EFFECT OF DEMONETIZATION ON INDIAN ECONOMY

AYUSH TAMRAKAR
EMAIL: ayushtamera@gmail.com
CONTACT: 9981774496

PURPOSE: The purpose of this study is to compare and analyze the impact of
demonetizations.

ABSTRACT :
Demonetization is the process of withdrawal of a particular form of currency from
circulation. Demonetization becomes necessary whenever there is a change in the national
currency. The old unit of currency must be retrieved and replaced with a new currency unit. It
involves either introducing new notes or coins of the same denomination or completely
replacing the old denominations with the new denomination which is usually carried out as an
ambush on the black market. The findings of this study reveal that, India will achieve a
significant growth by adapting the demonetization strategy and it will create a huge positive
impact on the entire economy in a long run.

KEYWORDS: Black Money, Black Market, Currency, 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 Nov
2016. The move was targeted towards tackling black money, corruption and terrorism.

HISTORY :
Paper Money as a legal tender was first introduced in the late eighteenth century. The
Victoria portrait series was initially issued in few denominations of 10, 20, 50, 100 Rs.1000
and Rs.10,000 currency notes were circulated between 1938 and 1946.

In India, demonetization has occurred thrice. The first was on 12th January 1946, second on
16th January 1978 and the third was on 8th November 2016.
 PURPOSE OF DEMONETIZATION :

High denomination notes are known for generate of Black Money.

Total no. of notes in circulation rose by 40% between 2011to2016 and the % 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.

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 Economist 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 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 govt.
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 :

Daily Bread Earner faced financial crises: At the time of Demonetization,

daily wage laborers faced a lot of problem because they are not getting
work and they dont have enough 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 demonetization 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.

Now, these are the major sectors on which there is close impact i.e.
Banking, Business, Real Estate, Agriculture & Transportation.
 LIMITATION 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 :

 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 governments to restore
or to replenish the economy from being ruined by the black money and tax evasion.
Demonetization seems to be a bitter pill and through the various historical evidences it is
clear that the management of the crisis after the demonetization plays a vital role in ensuring
the success of it. Demonetization will help in curbing the black money, corruption, terrorism
and hence the no. of tax payer will increase and increase in employment which will lead to
better economy.

REFERENCES :

1. https://en.wikipedia.org/wiki/Indian_500_and_1000_rupee_note_demonetisation

2. http://www.gpedia.com/en/gpedia/Indian_500_and_1000_rupee_note_demonetisation

3. http://wikivisually.com/wiki/Narendra_Modi%E2%80%99s_demonetisation_policy

4. https://www.scribd.com/document/333281229/demonetisation