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ONE MONTH AFTER DEMONETIZATION: WHAT

PEOPLE SAY..?

Article · December 2016

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[ICETMT-2016] GE-International Journal of Management Research
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ONE MONTH AFTER DEMONETIZATION: WHAT PEOPLE SAYS..?

Mr. Swapnil Undale1

Asst. Professor, MIT School of Management, Pune, India.

Mr. Krishnakumar Gaggad2

MIT School of Management, Pune, India.

ABSTRACT

On 8th November 2016 our Hon. Prime Minister Shri Narendra Modi, announced demonetization decision. There
has been lot of speculations about outcome of this decision. Media and various political leaders has been
confusing common people. News channels and newspapers are projecting sufferings of people as well as benefits
of demonetization. This research therefore, is an attempt to found out ground reality. A survey was conducted in
Pune to understand common publics‟ view on demonetization. The study also attempted to capture gender wise,
income wise and education wise differences in opinions towards demonetization. The study concluded that
support to demonetization decision is pervasive. However, there is general discontent towards poor
implementation of decision.

Keywords: Black Money, Demonetization, Economy, India, Narendra Modi.

Introduction
Demonetization is an established practice in monetary policy to tackle black money. It was meant to be
suddenly implemented. In the past, demonetization has taken place twice but it failed. If announcement and time
would have been given, this step might not have been successful in controlling black money and counterfeit
currency (INSIGHTS, 2016).
“[The demonetization] move could change the face of the Indian economy.”
- Crisil Report (KNOWLEDGE@WHARTON, 2016)

It is masterstroke taken by Government of India to change the current scenario of Indian Economy. A
major change in the economic environment by demonetizing the high value currency notes – of Rs 500 and Rs
1000 denomination has implemented by the government. These ceased to be legal tender from the midnight of 8th
of November 2016. People have been given up to December 30, 2016 to exchange the notes held by them. The
move by the government to demonetize Rs.500 and Rs.1000 notes by replacing them with new Rs.500 and
Rs.2000 notes has taken the country with surprise. In the short term, it is intended that the cash in circulation
would be substantially squeezed since there are limits placed on the amount that individuals can withdraw. In the
months to come, this squeeze may be relaxed somewhat. The reasons offered for demonetization are two-fold:
one, to control counterfeit notes that could be contributing to terrorism, in other words a national security concern
and second, to undermine or eliminate the ―black economy‖.

Now, post the announcement of demonetization by the government this money would have to either use
for by paying the relevant tax and penalties or would get extinguished. There are higher chances of larger
proportion of this unaccounted currency getting extinguished as the tax rate and subsequent legal issues could be
prohibitively high for such money.

This move harshly impacted all the level of people whether they belong to any class. In this paper the
views of people about this move and their opinions on different aspects are discussed.

Literature Review
PM MODI‘s Surprise Move of Demonetization Shock the world. Opposition Parties created huge
turmoil in parliament. Even our ex-prime minister Shri Manmohan Singh broke his long awaited silence and said
it is a case of "Organized Loot and Legalized Plunder." He also gave a supporting statement it is a bold step and
should be implemented in well managed manner.
Act of Demonetization happened in other countries as well where public refuses to accept the decision
resulting a big failure for government who implemented in their rule (quora, 2016). Some of them are as follows.

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Soviet Union: Mikhail Gorbachev Government banned the currency note of Ruble 50 and 100 in Soviet Union to
end black money in the country in 1991. Government expected that it would decrease the market of black money
and give a proper life to common people. But this decision of Gorbachev took a very wrong turn and people started
doubting on government and because of this he also faced the problem of change of government.

Ghana: In 1982, government of Ghana demonetized currency notes of Cedi 50 to control black money in the
country. But after this people lost their faith from the economy policies of the country, and after few days, when
time period of exchanging notes ended then crores of money were found on roads.

Britain: Before 1971, pond and pens currency used to be circulate in Britain but to bring uniformity in currency
government stopped circulation of old currency in 1971, and bought coins of 5 and 10. Though, government was
continuously telling about this big change from last 2 years but this policy failed in other countries except Britain.

Myanmar: Military government discontinued currency notes in Myanmar in 1987 with the same thought of end
of black money and corruption. But this led political dispute among government and resultant thousands of people
died because of this. And so, demonetization came to an end.

Nigeria: In 1984, The President of Nigeria, Muhammadu Buhari was started new currency notes with design and
color to bring economy in stable position. But it didn‘t bring any changes in the economy and resultant Buhari
resigned from his position. It took long 21 years for him to become President again.

North Korea: In 2010, Dictator Kim Jong-2 had made some changes with currency to lower down the market of
black money and to improve the economy of the country. But, this decision of Kim Jong saw opposite face of it in
economy. Price of necessity goods increased and this led people to become angry on this decision and resultant
Kim Jong murdered finance minister and asked for apology.

