Vanshika File
Vanshika File
Vanshika File
INTRODUCTION
“Demonetization is the act of stripping a currency unit of its status as legal tender.’’
The idea of demonetization was bought by prime minister of India Narendra
Damodardas Modi to stop black money circulation. The old unit of currency must
be demolished with the new ones. Its an effective way of curbing black money. On
November 2016 the government took the great initiative to crack down on black
money in the country.Fiji,Singapore and Philippines were the country after India
who have opted for demonetization. The reserve bank of India has withdrawn the
old Rs 500 and Rs1000 notes. People who had this higher value of notes were given
an extended period till January 2017.It was an important decision taken by the pm
of India against bureaucrats,politicians,business class
people,terrorists,smugglers,drug dealers or the black marketing people who were
engaged in unlawful activities which would lead an harmful impact on
environment as these notes would no longer be legal tender from midnight,8 th
Nov 2016.
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So the elimination of black money can lead to positive impact in many ways.
The progress would lead to drastic change in all other factors. In India we can
see that each and every citizen is above poverty line. More of black money can
lead to change in country’s economy.
Demonetization will help the Income Tax Department as money will be caught so
the terror funding activities couldn’t occur. Terrorism is a threat to our country, if
black money is completely thrown out then there would be a reduction in the crime
rate. Therefore our country will be in the safe hands and condition of living will be
improved. Tax revenues are increased which is an benefit of demonetization.
People had to face a lot of problems as it was a quick step taken without any
preparations.IT Department were able to find black money at a larger scale.
However the older denominations were allowed to get converted into euros for
some period of time. It will help in smooth transition. In 2015,Zimbabwe also
took this crucial step of demonetization to overcome the problem of hyper
inflation. According to RBI reports on 31st march 2016,denominations of Rs 500
and Rs 1000 notes were consisting around 86% of the total cash and was having
an approximate value of Rs 15.44 lakh crore. Demonetisation was an important
step taken by the Pm to tackle problems such as terrorism, corruption and all
means of illegal money. It will also help to remove fraudulent money.
This move proved very helpful in cleansing the formal economy of the country and
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discarding black money. Many previous attempts made have resulted into good and
few recorded adverse effect on the country’s economy. In the present Indian
economic conditions, the long term impacts are left to be registered. The short term
effect has brought a negative result in the country’s economy. Luxury commodities
were in shortage of prices which was bullish hit in the economy.Pm modi is also
organising various campaigns like “jan dhan bhojana’’.These organizations work
towards digital India. All transactions should be performed through cashless
means.
In India ,there were many situations when higher denominations notes were
curbed.RBI printed the highest value notes of rupees 10000 in the year 1938.After
that government demonetized rupees 1000 and higher value notes in the year
1946.Higher value notes of rupees (rs1000,rs 5000,rs 10000) reintroduced in 1954
and all of them were demonetized to remove the black money of illegal
tender.Rupees 2000 notes were first time introduced in the year 2016.Firstly
denominations of rupees 500 was introduced in the year 1987 in order to control
over the increasing value of notes.
Alongwith India many of the countries took this crucial step of demonetization
in the history.Almost the countries who have done demonetization had some
common objectives which would help to eradicate various problems such as
black marketing, Terrorism and corruption and hence their country’s
government also decided to take this important step to get relief from these
problems.
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REASONS BEHIND DEMONETIZATION
To lower the cash circulation in the country which “is directly related to
corruption in our country.
To eliminate fake denominations and dodgy funds which are being used by
terror groups to raise terrorism in India.
To fight Black money, corruption, terrorism and counterfeit currency with one
single decision.
Definations
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WHY DEMONETIZATION BECAME
MASTERSTROKE
BY PM MODI
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Chapter-2
NEGATIVE EFFECTS
Cash
shortage
Stock
market
cash
Dumping of
agricultural produce
Drop in industrial
output
Many of the people do not have their bank accounts in rural areas.
POSITIVE IMPACTS
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Other sectors like drug trafficking,illegal dealing of money,funding of
election and involvement of various terrorist groups effected badly.
Parallel economy
2. Real Estate:-Real Estate is one of the industry that runs largely on black
money. Demonetization stops the flow of black money in the real estate sector
to ensure a fair system.
