CHAPTER 01

DEMONETIZATION

INTRODUCTION

Demonetization is the act of stripping a currency unit of its status as legal tender. It
occurs whenever there is a change of national currency: The current form or forms of
money is pulled from circulation and retired, often to be replaced with new notes or
coins. Sometimes, a country completely replaces the old currency with new currency.

The opposite of demonetization is remonetization, in which a form of payment is

restored as legal tender.

BREAKING DOWN Demonetization

Demonetization is undertaken by nations for a number of reasons:

 to combat inflation
 to combat corruption and crime (counterfeiting, tax evasion)
 to discourage a cash-dependent economy
 to facilitate trade

Dramatic Examples of Demonetization

The Coinage Act of 1873 demonetized silver as the legal tender of the United States,
in favor of fully adopting the gold standard. Several coins, including two-cent piece,
three-cent piece, and half dime were discontinued. The withdrawal of silver from the
economy resulted in a contraction of the money supply, which subsequently led to a
five-year economic depression throughout the country. In response to the dire situation
and pressure from farmers and silver miners and refiners, the Bland-Allison Act
remonetized silver as legal tender in 1878.

An example of demonetization for trade purposes occurred when the nations of

the European Union officially began to use the euro as their everyday currencies in
2002. When the physical euro bills and coins were introduced, the old national
currencies, such as the German mark, the French franc and the Italian lira were

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demonetized. However, these varied currencies remained convertible into Euros
at fixed exchange rates for a while to assure a smooth transition.

In 2015, the Zimbabwean government demonetized its dollar as a way to combat the
country’s hyperinflation, which was recorded at 231,000,000 percent. The three-month
process involved expunging the Zimbabwean dollar from the country’s financial
system and solidifying the U.S. dollar, the Botswana pula and the South African
rand as the country’s legal tender in a bid to stabilize the economy.

subsequently led to a five-year economic depression throughout the country. In

response to the dire situation and pressure from farmers and silver miners and
refiners, the The three-month process involved expunging the Zimbabwean dollar from
the country’s financial system and solidifying the U.S. dollar, the Botspula and
the South African rand as the country’s legal tender in a bid to stabilize the economy.

India's Demonetization
In 2016, the Indian government decided to demonetize the 500- and 1000- rupee
notes, the two biggest denominations in its currency system; these notes accounted
for 86 percent of the country’s circulating cash. With little warning, India's Prime
Minister Narendra Modi announced to the citizenry on Nov. 8, 2016 that those notes
were worthless, effective immediately – and they had until the end of the year to
deposit or exchange them for newly introduced 2000 rupee and 500 rupee bills.

Chaos ensued in the cash-dependent economy (some 78 percent of all Indian

customer transactions are in cash), as long, snaking lines formed
outside ATMs and banks, which had to shut down for a day. The new rupee notes
have different specifications, including size and thickness, requiring re-calibration of
ATMs: only 60 percent of the country’s 200,000 ATMs were operational. Even those
dispensing bills of lower denominations faced shortages. The government’s restriction
on daily withdrawal amounts added to the misery, though a waiver on transaction
fees did help a bit.

Small businesses and households struggled to find cash and reports of daily wage
workers not receiving their dues surfaced. The rupee fell sharply against the dollar.

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The government’s goal (and rationale for the abrupt announcement) was to combat
India's thriving underground economy on several fronts: eradicate counterfeit
currency, fight tax evasion (only 1 percent of the population pays taxes),
eliminate black money gotten from money laundering and terrorist-financing activities,
and to promote a cashless economy. Individuals and entities with huge sums of black
money gotten from parallel cash systems were forced to take their large-denomination
notes to a bank, which was by law required to acquire tax information on them. If the
owner could not provide proof of making any tax payments on the cash, a penalty of
200 percent of the owed amount was imposed.

which had to shut down for a day. The Even those dispensing bills of lower
denominations faced shortages sums of black money gotten from parallel cash
systems were forced to take their large-denomination notes to a bank, which was by
law required to acquire tax information on them.

"We are seeing an increased demand for bitcoin and India clearly has shortage of
supply, making the demand and lack of liquidity push up prices of bitcoin as compared
to global exchanges,” said Coinsecure CEO Mohit Kalra. The virtual currency was
trading at INR 55,735 in India in November (about $836), compared with INR 47,725
(about $712) (Coindesk) elsewhere.

Prepaid cash cards were another option that customers found useful, and that meant
good news for companies like ItzCash. Other alternatives include mobile payments
systems linked to e-commerce businesses like Ola Money, FreeCharge, Flipkart
Wallet. Ola Money, the payment portal for popular transportation app Ola Cabs,
reported a 1,500-percent jump in money added to the accounts in less than four hours.

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 CHAPTER 02

RESEARCH AND METHODOLOGY

Demonetization is the act of divesting a currency unit of its status as legal tender. It is
a tool to handle black money in the economy by lowering the cash circulation in the
country which is directly concerned with the corruption. It directly or indirectly
influences the various sectors. The effect of taking out so much money from the market
is obviously affect the various sectors, which are driven by the black economy like real
estate, construction, etc. But this move of government has also affected those sectors
that are driven by cash because they are the first that are affected when so much
money is suddenly removed from circulation. This research paper is trying to analyze
the impact of demonetization on Indian Stock market. This study is using Event Study
Methodology to analyze the stock of S&P BSE 100 companies. The result is being
observed from the comparison of both pre and post-event window and found that there
is no significant impact of demonetization on the stock market. The study also found
that this short period downfall in the stock prices can be due to some other factors.

Data and Data Sources

The sample has been drawn from Prowess IQ of 100 companies closing price which
come under S&P BSE 100 Index calculated on free-float market capitalization basis
from the period 30th October 2016 to 21st November, 2016. The event of interest for
the study is the announcement of demonetization of all 500 and 1000 rupee’ notes by
the Government of India on 8th November, 2016. The event window has been
chosen as -7 through zero to +7, where zero represents the demonetization date and
-7, and +7 are the period before and after the announcement date. Hypothesis To
accomplish the objective of the study, the following hypotheses are formulated:
1 : There is no significant average annual return (AAR) during the event window
caused by announcement of demonetization of all 500 and 1000 rupee note
2 : There is no significant cumulative average annual return (CAAR) during the event
window of demonetization of all 500 and 1000 rupee’ note is confiscated in the
prices of the security so instantly and precisely that the investors do not find any
opportunity to get any abnormal return from the security. This indicates the presence
of efficient market pricing at its semi-strong level.

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Research Methodology
Event study methodology is used to capture the impact of demonetization
announcement on
security returns (Brown & Warner, 1980; Bowman, 1983; Brown & Warner,
1985). While doing event
study, Brown & Warner (1980, 1985) states the statistical power of three
different return generating
Demonitisation of high value notes, suddenly th announced on 8 November, 2016, has
been polarising the country with big impact on the Indian stock market, since the
government pulled all the high value notes (Rs. 500 and Rs.1000) out of circulation,
with the avowed objectives of fighting corruption, stopping flow of fund to terrorist
activities and cracking down on black money. All of a sudden, a significant percentage
of currency became unusable. It had a great impact, not only on the individuals, but
also on the economy as a whole and affected capital flow into India from foreign
investors

The announcement of demonitisation of high th denomination notes of Rs.500 and Rs.

1000 on 8 November 2016 to battle corruption, terrorism and black money brought
great upheavals in the country. It also created a chaos in the Indian stock market. This
paper makes an attempt to understand the behaviour of institutional investors in the
Indian stock market before and after demonitisation. The study has used 30 daily
observations, consisting of 15 data points each, for pre and post demonitisation. The
individual components of gross purchase and gross sales of Foreign Institutional
Investors (FIIs) and Domestic Institutional Investors (DIIs) were analysed by using
basic statistical tools. The study does not find any conclusive evidence of impact of
demonitisation on the behaviour of institutional investors.

Research Methodology This paper is based on secondary data. The data was
collected from the various published sources like reports, magazines, journals,
newspapers etc. What is Demonetization? Demonetization is a act by which the
currency will not be legal tender. The currency will not be valid, the government states
to withdraw the money which is legal tender. The government has the right to take
such decision. After demonetization the money can only be exchange at the banks.