Zimbabwe: In 2015, the Zimbabwean government demonetized the Zimbabwean dollar as a way to combat the
country‘s hyperinflation that was recorded at 231,000,000%. The 3-month process involved expunging the
Zimbabwean dollar from the country‘s financial system and solidifying the US dollar, Botswana pula, and South
African rand as the country‘s legal tender in a bid to stabilize the economy (Demonetization, 2016).
In nutshell evidence states that, every country which had implemented demonetization except Britain
failed. They had to face unexpected consequences which changed scenario of that country. What will happen in
India…??

Impact of demonetization on various fields

Demonetization impacted to every area in Indian economy. Daily routine of people changed a lot due to
note exchange. Many people were facing difficulties due to the move of government. Even this decision lowered
the GDP of the country, downfall in stock market as well. Major changes in the day-to-day activity and bank
exchange as follows:

Effect on parallel economy: Cash Economy to Witness Contraction

The currency of the aforementioned denominations constitutes around 86% of the total value of the
currency in circulation. It was expected to remove black money from the economy as they would be blocked
considering the holders would not be in a position to deposit the same in the banks, temporarily halt the circulation
of large volumes of counterfeit currency and curb the funding for anti-social elements like smuggling, terrorism,
espionage, etc. (factly, 2016).

Effect on GDP: Downward Bias to GDP Growth

The sudden decline in money supply and simultaneous increase in bank deposits was adversely impacted
consumption demand in the economy in the short term. This, coupled with the adverse impact on real estate and
informal sectors may lead to lowering of GDP growth (factly, 2016).

Effect on Banks
As directed by the Government, the 500 and 1000 Rupee notes, which at that time cease to be legal tender

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were to be deposited or exchanged in banks (subject to certain limits). This would automatically lead to more
amounts being deposited in Savings and Current Accounts of commercial banks. This, in turn, would enhance the
liquidity position of the banks, which would be later utilized further for lending purposes. (factly, 2016).

ATM Withdrawals

In initial days, ATM which were not recalibrated had limit of withdrawal up to Rs 2000/- per day,
whereas which were recalibrated had limit of withdrawal up to Rs 2500/- per day. (factly, 2016).

Special Provisions for Farmers & Traders buying Agricultural Produce

Farmers would be permitted to withdraw up to Rs 25,000 per week in cash from their KYC compliant
accounts only. These cash withdrawals would be subject to the normal loan limits and conditions. Farmers could
be purchased seeds with the old high denomination bank notes of Rs.500 from the Centers, Units or Outlets
belonging to the Central or State Governments, Public Sector Undertakings, National or State Seeds Corporations,
Central or State Agricultural Universities and the Indian Council of Agricultural Research (ICAR), on production
of proof of identity.

Traders registered with APMC markets/mandis would be permitted to withdraw up to Rs 50,000 per
week in cash from their KYC compliant accounts as in the case of business entities. (factly, 2016).

Special Provisions for Weddings

Families celebrating weddings would be permitted to draw up to Rs 2,50,000 in cash from their own
KYC compliant bank accounts. The amounts could be drawn only by either of the parents or the person getting
married. Only one of them would be permitted to draw this amount. This limit of Rs 2,50,000 was applied
separately to the girl‘s family and the boy‘s family. (factly, 2016).

Impact of demonetization on rural India

As far as my understanding about rural India goes, cash and cooperative banks is the back bone of the
rural economy. Debit cards, credit cards, net banking and online transactions that are popular in Urban India are
non-existent in the rural part. This basic difference is what has a created a havoc for the agrarian and cottage
industries.
However there was a major difference between the rural and urban economy which we couldn‘t ignore.
Rural Indian communities were close knit and mostly deal on trust. Hence when they were aware that the times
were testing money did not at times come in between transactions. Like a farmer in need of seeds was given the
same on a credit basis by the local vendor. They pitch in for each other and put money behind for a while. This was
probably minimizing the damage. However that did not mean that they were not hit by the move and could
continue like that forever. (quora, 2016).

Talking about non-organized sector

Ever since the announcement of demonetization, the income of unorganized sector workers had come
down drastically — by up to 60 per cent. And their work was decreasing each day. It was hurting all the more as
their ―debit and credit limit‖ with their patrons had been crossed.
With the dwindling number of customers and work, the resources at hand were shrinking. The
transactions of the poor with financial intermediaries — whether moneylenders or micro-finance institutions —
had come to a standstill. Thus, while one vicious financial cycle had been broken, there did not appear to be
another system which could provide the poor and the unorganized with mainstream credit and savings facilities.
(Indian Express, 2016).

Over the biggest move taken by government, some provisions are given but, actual facts states something
different according to different sources.