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money deposited in the banks so that there is no wastage.Hence,cash
amounting of millions of rupees get deposited in the banks.
2. Consumption:
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3. Decrease in GDP:
Withdrawal of higher denomination notes reduces the growth rate of the economy.
Demonetization reduces consumption pattern, income, investment etc. This may
bring down in India’s growth rate as the liquidity crisis itself may last 3-4 months.
Prime Minister announced that Rs 500 and Rs 1000 “will not be legal means
of money from midnight tonight” and these will be “just worthless pieces of
paper.PM also urged people to join this mahayajna against the ills of
corruption.
The sudden nature of the announcement-and the prolonged cash shortages in the
weeks that followed-created significant disruption throughout the economy,
threatening economic output.
The move was heavily criticized as poorly planned and unfair, and was met with
protests, litigations and strikes.
The main motive was to extract the value of black money from corrupted
people.
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CHAPTER 3
Lion’s share put out of circulation- According to the RBI‘s (Reserve Bank
of India) Annual Report for April 2015 to March 2016, the value of the currency
notes at the end of March 2016 was 16.42 trillion Indian rupees. The 500 rupee
and 1,000 rupee currency notes formed 86.4% of the value. In one stroke, the
government removed 86.4% of the currency in circulation by value. In terms of
volume, the currency notes of these two denominations formed 24.4% of a total
90.27 billion pieces. Also, RBI data showed that as of March 2016, 632,926
currency notes were counterfeit—known as an FICN (Fake Indian Currency Note).
As a proportion of NIC (Notes in Circulation), the 1,000 rupee and 500 rupee notes
were the highest. Nullifying these FICNs was also part of the demonetization
move. How Could Demonetization Impact the Indian Economy? Demonetization
will hit the economy The demonetization of the 500 rupee note and the 1,000 rupee
note—the two highest currency.
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Short-term and medium-term impacts
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adjustment being in prices. In other words, the expectation that inflation would
decline might be belied.
A further impact would be a compression of the demand for non-essentials by all
the agents in the economy in the face of uncertainty in the availability of cash. The
demand from segments which have access to digital medium of exchange would
remain unaffected, but that from the rest of the economy would get compressed.
This would transmit the effect to the rest of the sectors in the economy as well.
Another sector where one expects to see effects in the very short run is the real
estate space. With contraction in demand from one set of agents – say agents who
have earned unaccounted incomes and placed them within the real estate space –
either prices within this segment would fall or transactions would cease to happen.
While of itself, this would be considered a positive development and evidence of
a correction in the unaccounted incomes, it could lead to a compression in
investments in the construction sector which can have adverse income and
employment consequences for the economy.
There are likely to be two spin-offs from this change – one, there would be some
increase in tax collections in the short term, and second; various IOUs could
emerge as currency substitutes. To the extent people attempt to get rid of
unaccounted cash balances through purchase of goods and services and/or
payment of property taxes, one should witness a spurt in tax collections in indirect
taxes as well as property tax in the month after demonetisation which would
disappear thereafter. There is evidence already that property tax collections in
some cities are higher than last year. Similarly, in the case of currency substitutes,
at MCD tax collection centres at the border, people are being given IOUs in lieu
of the balance they were entitled to, which would be valid for six months.
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effect on the economy, we can talk about agriculture, automobiles and
construction.
This is the sowing season for the Rabi crop in some parts of the country and the
harvesting season for the Kharif crop. Most of the purchases and sales in this
segment of the economy are carried out through cash. With the elimination of cash
from the economy, sale of kharif crop would be difficult unless the crop is sold on
the promise of payment in future. Given the limited bargaining power of the
farmer, the price they can realise for the crop can be adversely affected. On the
other hand, in the sowing activity, people would not get access to the inputs
required since most of the inputs are now purchased from the market unless they
seek access to credit from the supplier. In other words, with demonetisation, there
would be a significant strengthening of the informal sector credit market in the
rural economy. Further, if there are agents who do not get access to credit from the
informal sector agents, their sowing activity and hence their incomes in the next
season would be adversely affected. Thus, in spite of a good monsoon in large
parts of the country, the farmer might not get the benefits.