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The Government of India has implemented a major change in the economy by
demonetizing the currency notes of Rs.500 and Rs. 1000. They announced that the
currency notes will cease to be legal tender from midnight of 8th of November 2016.
People have given the option to exchange the money held by them up to 30th
December 2016. The government replaced these notes with the new notes of Rs.2000
and Rs.500. There are different effects of demonetization. The reasons given for
demonetization are to control the counterfeit notes that contributing in terrorism, to
eliminate black money, corruption, there are agent in the economy who are holding
cash which they cannot explain the mode of earning hence they cannot deposit into
the banks . This part of currency can be exhausted which cannot be replaced in any
manner. The government choose to replace the money which was in circulation in
cash and force a cashless economy and promoted electronic money. Demonetisation
have short term and long term effects. History First time demonetization took place in
1946 , Rs. 1000 and Rs.2000 notes were demonetized. Later it happened in 1978 ,
Rs. 1000, Rs. 5000 and Rs. 10,000 notes were demonetized.These two
demonetization affected very high value of money into circulation which formed a very
small part of currency notes into circulation. The highest value note printed by RBI was
Rs. 10,000 notes in 1938 which is demonetized in January 1946 and again printed in
1954 but demonetized in January 1978 according to RBI data. Demonetized bank
notes of Rs.1000, Rs.5000 and Rs.10,000 were reintroduced in 1954 and again
demonetized in January 1978 all of them. A Study on Impact of Demonetisation in
India www.ijbmi.org 80 | Page Current Demonetization in India The Government of
India has implemented a major change in the economy by demonetizing the currency
notes of Rs.500 and Rs. 1000.It means Rs. 500 and Rs. 1000 note will not be accepted
by the organization declared by the government. They announced that the currency
notes will cease to be legal tender from midnight of 8th of November 2016. People
have given the option to exchange the money held by them from banks and post office
till 30th December 2016. The government replaced these notes with the new notes of
Rs.2000 and Rs.500. There was a huge impact of this on Indian Economy because
Rs. 500 and Rs. 1000 notes contribute more than 84% of money value circulated in
the economy. People who have huge amount of black money in cash faced complete
loss now. If the person want to deposit the black money into the bank then they have
to show there ID.

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There would be 200% Penalty on income tax amount. Benefits of Demonetization

 This step will bring large amount of cash in the Banks it is benefit in itself. Once the
money is in hand of government it should be better utilized and move revenue could
be generated.

 It makes the economy cashless and reduces the use of physical cash as well. If the
economic transactions is digitalized it will reveal the expenditure of individual to the
tax authorities.

 It will spread the attitude against black money. It can eliminate the mentality that deal
with black money. Awareness and conscience can reduce the transaction with black
money. Due to digitalization the economy could be more transparent.

 Demonetization will increase the number of tax payer. Online transaction may clear
the business transaction in more transparent manner. It will increase the revenue of
government

 Unaccounted monies held as cash which was not productive will become productive
as it enters the legal system.

 Funding of terrorism and other illegal activities will be reduced and money with the
political parties is flushed out. Effects of demonetization

 Effects on parallel economy: Parallel economy is the economy where unaccounted

money exists. The demonetization of these 500 and 1000 notes and replacement of it
with new 500 and 2000 Rupee Notes may remove black money from the economy
that is blocked with the owners they will not in the position to deposit in the banks. The
depository has to prove the source of income and tax paid details to the government.
Circulation of large volume of counterfeit currency has been stalled It would help to
remove the funding for anti-social activities like smuggling, terrorism, espionage, etc.

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 Effects on money supply: Demonetisation reduces the money supply from the
economy in short run until the new currency circulated in the economy. Removal of
Rs. 500 and Rs.1000 notes reduced the money supply to the extent the new currency
re-entered in the system. Gradually the new currency will enter in the economy the
mismatch gets corrected and supply will increase. To the extent of black money the
money will reduce from the economy.

 Effects on Demand: Demonetization reduced the level of demand in the economy

to some extent. The overall demand is affected like demand of consumer goods has
been reduced, demand of real state and property is postponed with the expected low
price. people mainly invest their black money in real estate and with this
demonetization this sector affected the most. Demand of gold and luxury goods has
been reduced due to lack of money with the people.

 Effects on prices: Demonetization affects the pockets of buyers. Due to

demonetization of notes there is lack of hard money because of shortage of exchange
sources, lack of plastic money and conditions of the government on withdrawal
amount. This tends to reduce the demand of goods and services in the markets and
leads to increase the prices of the products.

 Effects on Real estate: the real estate business is expected to fall. More the
transaction is held in cash. People use the black money to purchase the property.
They use the money which is unaccountable. So, shortage of cash money reduces the
real estate business and force to fall in the prices of the property.

 Effect on GDP: Demonetizations adversely affect the consumption demand in the

economy this leads to fall in the GDP of the economy. For example- Goa is famous
tourist place to celebrate Christmas and New Year but because of shortage of cash
their business has been affected this affect the overall GDP of the country.

 Effects of Banks: it enhance the liquidity of the banks as directed by the government
the 500 and 1000 represented notes cease to be legal tender are to be deposited or
exchanged in the banks. It will automatically lead to increase the deposits with the
banks in the saving and current accounts. This hiked the deposits of the banks. A
Study on Impact of Demonetisation in India

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 Effect on Stock market: The Indian markets have fallen more than other markets in
Asia. The S&P BSE SENSEX is down 3.8%, which is more than other Asian stock
markets. BSE Realty index is fall by 15%. Some other stocks like DLF Ltd is down by
20%. Stock of Jeweler companies fallen by 11%. Will demonetization eliminate black
money? Demonetization cannot eliminate the black money by itself. This is just one
step taken by the Modi’s government. This effect bring massive amount of cash into
banks.

The government can use it in an effective manner. Black money can be eliminated
only if we change the mentality of the public. Demonetization may bring a social shake
up in the country by destroying this mentality. The attitude of people should change
against black money. The awareness of the drawback of black money can eliminate
it.

Prime Minister Narendra Modi’s move to curb unaccounted cash, or black money,
circulating in the Indian economy by >withdrawing the highest-value currency notes of
Rs.500 and Rs.1,000 as legal tender within three-odd hours of the announcement, is
a bold one. He invoked provocative imagery to explain the measure — of corrupt
officials stashing kilos of ill-gained cash under their mattresses, and such illicit black
money fuelling inflation as well as terrorism. He pointed out how difficult it is for honest
taxpayers to buy a house as the real estate sector seldom operates without a cash
component, some of which finds its way to political funding. The increase in the
circulation of these notes in the past five years has been disproportionate to the
economy’s growth. The introduction of new Rs.500 and Rs.2,000 notes, the
government argues, would not only check counterfeit currency, a problem that has
assumed serious dimensions, but also purge India’s economy of the black wealth
amassed in the form of high-value notes. Any decision like this needs to be sudden,
and it is not surprising that it has caused hardship as people scramble to get notes of
smaller denomination for daily expenditure. The only defence for this is that the larger
public purpose outweighs the immediate difficulties.

Having promised during the 2014 election campaign to bring back black money worth
lakhs of crores supposedly stashed abroad, the NDA government has been under
pressure to do something dramatic. The two amnesty schemes it launched over the
past year, including one for foreign assets, didn’t yield anything near the 23.2 per cent

9
of GDP that the World Bank had estimated India’s shadow economy to be in 2007.
Today that would be nearly $479 billion in unaccounted wealth, according to rating
agency Crisil.While there will be pain and confusion in the short term for common
people and the economy, a disruptive measure was perhaps the only way to shake up
the system to a new compliance normal. But the Centre must ensure that no poor
person is saddled with old, useless notes due to the lack of official identity documents
or a bank account, and avoid putting to disadvantage older citizens unable to visit a
bank repeatedly to exchange high-value notes.

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 CHAPTER 03

REVIVEW OF LITRATURE

REASONS FOR DEMONITISATION OF INDIAN CURRENCY BLACK MONEY Prime

Minister Narendra Modi has promised to bring every penny of black money stashed
abroad back to India. But bringing this unaccounted for money back, or indeed even
its discovery, is a difficult task, leave alone legal intricacies of tax treaties. While
previous governmental efforts have resulted in disparate estimations, some scholars
even argue that this money has been laundered back into India through foreign
investments. Here are four charts that provide a quick recap of the black money
problem.

