signs of this system too.

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 Demerits of Demonetization
▪ The declaration of the demonization of the money has made enormous inconvenience the all-inclusive
community. They are rushing to the banks to exchange, store or draw back notes. The sudden declaration
has made the situation wind up discernibly scattered. Tempers are running high among the masses as
there is a deferral in the circulation of new money. It has significantly affected business. In view of the
money crunch, the entire economy has been made to come to a standstill.
▪ Various poor step by step wage workers are left with no occupations and their consistent pay has stopped
in light of the way that organizations can’t pay their step by step wage. The lawmaking body is suspecting
that it’s hard to complete this procedure. It needs to bear the cost of printing of the new money notes.
▪ It is additionally feeling that it’s difficult to put new money into circulation. The 2000 rupees note is a
weight on the all inclusive community as no one jumps at the chance to do the transaction with such high
regard money. A couple of reporters think it will only help people to use dull money more successfully
in future. Further, numerous people have covertly discarded the demonetized money notes and this is a
disaster to the nation’s economy.

Conclusion

Economists are possessed in rattling off various more merits and negative sign of this procedure. The
assembly is expressing that there are only purposes of enthusiasm of demonetization course of action and
this will be found in the long term. Past Prime Minister Manmohan Singh who is a conspicuous economist,
past RBI delegate and past Finance Minister of the nation, names the demonetization move as a ‘sorted out
loot and approved plunder’. Regardless, if,despite everything that we consider the advantages versus
terrible imprints, it will be protected to conclude that the past surpasses the last mentioned. In spite of the
way that there are persevering and agony among the masses agreeable moment however the figure is that
its points of interest will be found as time goes on. The administration is making all the fundamental walks
and actions to deal with the money request and soon the trial and tribulations of the all-inclusive community
will be over with the smooth stream of the new money.

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