The second sector which could be adversely affected would be the construction
sector. The sector, it is often argued, works with a significant amount of cash.
Payments to workers as well as a variety of purchases might be carried out in cash.
So, on the supply side, this sector can be adversely affected. On the other hand, on
the demand side, the demand for houses and buildings would appear as a demand
for non-essentials and might be pushed on to the back burner until the economic
situation normalises. Thus, to the extent there are agents in the economy whose
demand was backed by savings from unaccounted incomes held in the form of
cash which got extinguished on demonetisation, there would be a compression of
demand.
Medium-term effects:
In the medium term, the effects would be related to the extent to which the
currency is not replaced within the economy. If the entire currency is replaced,
there would not be any major effects on the economy. However, it is to be expected
that the entire currency would not be replaced – to the extent currency is
extinguished and to the extent some of the currency remains as bank deposits, there
would be some impact on the economy. The first effect would be a compression
of the economy to the extent the extinguished currency was working as a medium
of exchange. The currency that is placed in the banks but not withdrawn, it is
argued, would generate an expansion in deposits in the economy. In the
discussions on demonetisation, there is a consistent reference to the resultant
increase in credit creation in the economy. Like Finance Minister Arun Jaitley
says, “Bank deposits will increase and they will have more capacity to support the
economy.”4 The total cumulative credit that can potentially be generated is
defined in terms of the reserve ratio. Total credit potential = incremental deposit
generated*(1/reserve ratio).
In India, the cash reserve ratio is 4 per cent while there is a statutory liquidity ratio
of 22 per cent5 . In determining the credit creation, it is important to take into
account only the CRR and the additional credit creation can be 25 times the amount
of money deposited in the banks as a result of the proposed demonetisation.6 This
amount however, will be generated only if there exists an equivalent demand for
credit in the economy.
The official SLR is 22 percent but some transactions and deposits with the banks
have been excluded from the requirement of SLR. Therefore the effective rate of
SLR is lower.
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6 SLR is not treated as a reserve for the bank since, it restricts only the instruments
into which the bank can invest but does not limit credit creation. Further, amount
invested in government bonds as a part of the SLR requirement would accrue to
the government and be spent. All expenditure by the government, as long as it is
expenditure within the domestic economy, will return the borrowed funds to the
economy thereby allowing for further deposits and credit creation akin to the
lending to private sector. Only to the extent the borrowing is used for purchases
from the international market, either by the government or by the private agents,
will the borrowing not create further credit in the economy.
Transition Issues
There are a number of transition issues that need to be managed for this transition
to be effective:
1. Infrastructure Issues:
There is need for a significant upgrade of the banking system as well as in the
telecom infrastructure that would provide the backbone for digital transactions.
For people to be able to transact at any time and place as well as for them to
consider it a reliable medium of exchange, it is important that not only the banking
system is upgraded to ensure that transactions can be completed without a hitch,
but the supporting infrastructure too is up to the mark. For instance, in many parts
of the economy, there is limited and intermittent supply of electricity as well as
mobile connectivity. In these areas, it would be difficult to expect people to shift
to electronic medium of exchange.
2. Consumer behaviour Issues:
Apart from the technological issues, there is a behavioural change that is being
expected in people from using cash as a medium of exchange to using other
cash substitutes both for making payments and receiving payments. This
transition requires individuals to make two changes in their behaviour: one,
agents need to move from tangible means which can be seen and felt to forms
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which are less tangible or not tangible, and second, they have to learn to rely on
technologically advanced tools to undertake regular day to day operations. The
latter requires agents to be educated to the extent of comprehending the content
of transactions. If this transition is not suitably managed, agents might be
tempted to move to non-official cash substitutes.
3. Accessibility in language
In addition to all of the above, most of the banks and the mobile instruments for
transaction are currently adapted to a single to two languages. If the bulk of the
population of this country needs to come on board, it might be important to make
these facilities available in a myriad of Indian languages to ensure that the user
can comprehend the transaction that they are entering into.
4. Transition issues for banking sector:
There are multiple issues here.
a. The banks too might have a transition issue to deal with. Banks would have a
model of the fraction of deposits that they can safely lend without an excessive
risk of withdrawal of the amount. This is important since, while banks can borrow
money from the call money market, the costs of such borrowings can be large.