Table no 1
Country Illicit flows as % of GDP
India 3.11

China 2.97
Brazil 1.49
Russia 8.21
Indonesia 4.16
South Africa 3.85

Estimates of black money in India fluctuate wildly. A World Bank report puts India’s
shadow economy at close to one-fifth of economic output. Another study on illicit
financial flows by Global Financial Integrity (GFI), a non-profit organisation, puts these
at 3% of economic output for India between 2002-11. This difficulty in measurement
is because black money is generated through a raft of complex, sophisticated activities
for the purposes of tax evasion, crime and corruption. This makes it inherently difficult
to measure black money accurately. Some studies exclude certain sources of black
money. For example, the GFI excludes criminal activities and a part of corporate tax
evasion, both massive sources of black money. Hence, its estimates are naturally
more conservative. This study also mentions that in the developingworld, including
India, corporate tax evasion is responsible for 60% of overall black income, criminal
activities are responsible for 35%, while corruption, which has caused much furore in

11
India, accounts for only 5%. While the reduction in personal income tax rate from
nearly 100% in the 1970s to under 30% now has reduced tax evasion, it has been
offset by higher rates of corporate taxation.

There is near unanimous agreement among scholars that most of the black money
generated in India is no more in Swiss banks. They argue that this has either come
back as white money to the country through a process called round-tripping, or has
moved into tax havens. A large chunk of black money might well be invested in real
estate and bullion. A 2011 study on foreign direct investments (FDI) in India by
Chalapati Rao and Biswajit Dhar estimates that up to half the investments could be a
result of round-tripping. Money held by Indians as a share of total money in Swiss
banks was 0.29% in 2006 and slipped to 0.13% in 2010, clearly showing that Indians
are not among the biggest clients of Swiss banks.

To curb the menace of black income, Prevention of Money Laundering Act (PMLA)
was introduced on 1 July, 2005. About 1,437 cases had been registered under PMLA
till the end of financial year 2012. Moreover, 23,118 cases had been registered till 31
March, 2012 under Foreign Exchange Management Act (FEMA), and penalties worth
Rs.1,678 crore had been levied. But that is hardly a drop in the ocean, argue critics.
Clearly, more needs to be done. Perhaps it would be prudent for the government to
focus more on curbing further generation of black money.

TERROR FUNDING

Fake Indian Currency Notes (FICN) network will be dismantled by the demonetisation
measures. Taking out 500 and 1000 rupee notes out of circulation will have a lasting
impact on the syndicates producing FICN's, thus affecting the funding of terror
networks in Jammu and Kashmir, North-eastern states and Naxalite hit states. As
many as 250 out of every 10 lakh notes in circulation are fake, according to a study
conducted by the Indian Statistical Institute. Typically, at any point in time, banknotes
with a face value of Rs 400 crore are in circulation in the country. The study revealed
that fake currency notes with a face value of Rs 70 crore are infused into the system
every year, and law enforcement agencies are able to intercept only a third of them —
a fact that is acknowledged by the agencies themselves. The detection rates of fake
100- and 500-rupee notes were found to be about the same or 10% higher than the

12
detection rate of 1,000-rupee notes. The study added that fake 1,000-rupee notes
constitutes about 50% of the total value of fake notes.

Pakistan’s military spy agency, the Inter-Services Intelligence (ISI), has been raking in
an annual profit of around Rs 500 crore by circulating counterfeit notes in India,
according to a report prepared by the IB, R&AW, Directorate of Revenue Intelligence
and CBI. The ISI has been making a profit of 30-40% on the face value of each
counterfeit Indian note produced in Pakistan, according to the report. The cost of
printing a Rs 1,000 counterfeit note, for instance, is Rs 39 (the RBI spends Rs 29 to
print a Rs 1,000 note), but it is sold at Rs 350-400, according to the report. The total
fake notes that came into India in 2010 from abroad was pegged at Rs 1,600 crore,
and going by this estimate, the report put the ISI’s total profit at Rs 500 crore.

According to data submitted by the Home Ministry to Parliament on May 3, there has
been a slight decrease in the circulation of fake Indian currency notes (FICN) in the
country in the three years beginning 2013. In calendar year 2015, investigative
agencies and RBI seized and recovered 6.32 lakh fake currency notes with a face
value of Rs 30.43 crore. While the number of fake Indian currency notes was down
10% from a year ago, in value terms, it was down 15% in the same period. In 2015,
various agencies filed 788 FIRs in cases of smuggling and circulation of FICN, in which
at least 816 people were accused. Data show that Delhi and Uttar Pradesh together
accounted for over 43% of recovered and seized FICN in 2015. As Indians struggle to
come to grip with the second de-monetisation of currency since independence (the
previous one was in 1978 and restricted to Rs1,000, Rs5,000 and Rs10,000 notes),
the scale and scope of this action is significantly bigger.

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 CHAPTER 04

DATA ANALYSIS & INTERPRETATIONS

Data analysis and interpretation have now taken center stage with the advent of the
digital age… and the sheer amount of data can be frightening. In fact, a Digital
Universe study found that the total data supply in 2012 was 2.8 trillion gigabytes!
Based on that amount of data alone, it is clear the calling card of any successful
enterprise in today’s global world will be the ability to analyze complex data, produce
actionable insights and adapt to new market needs… all at the speed of thought.

Business dashboards are the digital age tools for big data. Capable of displaying key
performance indicators (KPIs) for both quantitative and qualitative data analyses, they
are ideal for making the fast-paced and data-driven market decisions that push today’s
industry leaders to sustainable success. Through the art of streamlined visual
communication, data dashboards permit businesses to engage in real-time and
informed decision making, and are key instruments in data interpretation. First of all,
let’s find a definition to understand what lies behind data interpretation meaning.

Banks are the back bone of this entire process and also the biggest beneficiaries. Post
complete exchange of currencies, banks should benefit from higher deposits and
transaction volumes, lower cash handling costs and greater acceptance of digital
channels. There are likely to be secondary benefits for the insurance, asset/wealth
management companies through higher financial savings. While the Nifty closed
1.31% down, Bank Nifty closed higher by 0.09% giving a confirmation of the same.
With demonization, more people are depositing money into the banks. This means the
banks have more liquid funds and more money to lend. Many banks have also slashed
their deposit rates including SBI, ICICI Bank, HDFC Bank.  Canara Bank, ICICI Bank
and HDFC Bank have cut their fixed deposit rates by up to 1%. State Bank of India cut
their fixed deposit interest rates by 0.15% on select maturities.  HDFC Bank and ICICI
Bank have cut their deposit by up to 0.25%.  United Bank of India has slashed their
rates by 1% only on the short-term deposits. In the banking world, when deposit rates
are cut, it generally means the lending rates will also be slashed down. Since banks
14
are paying lower deposit rates to customers, this allows them room to charge lesser
on loans. Once interest rates come down, this would translate into a lower EMI. The
timeframe for loan rates to come down could take anywhere between 3 months and 6
months. Entertainment/Restaurants: One of the most common areas, where
undisclosed income is utilised, is the entertainment and restaurant industry. There are
plenty of restaurants out there that accept Credit and Debit Cards. Since a majority of
the transactions are in cash form in here, it will be exciting to see how people react to
it. Tourism: Favourite foreign Tourist Destinations of Indian people like Thailand,
Singapore, Malaysia, Maldives, Hawaii, Vietnam, Sri Lanka, Nepal, China, Indonesia
and Dubai will see negative impact in tourism revenues all black money sponsored
trips will come to a halt. Indian Local Tourism will also get affected as they lose large
chunks of the pay-in-cash-only clientele. Illegal foreign currency conversion is also
reported to be badly hit, because they were big acceptors of Rs500 and Rs1000
denomination currency.

Luxury items: will have a drastic negative impact. Majority of the people spend their
undeclared income on such products. After the decision, it is likely that all luxury
segments like clothing, electronics, luxury car, furnishing and allied business will take
a hit. Media and hospitality industries are also likely to get affected. ON Indian Rupee
After demonetization of Indian currency on 08 nov 2016, rupee has became weaker
than currency of 96 countries or economies. Out of 161 countries’ currency, rupee has
became stronger than 60 currencies and is at same exchange rate with 5 currencies.
If we take data for past 6 months before demonetization from 08 may 2016 to 08 nov
2016, rupee has became stronger than 125 currencies. But after 26 days of ban on Rs
500 and Rs 1000 notes, rupee has became stronger than only 47 currencies. Rupee
has became weaker by 2.66% against US Dollar ($) from 66.40 to 68.17 INR per unit
US Dollar. Rupee has become weaker against some popular currencies like British
Pound, Canadian Dollar and Hong Kong Dollar too. But also became stronger than
Euro, Australian Dollar, Swiss Franc, Singapore Dollar and Japanese Yen.