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Table No. 1: Provisions by Indian Govt. and Reality

Provisions by Indian Govt. Reality*
Government has given provision to withdraw amount Money is not sufficient and most of the ATM are out of
Rs. 2500/- per day. cash.
Farmer can withdraw Rs. 25000/- per week Many farmers are illiterate or unaware regarding bank
procedures. It also difficult for them to learn and do it
in fast manner.
The weekly limit of Rs 20,000 for withdrawal from Out of 2.2 lakh ATMs, only 82,500 are
Bank accounts has been increased to Rs 24,000. The re-calibrated till 21st November 2016.
limit of Rs 10,000 per day has been removed.
Families celebrating weddings will be permitted to draw Practically amount is so low that nobody can manage
up to Rs 2,50,000 in cash from their own KYC to celebrate such occasion. Person also has to give
compliant bank accounts. self-declaration also.
Traders registered with APMC markets will be Many of them are not completed their procedure. This
permitted to draw Rs 50,000 per week; accounts need to amount is also not sufficient for traders to do
be KYC compliant. transactions.
All Central Government Departments and Public Sector As per the latest Financial Inclusion Insights
Enterprises are being instructed to use the method of survey, 49 percent of Indian adults are digitally
e-payments to the maximum extent possible. included. However, usage of these digital accounts
remains debatable and very little data exists around
this.
Digital transaction is promoted by government and give Digital transactions soar up to 1,000 per cent
vision of cashless economy. since demonetization in India.

Government is giving discount on online transactions. 41% population in India is unbanked.

*(DNA, 2016; Times of India, 2016; Center of Finacial Inclusion, 2016; THE FINANCIAL EXPRESS, 2016;
THE HINDU, 2015; Financial Exclusion in India, 2015).

Research Methodology
This study was conducted during 8th to 12th December 2016, exactly after one month of demonetization
decision. Quantitative research approach is used for this study. A structured questionnaire was developed and
survey was conducted from the respondents. Respondents were selected using convenience sampling method. 124
respondents participated in the survey. Their demographic details are presented in Table No. 1. Variables for
questionnaire were selected from literature review. Face and content validity of the questionnaire were established
by a panel of expert.

Data Analysis and Results

Table No. 2: Demographics of Respondents
Variable Frequency %
Gender
Male 77 62.1
Female 47 37.9
Annual Income
< 2.5 L 92 74.2
2.5 to 5.0 L 19 15.3
5.1 to 10L 12 9.7
> 10L 1 .8
Education
No education 9 7.3
Upto 7th std 16 12.9
Upto 10th std 3 2.4
Diploma 5 4.0
Under Graduate 33 26.6
Graduate 58 46.8

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Table No. 3: Descriptive statistics of variables

Variables Mean Std. Deviation Skewness Kurtosis
Lower Growth of Country 2.45 1.122 .474 -.510
Support to Demonetization 4.03 1.089 -1.063 .412
Poor Implementation 4.24 1.171 -1.534 1.375
Insufficient provision for weddings 4.02 1.281 -1.091 .014
Daily wages workers mostly affected by 4.10 1.232 -1.273 .526
demonetization

Likert scale (1=Strongly Disagree through 5=Strongly Agree) was used to measure the responses.
Statistic from Table No. 2 indicates that respondents are disagree that demonetization will affect growth of the
country (Mean= 2.45). They agree that there is poor implementation (Mean=4.24); provision for wedding (Rs. 2.5
Lakh) is insufficient (Mean=4.02); its daily wages workers who mostly affected (Mean=4.10) by the decision.
Nevertheless, they support decision of demonetization (Mean=4.03).

Hypotheses Testing
Values of skewness and kurtosis from Table No. 1 confirms non-normal distribution for all variables.
Therefore non parametric tests are used to test the hypotheses

H1-1: There is significant difference between male and female in their perception about demonetization

Table No. 4: Mann-Whitney Test for difference in Gender

Variables Gender Mean Rank U Sig.
Lower Growth of Country Female 53.89 1405.00 .031*
Male 67.75
Support to Demonetization Female 62.93 1789.50 .913
Male 62.24
Poor Implementation Female 52.44 1356.50 .005*
Male 68.64
Insufficient provision for Female 55.52 1481.50 .065**
weddings Male 66.76
Daily wages workers mostly Female 53.71 1396.50 .020*
affected by demonetization Male 67.86
*P<0.05, **P<0.1

Except support to demonetization decision, for other all variable male and female differ in their
perception. Male (Mean Rank=67.75) are more disagree to the effect of demonetization in lowering growth of
country as compare to female (Mean Rank=53.89) (p<.05). Male (Mean Rank=68.64) are more agree to poor
implementation as compare to female (Mean Rank=52.44) (p<.05). Male (Mean Rank=66.76) are more agree to
Insufficient provision for weddings as compare to female (Mean Rank=55.52) (p<.1). Male (Mean Rank=67.86)
are more agree to Daily wages workers mostly affected as compare to female (Mean Rank=53.71) (p<.05).