These models, however, might need to be altered in the new regime since the
character of the new deposits that come into the bank would be different from the
pre-existing deposits. In the latter, while a fraction of the deposits would be for
transactional purposes – e.g. salary earners – another fraction would be depositing
only savings into the account. By eliminating high value currency notes, these
agents who were operating through cash, would now have to move to non-cash
instruments and hence, the balances in their accounts would not be savings but
transaction values which will be retained in the account for shorter durations of
time. The banks therefore would need to re-model their decisions on how much of
the deposits can be lent out and for what duration. It is, for instance possible, that
a larger proportion of the deposits would be retained for short-term lending and
can even be dedicated to the call money market.
b. Second, while 1/reserve ratio defines the potential maximum amount of credit
that can be generated in the economy, the actual credit generation would be defined
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both by the demand for credit and the extent to which cash intervenes in the
functioning of the economy. For instance, if people who receive credit from the
bank make payments through cheques alone and they in turn make payments
through cheques, then the potential credit creation can be realised. However, if on
receipt of payment, the agent withdraws the money to cash and makes payments,
only a fraction of the credit/deposit will return to the banking system. Thus, larger
is the extent to which cash is used as a means of transacting, smaller is the total
credit that can be generated. With a withdrawal of cash from circulation, the
deposits will continue to remain in the bank, it would merely shift from account to
account or from bank to bank. Thus, even on the earlier deposits, the amount of
credit that can be generated would be larger. This is another reason why the banks
would need to remodel their investment decisions corresponding to a given level
of deposits.
c. A third issue that might arise as a transition issue is because of the mismatch
between people’s preferences for cash and the availability of cash. In the interim,
until people adjust to the use of non-cash instruments, there would be an increased
demand for the cash that is available and that might generate a situation where the
agents have to pay a premium to access legal tender. In periods of scarcity of coins
for instance, it is commonly known that people pay a premium to get the change.
While this can be considered a transition issue, there are two different implications
of such a development:
i. If the premium on cash is high, it would encourage both the shift to non-cash
instruments on one hand, and to informal substitutes of cash on the other.
ii. This might undermine the confidence that people have in the currency and
hence, encourage move to other currencies.
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CHAPTER 4
Agricultural sector
GDP. In India more than 60 per cent of the population is directly or indirectly
depend on the agricultural or agricultural activities. Cash is the primary
mode of transaction in agriculture sector. The farmers struggled a lot at the
time of demonetisation because the saving habits as well the payment mode
of farmers were only on cash.
70% of the farmers market their products through farm markets or they may
be street vendors where cashless transaction is impossible. The farmers
who owned limited acres had not keep lump sum in bank accounts largely
due to fact of low income and no knowledge about the digital transaction,
which had a large impact on the farmers at the time of demonetisation.
Demonetization has affected every Indian, but it has hit the agricultural
sector the hardest. Because, farmers cannot buy seeds, fertilizers and other
things required for their winter crops. As results, wheat outcome was
decreased in northern India. Fruit and vegetable farmers were also badly hit.
They need cash on daily basis to purchase inputs like pesticides, fertilizers
and hired labour for harvest and also to transport and sell at urban centres.
Lack of cash with farmers leading to less-than optimal use of inputs resulted
in lower yields, reduced sales, higher wastage and lower price realization. In
the scenario of demonetisation of currency, most of the transaction going on
credit basis. The input dealers (seed, fertilizer and pesticide dealers) are
increasing prices by 20-30% of the normal price as the transactions were on
credit basis. In product market also big traders and commission agents are
offering credit to farmers at much higher interest (reaching 36% for just a
month) than in normal conditions. The cash crunch caused by
demonetisation affected farmers badly who were not acquainted with
cashless transactions .
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Manufacturing Sector
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Liquidity
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CHAPTER 5
REVIEW OF LITERATURE
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Abhani Dhara K. (2017) posits that this Demonetisation is proving to be more
successful than the previous two. The era is changing. People are using online
banking as a mode of payment. Bank employees are giving their best to make the
demonetisation a successful one. Their support matters a lot. Though the
demonetisation move has failed to grab total black money in the economy, this
has at least created fear in the minds of people holding black money. He
concluded that demonetisation was a compulsory step to tackle the problem of
black money, terrorism and corruption etc.