15
1. Rural and semi-rural citizens in India are very cash dependent, lots of people
depend on and regularly use cash for their transaction. Fewer than 20% of India’s
approximately 2,15,000 ATMs for instance are in rural centres. So any idea of moving
to cashless transactions any time soon is a pipe dream. Unfortunately many
commentators live and work in rural areas and they can buy even 100 Rs worth of
vegetables in a local supermarket and pay by credit card. Less than 5% of Indians
have a credit card. In April 2015 there were only 21 million credit cards.

2. A huge swathe of economic activity will therefore be disrupted. Everything from

marriages, funerals, festivals, purchases of essential goods, discretionary household
consumption will be postponed and or cancelled.

3. A great deal of the wholesale market in agricultural products is conducted in

semirural markets where settlement is in cash. This is not black money. Its just that
the people haven’t got around to using electronic payments partly because the
infrastructure is not there.

16
4. An unknown number of the un-banked sector who may have sums of money stored
away for a rainy day may be forced to travel to a nearby town to open a bank account
to put the money in before March 2017. They will be subjected to harassment and
exploitation by officials and touts. Some may even lose their money if they can’t do it
by 30 Dec. For them it’s more than a few thousand rupees; it may be their life-savings.
As soon as they can they may well take their money out.

5. Elementary maths shows the gap clearly. Assuming the existing 500s and 1000s
are to be replaced like for like by value, we’ll need 11.4 billion new 500s and 2.54
billion (half of 5.08)to be printed distributed to banks and put into circulation (i.e
people’s hands). Not to mention that there will also be a new 1000 note coming out
soon.

6. Here’s the killer point: In 2014–15,- an entire year - the RBI had ordered from the
printing presses the following numbers of currency notes: INR 500s: 5.4 billion notes
INR 1000s: 1.5 billion notes

7. That means that even if all the printing press capacity was diverted to just 500s and
1000s it would rather more than a year to replace the notes that have been trashed by
the edict of Nov 8th.

And you just cant print only high value notes because lower denomination notes (100s
and 50s and 20s and 10s) are not only needed for everyday transactions but also need
to be replaced faster for obvious reasons.

8. To say that the move will migrate a country of 1.2 billion people to the digital
payment infrastructure is more of wishful thinking. Banks don’t exist for miles in rural
India, India has an absymally low 1,082 PoS terminal for a million people and digital
wallets are largely an urban phenomenon. To expect such infrastructure to magically
appear overnight to facilitate cash conversion as well as migration to a “digital”
economy is downright bizzare. It’s fairly visible that the ATMs in India can’t deal with
this, and there are people dying while trying to withdraw cash.

17
9. This was neither necessary to root out black money nor is it sufficient. In terms of
its effect on black money it will be at best marginal. In terms of the unintended
consequences the effects will be major especially on the poorer less well educated
un-banked, rural, cash-economy dependent citizens of India who are now queuing up
not for love of country or ruler, but to salvage their own meagre savings.

10. People are already buying and selling the old notes in a parallel black market.
People desperate for cash are already exchanging 500 notes for 400 INR - for the
seller of the new notes it’s a windfall gain. A lot of wealth will simply be transferred to
people who own legitimate currency and are willing to sell it at a premium.

11. Emphasis on cashless economy ignores the point that not many people have
smartphones in the first place. The government needs to take concrete steps to ensure
the vegetable seller on the streets or kiryana store don’t lose considerable business
over a long period of time to the richer franchises who have facilities for PayTM / card
readers. It’s one thing to lose business due to competitive disadvantages and another
to lose them due to structural disadvantages introduced by sweeping government
changes.

Conclusion Demonetization was an effort to stop counterfeiting of the current

banknotes allegedly used for funding terrorism, as well as a crackdown on black
money in the country. In the days following demonetisation, banks and ATMs across
the country faced severe cash shortages with severe detrimental effects on a number
of small business, agriculture and transportation. The scarcity of cash due to
demonetization led to chaos and most people holding old banknotes faced difficulties
exchanging them due to endless lines outside banks and ATMs across India.
Demonetization is a deep psychological strike on Black Money. The move was also
described as an effort to reduce corruption, the use of drugs and smuggling. This
decision was considered as biggest cleanliness drive against the black money in the
history of Indian Economy and we might move towards digital economy.
Demonetization seeks to bring in a sharp, sudden but long lasting behaviour change
that encourages electronic payments. Demonetization is advantageous in short,
medium and long term.

18
 CHAPTER 05

OBJECTIVE

The government said demonetisation of high-value currency notes in November 2016

achieved the objectives “quite substantially” even as the Reserve Bank of India
reported most of the demonetised currency was back with the banks. The RBI annual
report released on Wednesday said 99.3% of Rs 500 and Rs 1,000 junked notes came
back to banks.

“I think demonetisation has achieved its objective quite substantially,” economic affairs
secretary Subhash Chandra Garg said in reply to a question in this regard on
Wednesday.
Garg said objectives of the note ban like checking black money, terror financing,
promoting digital transaction and weeding out fake currency notes have been
achieved.
Over the last one year and 10 months, there has not been a single high quality fake
note in the system as a result of a new security feature in notes, Garg said.
The secretary also stressed that there was no shortage of currency in any part of the
country.
On November 8, 2016, Prime Minister Narendra Modi had announced demonetisation
of high-value currency notes.

1)Removing Black Money From Country: Modiji Has Done A Really Good Work, As
People Who Are Having Black Money Will Now Be Left With Nothing Particularly. All
The Cash Which Resides Below The Pillow, Will Now Be Useless(Although Small

19
Amount Of Black Money Can Be Converted Into White, But Amount In Hundreds Of
Crore Of Rupees Is Almost Next To Impossible To Make It White)

2) Stopping Of Corruption: By Removing The Currency Notes From Circulation, It

Will Have A Direct Impact On Corruption. People Who Have This Notes Will Now Be
Left With Nothing.

3) Stopping Terror Funds: Because Of Demonetisation, The People Or

Organisations Who Used To Fund Terror Groups Will Be Now Sitting Without Any
Works, They Will Naturally Die And That Too With Starvation.

4) Curbing Fake Notes: Demonetisation Will Also Stop The Circulation Of Fake Notes
In The Economy (Although The Amount Of Fake Notes Revolving In The Economy
Was Around 400 Crores).

5) Stopping Illegal Dabba Trading: Due to Demonetisation, The Illegal Share

Trading And Dabba Trading Will Cease To Exist. This Will Ensure Stability In Share
Markets,Especially At These 'Times Of Turbulence'

6) The Uttar-Pradesh Elections: It Is Generally Seen That, There Is Ample Liquidity

In The States, Where Elections Are To Happen, This Thing Is Considered As Vote
Bank And Politicians Buy Votes Of People By Offering Them Money, If They Vote For
Them. Now Because Of Demonetisation, Vote Bank System Will Not Be In Existence
(The Proof Here Is Currency Notes, Which Were Found From River Ganga). As An
Ultimate Result, We Would See Transparent Elections.

7) The Betting On U.S. Presidential Election Results: It Seems That Modiji Is Well
Aware Of The Fact That Indians Are A Master In Betting At Anyrhing Like Pro!!!!
Because Of His Address To Nation At 8:00 PM, There Will Be No Betting Done On
The US Presidential Election Results, Or Atleast Its Quantum Would Be Less Than,
What It Should Be Have Earlier..

8) To Send A Clear Message That This Government Is Well Inclined Towards

Working For The Development Of Nation: Because Of His Bold Step, It Will Send
A Clear Message That This Government Is Well Inclined Towards Development Of
Nation. It Will Also Send A Message To The International Community, That The

20
Government Is Doing Constant Efforts To Make India A Better Place To Invest And A
Better Place To Do Business.

The lending policies are controlled by the Reserve Bank of India (‘RBI’) and the
Government of India (‘GOI’) . Also, every individual bank has its own strategy and
regulation in tune with the RBI and GOI. Demonetization was only for old notes of INR
500 and INR 1000. Now, we must understand that there is a difference between digital
currency and physical currency.

The currency in bank accounts represented by digits shown in an online system is

called digital currency and the currency that a normal person has in its wallet/pocket
is called physical currency. It is not necessary that a person/bank having plenty of
digital currency will be in a comfortable state to provide with physical currency also.
Physical currency requires a lot of efforts in printing , circulating , regulating and
maintaining.

Also, Digital currency is a representation of physical currency only. No country can

print physical currency recklessly otherwise they might end up in making another
ZIMBABWE-like situation. Now, India is facing the shortage of physical currency due
to demonetization as the demand is more than supply. INR 1000 and INR 500 were in
circulation since very long and had equated the demand and supply of Indian
population which in contrary has not yet achieved by INR 2000, new INR 500, INR
200, etc.