H1-2: There is significant difference between Graduates and Undergraduates in their perception about
demonetization
Table No. 5: Mann-Whitney Test for difference Graduates and Non-graduates
Variables Education Mean Rank U Sig
Lower Growth of Country Under Graduate 42.02 825.5 .263
Graduate 48.27
Support to Demonetization Under Graduate 45.44 938.5 .866
Graduate 46.32

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Poor Implementation Under Graduate 39.97 758 .074**

Graduate 49.43
Insufficient provision for Under Graduate 41.97 824 .247
weddings Graduate 48.29
Daily wages workers mostly Under Graduate 38.64 714 .034*
affected by demonetization Graduate 50.19
*P<0.05, **P<0.1

Except poor implementation and daily wages workers mostly affected, for other all variable Graduate and
Undergraduate do not differ in their perception. Graduates (Mean Rank=49.43) are more agree to poor
implementation as compare to Undergraduates (Mean Rank=39.97) (p<.1). Graduates (Mean Rank=50.19) are
more agree to Daily wages workers mostly affected as compare to Undergraduates (Mean Rank=38.64) (p<.05).

H1-3: There is significant difference among income groups in their perception about demonetization
Table No. 6: Non-Parametric ANOVA (Kruskal Wallis Test) for difference in Income
Annual Income (in
Variable Mean Rank Chi Square df Sig
Rs Lakh)
Lower Growth of Country < 2.5 L 64.14 3.108 2 .211
2.5 to 5.0 L 62.05
5.1 to 10L 45.54
< 2.5 L 59.30 4.178 2 .124
Support to Demonetization 2.5 to 5.0 L 76.47
5.1 to 10L 59.79
Poor Implementation < 2.5 L 67.12 11.003 2 .004*
2.5 to 5.0 L 51.37
5.1 to 10L 39.58
Insufficient provision for < 2.5 L 65.49 4.413 2 .110
weddings 2.5 to 5.0 L 54.05
5.1 to 10L 47.83
Daily wages workers mostly < 2.5 L 65.32 4.379 2 .112
affected by demonetization 2.5 to 5.0 L 55.58
5.1 to 10L 46.71
*p<0.05

Table No. 5 indicates that only perception towards poor implementation differ significantly among
income groups (p<0.05). Respondents from less than Rs. 2.5 Lakh group (Mean Rank=67.12) feel implementation
of demonetization is poor as compere other income groups (Rs. 2.5-5.00 L, Mean Rank= 51.37) (> Rs. 5L, Mean
Rank=39.58).

Conclusion
Findings of this study suggested that people support the decision of demonetization irrespective of their
age, gender and income. They do not feel that demonetization would affect the growth of the country. However,
there is overall discontent among the people about poor implementation of the decision. One of the provision
made by government for wedding ceremonies i.e. Rs. 2.5 lakh. People are of opinion that, it is not only insufficient
but the process of getting it, is also complicated. It was observed that daily wages workers affected very badly by
the decision. During our interviews with workers, they disclosed that instead of getting Rs. 300 (their daily
wage) they are getting only Rs. 100 in cash (due to shortage of currency) and balance amount is being paid latter.

The study attempted to find whether there is significant differences in the opinions of Males & Females.
Males strongly felt that demonetization would not affect growth of the country as compare to female. Further

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males are more concerned about poor implementation, insufficient provision for weddings and daily wages
(workers) as compare to female.

We also attempted to capture education wise differences of opinions. However, we could receive
substantial responses only in two categories i.e. graduates and undergraduates. We received more matured
responses from graduates towards poor implantation and daily wages (workers) as compare to undergraduates.

We found that with increase in income level the impact of poor implementation lowers. Respondents
with less than Rs. 2.5 Lakh income are severely affected by poor implementation of demonetization as compared
with higher income groups.

In a nutshell, this study conclude that, people are supporting demonetization decision however they are
not happy with the way, it has been implemented. Therefore, we strongly recommend to Government of India to
improve implementation to alleviate sufferings of common people.

Limitations and Future Scope of the study

Due to financial and time constraint it was not possible to include more factors and collect the responses
from large number of people. This is a cross sectional study and conducted just one month after the decision taken
by government. However, as time passes perception of the people may change. Therefore, more number of
subsequent studies are required. Future research should conducted with more number of factors and large number
of responses. Further, this study is conducted in only one city of India i.e. Pune. Therefore, findings of this study
has to be used cautiously and may not be generalized. A future study should include more states to improve
reliability and generalizability of this study.

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