Shah, Ayash Yousuf (2017) stated that Demonetization is one of the major steps
in fighting against corruption, black money and terror funding. However, this
decision was taken without proper preparation and it adversely impacted the
public. Without printing enough new currency notes 86% of the currency notes
were withdrawn thrashing all market transactions. Only common people had to
face problems exchanging their notes, not the people who were targeted. With an
intention to rid the country of black money and dig out tax defaulters and black
money holders, the government has taken the step to demonetized Rs 500 and Rs
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1000 notes. The sudden announcement of demonetisation and failing to plan
properly has created chaos among the general public. Common people are facing
problems buying with no money in their hands, wasting their time standing in
endless queues could have easily been avoided with advance planning.
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Varshith J.R,(2016),In his study has stated that move to demonetize Rs 500 and
Rs 1000 currency tenders by the union government of India during the year of
2016 was a laudable and historic effort to clean up the decade’s long corruption
and black money. As Indian citizens we all should be proud of the fact that we
elected a government which was capable of taking such brave decision for the
long term betterment of the country’s economy. In the present economic situation
black money has inflated prices in real estate, gold and a few other sectors,
making it a challenge for a common Indian citizen to invest. However the
government’s attempt to eradicate black money will significantly lower the prices
in the economy.
On the government announced its decision to discontinue the legal tender status
of Rs. 500 and Rs. 1000 notes. The behind the demonetization policy attempt to
curb black money, regularising prices, create corruption free environment, stop
flow of funds to illegal activity, make people accountable for every rupee they
possess and pay A study by the National Investigation Agency and the Indian
Statistical Institute, conducted in 2016, estimated that fake Indian currency notes
in circulation have a face value of before the recent decision of demonetization of
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500 and 1000 rupee notes.
The government has taken few steps in this direction much before its
announcement. Government insisted people to open Bank account in Jan
DhanYojana. They were asked to deposit all the money in their Jan Dhan
accounts and do their future transaction through banking only.
Another step that the government initiated was a declaration of the income and
had given October 30, 2016 deadline for this purpose. Through this method, the
government was able to wipe up a huge amount of undeclared income. It was a
bold step of our government, many economic expert their opinions and several
research studies are conducted on demonetisation. This provides a systematic
review of literature on the demonetisation. Various empirical studies are carried
out in India and rest of the world on demonetisation. The study is limited to
twenty seven research studies and expert opinions on demonetisation. The aim of
this paper is to do logical and structural appraisal of existing literature to
determine the relevance of demonetisation in respect of its motives.
2. To increase digital
transaction
3. To remove
counterfeit notes
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4. To prevent Naxal activities and terrorist activities
Regarding black money government has told in parliament that 4.9 lakh crore
rupees deposited in various accounts is under scrutiny .If this is true then the
Indian government will get 2.5 lakh crore in taxes next year and 1.5 lakh every
year in taxes in the future from this unearthed money.
The digital transactions has increased then dipped and now settled at 107 lakh
crores in July in the year 2018.
Due to demonetization the Naxal and terrorist groups which were engaged in
throwing stones has completely stopped .This can be assessed by the reduction in
Naxal attacks and drastic reduction in stone pelting in Kashmir post
demonetization which will help to maintain peace and unity among the citizens of
the country. Demonetization is a disruptive economic tool in the hands of
government which are also known as policy makers to control the cash flow in
the economy.
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Chapter 6
Research Methology
The objectives are designed to have a particular direction to study like what aspect
is to be studied. A topic can be studied from various parameters, the objectives
designed for a project gives an hint that in what manner the topic is studied, what
is the flow of project, what are the variables selected for the project, etc.
of Demonetization.
demonetization.
To study the sector wise changes in the economy.
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HYPOTHESIS OF THE STUDY:
The hypothesis or the research problem of the study is designed in such manner
to find out the relationship between the variables,i.e does the effect has any impact
on the other. We can also say that following hypothesis will let us know how
closely they are correlated with each other. In order to study this topic 2
hypothesis are framed.
Hypothesis 1:-
period.