Now, demonetization has brought a lot of cash to the banks, but they cannot
lend/borrow recklessly as they need to follow certain norms and regulations laid down
by the RBI and GOI. The Cash Reserve Ration (CRR) and Statutory Liquidity Ratio
(SLR) are one of the important terms of conditions that are required to be adhered to
by all banks according to RBI. RBI and GOI consult together to fix the CRR and SLR
numbers so that they can regulate the economy.

So, now even if the banking sector has lots of cash, they have to deposit equal
proportion of cash with the RBI also. An important thing to notice here is that, although
there is huge amount of digital currency , but there is lack of physical currency , and if

21
the banks start lending at a higher rate , this might cause an issue when any
customer/consumer converts digital into physical currency.

Also, there are numerous other regulations which are unpopular and the GOI/RBI
never discloses certain crucial policies which are important for economic safety of
India.

There is no straight jacket answer or solution to the lending problem as this is a

complete circle in which many factors play important role.

Every big change requires small steps which show their impact over a period of time.
Demonetization effects are expected show long lasting impacts. So, maybe the
situation improve/change over a period of time which might result into development of
overall Indian Economy.

 Before coming to demonetization ,i would like to remind you something which

has(according to me) deep connection with topic.Every one saying that
demonetization has been done to curb black money , stop curruption, flushing
of fake money etc….
 For your information ,there is only 6% of black money in form of liquid cash
running in india. SO i dont think they will take that bold step for money and
put their gov. in danger.
 Yes ,there are about 1.3 Lk cr rupees fake money running in india and across
border ,this seems to be one reason but not mandatory. If onces fake money
is printed then it might be printed in future who knows, this makes some point.
Only a fraction of black money is in the form of hard cash. Big loans given by our banks
to big industries are not cleared(willingly or unwillingly-One such example Mallya-).

Gross non-performing assets (GNPAs) or total bad loan and restructured advances in
all scheduled commercial banks stood at Rs 8.32 lakh crore in FY 16 as against Rs
7.28 lakh crore in FY 15.

There are 2,071 accounts with state run banks which have debt exceeding Rs 50 crore
and are classified as nonperforming assets or bad loans.

22
 CHAPTER 06

ADVANTAGES AND DISADVANTAGES

ADVANTAGES

Possible Benefits of Demonetization

 Increased Savings – When currency is demonetized, people tend to deposit their

cash with a bank and store less physical currency at home. This helps them save
more.

 Lower lending rates – With currency demonetization, money moves from people
to banks and financial institutions. Therefore, there is a better circulation of money.
Further, banks and financial institutions have a lower cost of funds which translates
into lower lending rates.

 Better economy – Since demonetization induces people to deposit their cash with
the banks, there is a higher circulation of money in the economy. The government
receives more taxes and can undertake more development projects. Eventually,
this leads to a better-performing economy.

 Curbing anti-social activities – Usually, anti-social elements like smugglers or

terrorists use cash as a mode of transaction. When the government decided to
demonetize 500 and 1000 rupees notes, they were the highest denomination notes
in circulation. By demonetizing them, the government forced these anti-social units
to find ways to get rid of the old notes. This allowed the government an opportunity
to get a better control over the unaccounted money in the economy and curb anti-
social activities.

 Reducing counterfeit currency notes – During demonetization, people deposit

all old notes with banks who check if the notes are genuine or counterfeit before
accepting them. Therefore, this allows the government to weed out counterfeit
notes circulating in the market.

Currency notes were demonetized on three occasions in India:

23
 In 1946, when the RBI demonetized Rs, 1,000 and Rs, 10,000 notes

 In 1978, when the Government demonetized Rs, 1,000, Rs. 5,000, and Rs.
10,000 notes

The Government made many claims with respect to the objectives and outcomes of the
demonetization scheme in 2016. These were:

1. It will plug financing to terrorists

2. It will help unearth black money

3. The unearthed black money will also expand the fiscal space of the government

4. It will help reduce interest rates in the banking system

5. It will help formalize India’s informal economy, reduce the extent of cash
transactions, and help in the creation of a less-cash economy.

The government offered several incentives to induce people to use digital transactions
too.

1. Increases Deposit Base & Savings: Currency demonetization increases deposit

base and savings as individuals will deposit more and store less physical currency
at home.

2. Improves Monetary Transmission & Reduces Lending Rates: With currency

demonetization, there will be a movement of currency from individuals to banks
and Financial Institutions. The rise in deposit rates would put all of this money into
circulation. The cost of funds will reduce for Banks/ FIs, and the overall lending
rates for various trade, business and commerce activities would reduce.

3. Creates Room For Monetary Accommodation: With improved monetary

transmission, there will be space for a far more liberal monetary policy, which would
result in a further reduction of interest rates in the future. Most analysts are already
projecting a lower repo rate in the coming months.

24
4. Direct Boost to The Jan Dhan Yojana: Jan Dhan Yojana accounts have a very high
number of dormant or unused accounts. These accounts have suddenly seen a
spike in usage, and individuals who’ve had these will finally start using them and it
might help them in inculcating banking habits.

5. Added Support for Government Finances: The Government will significantly

benefit from the additional cash that is pushed into the economy. There will also
be a much higher collection of income and other taxes by the Government.

6. GDP Growth Potential: More than short term benefits, there is an angle of long
term GDP growth as well, which we should be able to observe over the next few
years. This move could positively impact the GDP figures of our economy by
around 2018.

7. Long Term Benefits: A few might criticize this move at present, but it will bring
multiple long-term benefits for the nation’s economic health. This entire exercise
might be slightly discomforting, but demonetization will definitely have long-term
benefits and implications.

8. People can deposit old notes of Rs. 500 and Rs. 1,000 in their bank or post office
accounts till December 31, 2016. For exchanging old notes with new ones, the
bank requires you to fill up a small form and present a valid ID Proof.

9. You can exchange up to Rs. 2000/-* in cash while exchanging your old currency.

10. If you are unable to exchange your old currency notes on or before December 30,
2016. You can do so at Reserve Bank of India (RBI) designated locations till March
31, 2016, along with the required documents, as may be specified by RBI.

11. Old currency notes Rs 500 and Rs 1,000, can be used till midnight of November
24, 2016 for utility bill payments, fuel stations, government hospitals, metro
stations, flight/ train tickets.

12. You can withdraw up to Rs 2,500/-* per day from any ATM. The collective
withdrawal limit from a bank account including ATM withdrawals is Rs. 24,000/-*
per week.

13. The situation is expected to normalize within a few weeks, it may however take
ATMs another 10 days or so to function normally.

25
14. In case Rs. 2,500/- is insufficient for your daily needs, then in that case you should
try and use other banking channels such as Cheques/ Drafts/ NEFT/ RTGS/ E-
wallets/ etc., as all of these would continue to operate uninterrupted.

DISADVANTAGES

 Inconvenience to Common People - Common People are in big trouble

because of the non availability of cash for some days. Whole country is
standing in long queues. Banks and ATMs do not have enough currencies to
entertain everyone. You can see at your nearest ATMs and Banks . Over 100
people have been already dead in 3-4 days. There are more than 30% who
don't use bank accounts.
 Currency Destruction - Black money holders are burning and destroying
the cash. This is going to be a big loss to economy. Dollar prices have already
crossed 68 rupee. The decision to change all the currencies will at least cost
Rs. 12,000 crores to Reserve Bank of India(RBI).
 Big fishes will be left out - Big fishes means the defaulters who are actually
responsible for black money will be left out. Since, they have money in form
of lands, golds or they have money in foreign accounts. They will not be in
trouble due to demonetization at all. That's why we cannot see any rich
people standing in queues.
Actually there was not much advantage were there by demonetisation. Government
thought that there will be at least 30 to 40% black money in the market. But actually
nothing was there most of the black money people buy gold and invest in real estate
they never keep use amount of cash. Income it is not declaring what is the outcome in
the analysis of demonetization. Even the position was demanding the total statement
on demonetisation but government failed to provide any suitable reply to
them.Disadvantages the people were standing in the queue for their own money and
nobody was there to help them. Frequently government was changing the rules and
regulations in every form government on a firm stand. There will difficulty for marriages
treatment of patients and other social functions. There is nothing it was a political
drama. GDP Has Fallen by 2% we could have achieved 9.5% but it was only 7.5%.
There is nothing change in the basic market after the demonetization.