Hypothesis 2:-
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SIGNIFICANCE OF THE RESEARCH
During the pre demonetization period,RBI has come out with its annual report
giving a balance sheet of demonetization implemented 21 months ago. Of Rs
15.41 lakh crore demonetized currency notes of Rs 500 and Rs 1000
denominations, only Rs 10,720 crore did not reach to the Reserve Bank of
India.
This means only 0.7 percent currency notes were junked in the exercise. While
announcing demonetization on November 8 in 2016,PM Narendra Modi had
outlined three broad objectives to curb black money, corruption and stop
terrorism. These objectives have always been debateable for the lack of
accurate verifiable data. Indian economy lost 1.5 percent of GDP in terms of
growth. That alone was a loss of Rs 2.25 lakh crore a year.
During post demonetization RBI dividend reduced to half of the amount, and
also India’s money market had the overall circulation of banknotes worth Rs
17.97 lakh crore On November 4,2016.The banned denominations constituted
86.4% of the total money in circulation.Today,according to the RBI,overall
banknotes in circulation are worth Rs 18.03 lakh crore(March 2018).This
means the volume of currency in circulation is 9.9 percent more compared to
March 2016.
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DATA COLLECTION METHOD
The data collection method means the various sources from where the data
has been collected by the researcher. There are several methods for data
collection, especially in the surveys.
For the purpose of Research, the primary data was collected through a close ended
questionnaire which was designed pre hand and an online survey was done using
google forms. Close ended questionnaire is the best method for data collection as
uniform observations are maintained through it.
For the purpose of secondary data collection, the researcher has used various
materials such as newspapers,websites,articles,etc related to the topic. Due to
unavailability and shortage of time books weren’t used. The secondary sources
helps to explain the review of literature of the project and helps to provide
detailed information related to the topic.
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RESEARCH DESIGN:
A research design is the detailed print which is used by the researcher to guide
a research study towards its objectives. It helps to collect, measure and analyse
the data.
The present study seeks to find out the people’s opinion towards
demonetization. The study also aims at findings out the impact of
demonetization on each and every individual and also the impact on Banks,
Indian economy.
It Is early to come to any conclusions. Few months results will not help to
conclude the long term impact. Demonetization has a wider scope in the Indian
economy in respective fields. Here I am mentioning only two fields.
“We started our research two years back looking at how kirana stores go
cashless-what are the drivers, what are the barriers and the cashless
ecosystem around the Kirana stores. Our study was to find out how poor can
be central to the technology –driven transaction”,Dharmaranjan said.Around
63 percent of the retailers wanted to go cashless, which was about 31% before
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the note ban. He also said that more digital interface would help create a
transaction history for the small retailers and enable them to get loans from
the banks.
This would lead the way for more entrepreneurs in the market from different
parts of the country.
The first method to link the farmer with digital payments platform was
introduction of Kisan Credit Card.Since then, various other schemes and
programs have been launched to empower the farmer. Flexible loans in presence
of adequate capital with the banks is indeed a matter of joy to the farmers. To sum
up, flexible loans, quick funds transfers, easy access to funds through ATM’s and
concrete crop insurance policies are some of the amenities that the farmer will get
within a certain period of time.
The period of research was short hence the researcher was unable to
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The applicants responded the set of questions enthusiastically. The set of
questions designed by the researcher helps to derive the actual desired
output for the solution.
IMPACT
Demonetization had a notable effect on the tax base and tax revenue, while
also leading to a substantial surge in digital transactions and the
formalization of the economy. It can be observed that out of a total of 15.44
trillion invalidated currency, 99 percent, which is 15.28 trillion, has been
deposited back into the banking system, leaving only 16,050 crore outside
of the system. As a result, the government's belief that a considerable
number of individuals would not come back and their expectation of
receiving some reserves from the central bank was proven wrong. In
contrast, the RBI only paid a dividend of Rs 32,000 crore in 2016-17,
significantly lower than the previous year. The decrease in GDP growth
had a significant impact on the SME sector, causing them to face financial
difficulties and resulting in a considerable number of job cuts. The
agriculture industry, which primarily operates with cash transactions, also
demonstrated a lack of activity.
During the time of demonetization, there was a noticeable reduction in
instances of terrorism and the issue of naxalites also experienced a
significant decrease.
The following are the notable consequences of Demonetisation-2016:
i) Expanding the tax base was greatly influenced by the implementation
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of demonetization, resulting in a notable increase. In the fiscal year
2016-17, 9.1 million new taxpayers were brought in, followed by
12.8 million in 2017-18. This rise in numbers can mostly be credited
to the effect of demonetization and the efforts made by the Income
Tax Department through initiatives like Operation Clean Money that
were implemented after demonetization.
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demonetization on the number of individuals contributing to the tax base.
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the demonetization period from November 8, 2016, to December 30, 2016,
did not submit tax returns. Additionally, 40 percent of these depositors were
operating businesses as sole proprietors, whereas a mere 2 percent were
corporate taxpayers; however, this small group accounted for 14 percent of
the total cash deposits.
Approximately 6.7 percent of all depositors were individuals with salaries,
yet their combined amount of cash only accounted for approximately 4.3
percent. 400,000 was the average cash deposit amount for small businesses
and individuals. 42 lakhs for non-corporate taxpayers to Rs. 1.37 crore in
the case of corporations. Small businesses and proprietorship concerns
made up around 56 percent of the total cash deposits, whereas corporates
accounted for approximately 22 percent, and the remaining portion was
contributed by individuals and others.
One positive aspect of the demonetization program was the connection it
created between reducing currency in circulation and the adoption of digital
transactions. Undeniably, demonetization motivated individuals to adopt
digital forms of payment. Despite the obstacles in digitalization, such as the
introduction of new technology platforms like PayTM, RuPay, and Bhim
app, the pace has gradually improved. However, demonetization has
significantly propelled us towards a cashless society.
Demonetization has made digital transactions increasingly common and
accepted, as shown by the rise in popularity of digital payment methods,
tools, and organizations. Online payments are widely used among more
advanced groups. The informal economy has also been reduced due to the
rise in digital payments resulting from demonetization.
Approximately 15.44 lakh crore, consisting of Rs 500 and Rs 1000 notes,
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were rendered invalid. This resulted in only Rs 3 lakh crores remaining,
causing a detrimental impact on businesses and disrupting regular
commercial dealings. The economy was hence re-monetized by introducing
new denominations of Rs.2000 and Rs.500 notes. Nevertheless, due to the
implementation of demonetization, the overall amount of currency in
circulation has significantly decreased to Rs 15.32 lakh crore. This is a
decrease of more than Rs 3 lakh crore compared to before the
demonetization period. Essentially, it represents approximately 9% of the
GDP and seems to be a more stable and manageable level. This has also
played a role in controlling the inflation.
The time of demonetization witnessed a record-breaking surge in
counterfeit currency, with suspicious transactions rising by more than 480
percent after demonetization. In 2016-17, banks collectively produced over
4.73 lakh suspicious transaction reports (STRs), representing a 400%
increase compared to previous years. The Financial Intelligence Unit (FIU),
which investigates suspicious financial transactions related to illegal money
laundering and financing terrorism as a part of the Union Finance Ministry,
stated that there was a rise of more than 322,000 cases of fake currency
transactions in the fiscal year of 2016-17. According to the report released
by the RBI, approximately Rs 410 crore fake currency was identified during
the demonetization phase. Nevertheless, the mentioned statistic does not
imply the exercise's triumph or failure since the complete recovery of
counterfeit money was not anticipated, and demonetization does not assure
the absence of fake or recently introduced counterfiet currency.
The prevention of illicit funds and corruption was a significant goal of the
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demonetization effort. There are no precise figures available regarding the
amount of undisclosed money in India. Nevertheless, the issue of black
money has persisted from the outset and was deemed by the Wanchoo
Committee as detrimental to India, with potential to severely harm the
economy. Corruption can be defined as the misuse of authority for personal
benefit, as stated by Transparency International. It encompasses various
aspects and is influenced by various factors, resulting in a range of
consequences. This issue is deeply rooted in Indian politics and reflects the
declining morals of society. This issue is deeply ingrained. Corruption has
been widely observed across various sectors, presenting itself in various
forms such as bribery, kickbacks, and facilitation payments.
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assets such as real estate investments.