26
As we saw, this government’s move was laudable but it failed badly due to slip ups in
especially #7 and #8. This slip up caused untold miseries to common man, the
government’s failure in preventing slush money from getting washed and badly
affected GDP & growth rate.

In last few days lot of Indian and global leaders have praised demonetization as a
good idea for medium - long term growth in India. I think the big challenge has been
that of implementation. I’m sure the government had to make some tradeoffs between
keeping the secrecy of the mission vs. consulting all stakeholders and creating a full
proof implementation plan and some of that shows as we see the execution challenges
in the last few weeks.

Having said that, I also have another contrarian point of view. Why should all the
burden lie on the government. Shouldn’t all of us as citizens have a role to play? To
educate others on digital payments, to take our household help to bank and open their
accounts, to convince our parents/ relatives to have all transactions in ‘white’ and pay
taxes in full. The performance by citizens of India has been better than average in
terms of maintaining peace and order, respecting the new rules etc. But I’m afraid that
may not be sufficient. We, especially the educated lot, need to do a lot more to make
sure the objective of a cashless society gets realised. Here is a small way in which
you can do so - enabling a literacy mission on digital payments (Paytm Seekho ).

Imagine when every sabjiwallah, doodhwalla can use digital payments, and people
can no longer use ‘cash’ transactions as a way of massive tax evasion, what all
benefits can accrue to the country.

Here’s hoping that day comes soon. And this time there are no execution challenges.

Demonetization, in the meaning of invalidating high denomination notes, will help

under some very well defined conditions:

1. It is a cash economy with high number of routine transaction in cash.

2. Corruption is endemic in the society.
3. Currently circulated note design has poor and outdated security features so
as to allow for easy counterfeiting.

27
 4. Considerable amount of counterfeit currency is in circulation.
5. Government has some reasonably accurate estimate on black money in
hiding within the country, in cash.
6. Cost of printing, releasing and reaching the new money to the citizens.
7. Extremely rigorous planning to thoroughly ensure that implementation plan
takes least possible time & effort.
8. Extremely rigorous planning to thoroughly ensure that implementation plan
neutralizes in advance, all those trap doors a person is likely to exploit to
wash his illicit money.
As we saw, this government’s move was laudable but it failed badly due to slip ups in
especially #7 and #8. This slip up caused untold miseries to common man, the
government’s failure in preventing slush money from getting washed and badly
affected GDP & growth rate.

This government’s efforts did not at all impact those powerful, influential and well-
connected people, who could wash as much of their old money, as possible.

Government attacked only the common man but it had not made e-transaction
mechanisms popular, cheaper & attractive BEFORE going for the Demon Move.

Now one can see the advantages of good implementation as well as damage due to
thoughtless actions.

Demonetization, I would like to describe it as a very bold and daring ever step. It is
such a bold step, that even the own party members cannot digest. And, as any other
opposition leaders, parties or individuals stating this step as a scam, or a foolish
decision, I am against them. No party, no individual would take such a serious step
putting their position at stake. This is such a bold decision, that his position would be
at stake, would have to be ready to step down any time if it doesn't workout, as there
may be pressure internally, from opposition parties, from industrialists and
businessmen community. So, considering all these, I understand there is enough
planning done in order to face any such consequences. With just a single step, the
NDA government has attempted to tackle all the major issues that are affecting the
Indian economy i.e.

A parallel economy,Counterfeit currency in circulation & Terror financing.

28
This may not definitely curb cent percent corruption, but a part of it. May be considered
as baby steps or the beginning of new era towards Clean India.

For someone, who always say, What is this for? What do we get out of this? Why
should we suffer? Why aren't billionaires standing in queues?

In simple words, In a layman language, money keeps growing, when spent or

exchanged for some goods and services. Money should never sit idle at one place.
You deposit money in the banks, do you think they just keep it in lockers and pay you
the interests? The banks further rotate the money in different ways, through different
kind of loans(Personal, Farmer, Education, Business, etc).

So, with respect to the black money or unaccounted money, the people just keep it
unmoved or in lockers or underground, or may be in the form of gold, etc, which doesn't
account in the economical growth. As the printing and the supply of currency
happening and the more and more currency going unaccountable, there lies the
economic slowdown, economic recession, rise in inflation, and many other economical
imbalances. Just imagine, when all the unaccounted money comes into existence and
rotation, there could be a rapid change in every economical aspect. And for god's
sake, have some patience, please don't expect that change in a month or two. We,
people keep shouting about the rise in fuel prices, rise in inflation etc, but when
someone is trying to address those problems, why do we shout again? Demonetization
declared and is still under the process of implementation, so let's have little patience.
A simple truth is, the old notes are still valid and you may deposit them in your bank
accounts and are valid till 31st of this month. Due to the highest level of negative
marketing done by many, people are in a notion that they are invalid, they are of no
use, and could only be exchanged with the help of brokers or mediators on a
commission basis. We literate people, should at least take responsibility and educate
a few in and around you in very simple words. I have heard and seen people say "R.I.P
old Rs.500 and Rs.1000 notes, but they are valid by depositing them in your bank
accounts. So, it isn't R.I.P. yet, they are still alive and are on Life Support System"

The decision has been taken, and which cannot be rolled back, so why talk about that,
let's just accept it, take it forward on a positive note. We all know a basic truth that
digital transactions could easily be accountable and useful for the economy, but we

29
run behind the physical money. I hardly used the physical money after the big
announcement. Every other store now has either of the digital payment modes. It's a
great transformation towards a digital economy. As, I see there are many, who talk
about farmers, villagers, people in small towns facing problems with the cash crunch.
Yes, I do accept it. But, when it comes to cities or in the hi-tech areas of the
metropolitan cities, forget about slums in the cities, this shouldn't be the case. But,
there are people standing in queues in hi-tech zones. This shows the tendency of
people towards the digital transactions.

Accept the change & Be the change.

So when someone asks, Why do we need to suffer ? I would like to say, please don't
suffer, find an alternate. And when someone asks, Why no billionaire stands in a queue
? Of course, the problem of a common man may get resolved by standing once or
twice in the queue, But, what solves the problems of a billionaire. He/She just stays
back home and finds the ways.

Impact of Demonetization

It is too early to comment on the impact of demonetization or effect of demonetization.

This is still under implementation process. There are both positive and negative impact
of demonetization.

First let me talk about the negative impact of demonetization :

Cash crunch : Yes, there is a huge cash crunch. As, the small denominations are
accounted to only 14 to 15% of the total currency in the market, more and more small

30
denominations would have been supplied. Assuming that the currency may not be
supplied in a large number, due to the ideology of digitalizing the currency.

Economic slowdown : The major industries like real estate, infra, gold etc have been
affected and sales would come down and that impacts the growth of the economy.
Many transactions halt, until the markets gets back to normalcy. Markets may see a
temporary fall, and temporary recession. At least a year would be the span to retain
the normalcy. There could be a long-term gain.

Real Estate : As demonetization hits real estate industry very badly, people has now
got no clarity on how to go ahead in terms of buying a land or a house. Government
has to come up with some sort of awareness campaigns about how the future of real
estate could be seen, whether any new laws comes in to picture, if customers has to
wait or may go ahead and buy them?

Corruption at different levels : This step proved that, given a chance, every
individual is prone to corruption. Indian banking system is supposed to be one of the
most stable, rigid and strongest across the globe. Our banking system is so strong
that it could even face and withstand the global recession in 2008, but all that
reputation is at stake now. This bold step lead to many banking frauds and illegal
transactions across the country. Bankers, Currency chests and may be a few at RBI,
played a major role in the frauds post-demonetization. Police, CBI and I-T raids are
just seeing shocking and disturbing figures of new currency been supplied illegally.
Also, poor people are prone to corruption. There are huge deposits in Jan dhan
accounts, bank accounts of poor people, which shows even poor people are corrupted
and are ready to save the corrupted. So, given a chance, at least 95% of people are
prone to corruption. "There is a famous saying in Telugu, the one who gets caught
doing a mistake is a thief, and the one who doesn't get caught, doing the same
mistake is a king". We expect a very serious action with respect to banking frauds,
as we common people are facing the trouble and can't afford to see things happen this
way. But, it is the responsibility of the government to take out all the culprits in order
to gain the credibility, as it shouldn't be very difficult to track the new currency as it is
just a month old.

31
The new digital Laws : A step towards a cashless economy is a great step, but
government has to bring in more laws, that helps people understand about the safety
in digital banking. It is the governments responsibility to make people aware about,
how safe and good, the digital banking is. There are high charges now for digital
transactions like at POS, Internet banking etc, which has to come down.

Recalibration of ATM's : Recalibrating ATM's was not done at a great pace as it has
to be done in such critical situations. May be cash crunch and recalibration of atms
are both wantedly done in order get people into digital mode.

Death's : Something has to be done with respect to the people who died due to
unavailability of cash.

Positive Impact of demonetization (Over a period) :

Cashless & Digital economy : A better step towards Digital India. There are now
several to being digital. There are several banks, several digital wallets and new
payments banks entering the markets. Aadhar card linkage everywhere could also be
a game changer.

Interest rates : There should be a rise in banking interest rates.

Inflation and GDP

If not Poverty elimination, at least a difference in the poverty graph has to be seen
over a period.

Every individual who are now standing in the queues are to be shown the difference,
which increases the credibility on such bold steps, and let them be prepared for such
kind of decisions in future which could be taken in favor of common man.

Terror financing could be one such factor which could have a great impact.

Great step towards Counterfeit currency circulation cut down.

Leave your comments in the link of the article mentioned.

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The demonetisation is a fight on the black/fake money. In the long run we will see the
benefits. However, in the short term the common man is inconvenienced. It may last
another few months. But ultimately, we will reap benefits in a big way. This is not the
end of the this war. Many other reforms to curtail the black money in real estate, gold
and unreported business are in the offing. That exercise will not hurt the honest tax
paying common man.

The demonetisation is a fight on the black/fake money. In the long run we will see
the benefits. However, in the short term the common man is inconvenienced. It may
last another few months. But ultimately, we will reap benefits in a big way. This is not
the end of the this war. Many other reforms to curtail the black money in real estate,
gold and unreported business are in the offing. That exercise will not hurt the honest
tax paying common man.

RBI REPORT

MUMBAI: As much as 99.3 per cent of the junked Rs 500 and Rs 1,000 notes have
returned to the banking system, the RBI said today, indicating that just a miniscule
percentage of currency was left out of the system after the government's
unprecedented note ban aimed at curbing black money and corruption.

The Reserve Bank of India (RBI), which has taken an awfully long time to count the
currency that was returned in the limited period window provided by the government
to exchange or deposit the demonetised currency, said in its Annual Report for 2017-
18 that the exercise is finally over.
Of the Rs 15.41 lakh crore worth Rs 500 and Rs 1,000 notes in circulation on

33
November 8, 2016, when the note ban was announced, notes worth Rs 15.31 lakh
crore have been returned.

This meant just Rs 10,720 crore of the junked currency did not return to the banking
system.

After the note ban, old junked notes, called specified bank notes (SBNs), were
allowed to be deposited in banks with unusual deposits coming under income tax
scrutiny.
The "humungous task of processing and verification of specified bank notes (SBNs)
was successfully achieved," it said.
The SBNs received were verified, counted and processed in the sophisticated high
speed currency verification and processing system (CVPS) for accuracy and
genuineness and then shredded, it added.
RBI said the processing of SBNs has since been completed. "The total SBNs
returned from circulation is Rs 15,310.73 billion." A collateral damage as a result of
rise in printing and other cost was dividend RBI pays to the government.
The government replaced old Rs 500 notes with new ones, but no replacement for
Rs 1,000 notes have been made. Instead, a new Rs 2,000 notes were introduced
post note ban.
Post-demonetisation, RBI spent Rs 7,965 crore in 2016-17 on printing new Rs 500
and Rs 2,000 and other denomination notes, more than double the Rs 3,421 crore
spent in the previous year.
In 2017-18 (July 2017 to June 2018), it spent another Rs 4,912 crore on printing of
currency, the annual report said.

34
In the months following the November 2016 demonetisation, Indians deposited over
99% of banned currency notes in various banks, according to the Reserve Bank of
India’s (RBI) annual report released today (Aug. 29).

On Nov. 08, 2016, when prime minister Narendra Modi declared the Rs500 and
Rs1,000 invalid from the next day, these two notes accounted for Rs15.44 lakh crore
circulating in the Indian economy, or 86% of the total by value. So according to the
RBI report, Rs15.31 lakh crore returned to the banking regulator.

However, the goal posts kept shifting in the weeks and months since.

Meanwhile, India’s love affair with cash has returned.

Immediately after the note ban, digital transactions saw a spike due to the acute cash
shortage. However, soon normalcy returned. “The value of banknotes in circulation
increased by 37.7% over the year to Rs18.03 lakh crore as at end-March 2018,” the
latest RBI report said.

Experts point out that even though electronic transactions have increased, they
haven’t risen at a pace the government expected.

“None of the original objectives have been met. Some of the other objectives laid out
fighting terrorism and corruption, even that has clearly not been met,” said Jayati
Ghosh, economics professor at New Delhi’s Jawaharlal Nehru University. “Instead,
what it did was give a body blow to the informal economic activity and I don’t think that
the country has still fully recovered from it.”

Demonitisation has been the biggest failure of Modi Govt. It has not been able to
achieve its prime motive of flushing out black money from the economy. Out of 15.4
lakh crore that was in circulation in the denomination of 500 and 1000 , over 15lakh
crore has already found its way back to the banks by 30th December and yet more
continues to trickle in through the RBI counters. The conservative estimate of the govt
of Rs 3 lakh crore to not reach the banks was completely off mark leave aside the
optimistic estimate of 5 lakh crore and the dreams of wiping out the entire fiscal deficit
of this year.This has lead the govt to quickly engage in damage control to salvage
whatever they can from this gross misinterpretation of results by them. They now are
desparately searching for how so ever small benefits they can find from this whole
excercise to justify this nefarious move.

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The benefits seem limited to control in counterfeiting and insurgency. Which are very
welcome but when compared to the cost and trouble involved become difficult to
justify.

Digitalisation was never the intention but emerged as an excuse to cover up for the
inefficiencies of the govt infrastructure to pump in back the pulled out currency from
the economy. It seemed the only saviour and something that could be explained to all
as the biggest benefit.

This too is a far fetched idea with the vast rural population being without electricity
forget internet and leave aside educational levels and technical saviness needed to
engage in digital transactions.

This Govt has entered into a no entry route and can now not turn back and the way
forward is digitalisation which is equally difficult and challenging.

The Govt must realise that India's problems are basic that is poverty and education
and they will become roadblocks in every project.

It is not that their are no solutions. There are solutions but is the Govt bold enough to
admit its mistake and ready to pursue another approach or will it be adamant to move
forward on this route and keep struggling with digitalisation is what remains to be seen.

Consequences due to Demonetization is similar to a loss of the job for a person for
some time and he managed his finance by spending his saving and took a loan, now
his job is back but it will take a long to come back to the position where he had been
before the loss of job as he has to repay his loans, maintain his saving and in doing
so, he will have to cut his normal expenditure activities, which used to be part of his
expenditure before loss of job.

In other words that person has gone to many years back due to loss of job for few
months.

Same thing is applicable to indian economy as earning and expenditure of all indian
forms the indian economy and almost every indian lost his earning or spending during
the period of Demonetization and it's effect will be felt for long.

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On November 8, 2016, PM Narendra Modi had promised to eliminate all the
counterfeit currency in circulation in India back then by this one move, but day in
and day out we receive news of more and more such hideouts being busted which
produce fakes of the new Rs. 500 and 2000 notes. It is simply impossible to know
just how many of such fake notes are already being exchanged around you and
me. Also, back in August 2016, the Union Minister of Finance had, while
answering a query in Rajya Sabha, stated that the percentage of the total currency
in circulation of India which is fake is 0.02. Why was 86 % of the legal tender in
circulation in India outlawed only to eliminate this much fake currency?
People who were known to be hoarding black money in vast quantities of Rs. 500
and 1000 notes which once used to be legal tender, after this move, began
hoarding their wealth in the new notes and found out new and more cunning ways
of stashing their wealth, so the claims of this move being a foolproof attack on
black money fell flat on their faces. I read last month that about 500 crore rupees
of all the black money recovered in raids was in the new legal tender.
There are several sectors of our economy which received a severe shock. As per
the Indian Express, the leather industries located in Kanpur and Unnao would
take about 9–12 months to fully recover from the impact of demonetization on
their business and Indian leather exports had fallen by at least 14% from
November to December itself.

When liquidity shortage strikes, it is consumption that is going to be adversely affected

first which lead to several others affecting the daily life of people.