The government's future actions and policies will determine the fate of
illicit financial activities involving black money. However, one thing is
certain: it has raised awareness about the existence of undisclosed income
among the general population and instilled a sense of fear in those who
hoard such illicit funds.
In terms of negative effects, demonetization greatly harmed GDP growth
and employment from 2016 to 2018. After the elections, the economy
started to improve and was expanding at roughly 8 percent in the fourth
quarter of the fiscal year 2015-16. However, it gradually declined to 5.7
percent in the second quarter of 2017-18. This decrease had significant
consequences on the government's fiscal deficit and its ability to spend on
social programs.
Nevertheless, the decline in GDP growth cannot be solely attributed to
demonetization alone, as the introduction of GST may have also had a
substantial adverse impact on it. Many people believe that the government
should have implemented the major reforms with more time in between in
order to prevent the negative consequences.
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people. This sector primarily relies on cash payments for wages.
The decline in cash liquidity had resulted in a decrease in demand for
different products, leading to unemployment. Additionally, it was
discovered that the organized manufacturing sector also suffered negative
consequences, as demonstrated by the decrease in sales of fast moving
consumer goods (FMCG) and automobiles during the period from
November to January.
The manufacturing PMI showed a continued decline in December, 2016.
Additionally, there was a slowdown in the rate of growth for exports in
November.
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notes and a shortage of change for the higher value Rs 2000 notes, the
vegetable and fruit vendors' sales were negatively impacted. This was also
causing small vendors to lose customers to large retail markets, ultimately
affecting the incomes of those in the unorganized sector.
The farmers' employment was affected by their lack of cash, as they were
paid in cash for their agricultural work. The majority of agricultural
financing is done through cooperative banks. However, these banks were
prevented from accepting demonetized currency through exchange-deposit,
which had a negative impact on the farmers.
During the demonetization period, there were disruptions in the supply
chain of agricultural produce in mandis, which are primarily cash-based,
affecting their sales, marketing, and distribution processes. Additionally, it
has been discovered that there was minimal lending activity by the banks
during the demonetization period, which coincided with the peak season
for sowing Rabi crops. The farmers faced serious difficulties in purchasing
farm machinery since they did not possess PAN cards, which are mandatory
for conducting bank transactions exceeding Rs. 50,000. The absence of
banks and ATMs in rural regions decreased access to cash for farmers,
allowing illegal moneylenders, black marketers, and middlemen to exploit
the situation.
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Chapter 7
Findings
The data was collected from primary and secondary sources. For the only
primary a survey was done online and 65 responses were collected by the
researcher, whereas secondary data was collected from multiple websites and
journals.
In the View of respondents it is learnt that demonetization was not only the last
resort to clean economy but also had both positive and negative economic impact.
It was seen that the common man had to suffer due to quick implementation made
by the government as there were long queues seen outside the bank for many
days. However on the other hand the black was curbed through many corrupted
civilians.
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It has also led to a digitalized India where we can see many retailers and
wholesalers supporting digital money transfer and supporting the country to “go
cashless”.
It was a major step taken by the government of India to curb the black money
and also few more steps can be taken in similar and different ways to end the
corruption completely.
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Conclusion
Through the survey and data collected it is concluded that, demonetisation is a bit
serious problem. The move by the government to demonetise the old
denominations with the new ones has surprised the country. The move was an
effort to handle the threat of illegal money,corruption,terror funding and
counterfeit currency. According to the survey, people agree that demonetisation
is a good effort taken by the government of India, it would bring about a positive
impact on Indian economy as it encourages the digital modes of payment such as
E-wallets and apps,online transactions. It is a move towards cashless economy.
Demonetization is beneficial for the economy in the medium to long term. The
decision taken by the government of India was quick so some were against
it.However according to the survey, majority of the applicants responded that
demonetisation hasn’t reduce corruption in India. And major strengths of Indians
believe that demonetization will help to stabilize the economy.
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Suggestion
All ATM’s should have both withdrawal and deposit facilities, regular and
biometric facility.
Educate everyone about the use of e-wallet and Debit and Credit Cards.
Camps should be organised at village levels and city levels at each and every
corners.
Give every businessman, who has current account with banks, swipe machine at
the earliest possible.
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Simplification of GST
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Modern
Diplomacy
ECONOMIC
TIMES
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