Consumption ↓→ Production ↓→ Employment ↓→ Growth ↓→ Tax revenue ↓

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As expected, the poorest people and the economically weaker sections of society yet
again emerged as the main sufferers. It will take at least 6 to 9 months to replace and
re-print almost 15 lakh crore rupees worth of currency notes.

Among India’s middle class, Modi’s “surgical strike on black money” still appears to be
popular. It’s the old “vegan fallacy” -- if something tastes terrible, it must be good
for you. Enough Indians are suffering that they believe it must be in a greater cause.

 It’s a moral project, not an economic one. Stand in line, we’re told, and
you honor our brave soldiers at the border.
Some of the common problems demonetization created are

1. The worst hit are those who are not on plastic money and have to take care
of urgent medical expenditure.
2. Traders, taxi operators and the tourism sector have been hit hard.
Horticulturists from Himachal were suffering as their produce was not been
sold in fruit and vegetable markets.Textile industry,
3. The people having marriages in their families have been allowed cash
withdrawal of Rs 2.5 lakh. Even for that amount a lot of riders have been
added. Many are not getting 2.5 lakhs due to shortage of currency.

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4. Pensioners are going through a harrowing time and long ques have taken
many lives already. Even senior citizens whose pension is directly linked to
bank accounts are facing hassles.
5. Private hospitals and chemists are not accepting old notes nor extending
credit. The Rs 4,000 limit that has been imposed on withdrawals from banks
mean it is a hand-to-mouth existence for many who are already in trouble.
6. Manual laborers and daily wage workers are unemployed as their employer
lacks money to pay them in cash(online is not sufficiant).
7. Near panic in local markets. Number of transactions drop.
8. The people in rural areas and the farmers are also facing a great deal of
hardship. Many of them do not have bank accounts or own a debit/credit card.
The concept of internet banking is far removed for them. These people may
be induced to rise in revolt. Already the case of looting of a fair price shop by
the public in Madhya Pradesh has been reported.
9. Deep Deflation. The amount of money in circulation will drop dramatically
while supply of goods will remain stable - hence prices of goods will drop.
Gold prices, stock prices, commodity prices will drop.
10. The public is inconvenienced because they don’t have the cash with which
to buy daily necessities.
11. Foreign tourists who have withdrawn money after landing in India are among
the worst hit. Instead of enjoying the sights and sounds of India, they are
scampering around in an alien land, trying to secure legal currency. Incredible
India indeed. The negative feedback to the tourist industry which will affect
its reputation.
12. With less potential buyers in the market and fewer people having white
money, the demand for the land goes down and drives down its price. (As
people get black money in the future, they will be afraid of holding on to cash
and would want to convert that right away into other assets, such as land and
gold. This increased demand for land holding, as a form of store of value,
might drive property prices higher in the future.)
13. The trader class, is affected given that most wholesale shopkeepers choose
to keep liquid cash to buy material every day. Very few of them deposit money
in a bank. Many of them have incurred losses because of the liquidity drying
up in the market.
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 14. More than a quarter of a billion people in India do not have access to the
formal banking sector, which means that a cashless society would be truly
perilous.
15. Cores of working hours gone waste. Everything is in a frozen mode.

AGRICULTURE

Cash is the primary mode of transaction in agriculture sector which contributes 15%
to India’s total output.

 Almost all the trade in vegetables and fruits was in cash and now the farmers
are facing problems. The prices of their produce have fallen and they are
likely to face losses.

image - Tomato on its toe: At 50 paise a kilo, Chhattisgarh farmers prefer crushing
their produce under trucks

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  Formal financing in many parts, especially Punjab, Uttar Pradesh, Odisha,
Maharashtra, Gujarat and Kerala is significantly from cooperative banks,
which are barred from exchange-deposit of demonetized currency.
 Notably, this is a time of kharif harvest and start of rabi sowing, partly
explaining why this period is dubbed the ‘busy season’ from a standpoint of
credit demand, the other being bunching of festivals and weddings.
 Agriculture is impacted through the input-output channels as well as price
and output feedback effects. Sale, transport, marketing and distributionof
ready produce to wholesale centres or mandis, is dominantly cash-
dependent. Disruptions, breaks in the supply chains feedback to farmers as
sales fall, increased wastage of perishables, lower revenues that show up as
trade dues instead of cash in hand and when credited into bank accounts
with limited access affect the sector.

JOB MARKET.

Industry is staring at temporary job losses due to demonetisation, as production gets

hit, especially in labour-intensive sectors like textiles, garments, leather and jewellery.

The informal sector in India employs more than a majority of the workers and most
transactions are in cash. Disruption to this system could endanger the employment
and livelihood of weaker sections of society.

As many as 4 lakh people, mostly daily wagers, may have either lost their jobs or
shunned work temporarily due to the lack of payment so far, and the number is only
going to grow if the cash crunch persists.

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 CONCLUSION

The conclusion is different for different sections of people.

For economists it is a failure. 99.3% of the demonetized currency is back. This proves
that the aim of weeding out black money (primary aim of demonetization) has not been
accomplished. It has damaged the informal economy which employed 90% of India's
workforce. Slowed our growth rate, forced many into unemployment, disrupted the
MSMEs,etc. Do for them the failures account more than the successes.

For the government it is still a success. The government has been constantly
changing goal posts. First it said this will weed out the black money and counterfeit
currency. Then they shifted to disrupting terror funding, then it was an exercise to
widen the tax base. This shifting of the goal posts was expected from the government.
The leaders themselves know that it was a failure but can't help it is called modern
politics.

For the RBI it was something that made then realize that their advice does not carry
significant weight. Many felt helpless. They knew this was never going to be a success.
For some of them it would have been a moment to think about resigning.

The common citizens or the majority still consider it to be a decision with good
intention. They do not want to focus on the means they had to go through and the end.
Majority of the people are going to forget about the hardships. I mean we indians are
very forgiving. We talk about getting more rational but we don't do it when such thinking
is most required. We will again come to normal life and once again allow our political
leaders to take such decisions based on whims. This will prove that democracy is a
clear reflection of the society.

It is ‘All Pain No Gain’; the damage is already done . The difficulties that people have
been facing owing to the shortage of cash are going to persist, even after PM Modi's
fifty days are over, and even after the six months that most others see as the minimum
period required for the restoration of normalcy are over.

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Conclusion of Demonetization , In one word it’ssuccessful.

Elaborated in detail:

1. Modi became Global leader with this move. Many economists failed to predict the
impact of Demonetization in India. Modi successfully executed and proved his caliber
to the world.

2. Many people got to know about working of Banking system for first time.

3. Reduced cash transaction will impact reduce generation of Black money.

4. Sleepless nights for Ill-legal business holders . They are always scared about Modi’s
next move.

SUGGESTION

Demonetization has affected every Indian to some or large extent. Huge queues
outside banks and post offices shows the merciful position of people of India. This
drastic step has been taken by Government of India to tackle black money which is in
abundance in Indian market and society. Intentions of Government of India looks good
but implementation of the idea and execution could not become successful. Even
Government and Reserve Bank of India may not think about the difficulties while
planning and actual converting the idea into reality.

Anyway step has been taken. Now the question is how to make this move and
movement successful so that purpose of demonetization has to be achieved as well
as people remains at happy end while this revolution.

I give here two concrete suggestions that will surely will helpful to cope with
demonetization crises.

(1) Educate everyone about the use of e-wallet and Debit & Credit Cards. Proper
classes about the use of e-wallet and cards should be taken at each & every office,
organization, companies etc. whether private or government. Camps can be held at
village levels & city levels at each & every corners. Social workers, panchayat

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members, municipal corporation members & staff should come forward in explaining
the use of digital media for buying commodities in the market.

(2) Give every businessman, who has current account with banks, swipe machine at
the earliest possible. Tragedy is many bank branches still do not provide facility of
giving swipe machines to its clients. Immediate steps to be taken by the concerned
authorities to equip banks with these machines so that it can be distributed to the
traders. Also proper training should be given to traders about its use.

If these two steps are taken, then I am sure that sufferings suffered by our Indians at
current junction will be reduced to large extent.

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BIBLOGRAPHY

1 WIKIPEDIA

2 ONLYGIZMOS.COM

3 ALIBABA.COM

4 NASSCOM,COM

5 INTERNETWORLDSTATES.COM

6 HTTP://WWW.WISEGEEK.COM

7 HTTP://WWW.TRUCKADS.COM/

8 HTTP://WWW.AFAQS.COM/

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