CHAPTER 3

Review of Literature:
The demonetization of the old ₹500 & ₹1,000 notes has been a fascinating and
intriguing subject matter of numerous researches from various disciplines because of
its great significance and immediate impact on the state of the Indian economy as a
whole and particularly each and every sector of the country working with cash. Being
a recent move, there have been various researches on different aspects of the initiative
ranging from the economical to social and ethical dimensions. Some of these
researches retrieved through internet searches have been reviewed here.

1.) The view point of Rajni Arora in her article published on 5th November, 2012 study
of different aspects of black money and its relationship with policy and administrative
measures in our country reflects the policy and strategies that the Government has
been pursuing in the context of recent initiatives, or need to take up in the near future,
in order to address the issue of black money and corruption in public life. She
concludes that there is no doubt that existence of black money has a significant impact
on social, economic and political levels of our lives which has a significant effect on
the institutions of governance and conduct of public policy in the country. So we can’t
say that India is a poor nation. Infact, India is amongst the Richest Nations if Stashed
Black Money is brought back & converted to White Money and fresh generation of
Black Money is put to an end.

2.) Arpit Guru and Shruti Kahanijow (2010) researchers analyzed the black money
income? Need for amendment in DTAA & ITEA and analyzed that black money is
spread everywhere in India up to a large extent which continuously stashed towards
abroad in a very large amount. The researcher also identified how black money had
caused menaces in our economy and in what ways it is used.

3.) Care Rating in their study: Professional Risk opinion – 2016), suggested that the
initial disruptions in the system, eventually change well assimilated and will prove
positive for the economy in the long run. Black money hoarders will definitely lose out
and eventually boosting the formal economy in the long run. Short-term fall in real
estate prices might benefit middle class citizens. This move by the Government along
with the implementation of the GST will eventually make the system more accountable
and efficient.

4.) Veerakumar. K, (2017), in his paper analyzed demonetization is taken for several
measures such as tax evasion, counterfeit currency and funding of illegal activities.
Some people are depositing currency notes in excess of specified limits directly into
bank accounts and has showed the unaccounted income subject to higher tax and
other penalties. Alternative payment methods such as e-wallets, online transactions
using e-banking, debit and credit card usage have been increased and this will shift
an efficient cashless infrastructure.

5.) Tax Research Team (2016) of the National Institute of Public Finance and
Policy published their study called Demonetization: Impact on the economy, The main
objective is to analyze the impact of demonetization on Indian economy and it shows
the impact of such a move on the availability of credit, spending level of activity and
government finances. They concluded the study by the opinion as, The
demonetization undertaken by the government is a large shock to the economy. The
impact of the shock in the medium term is a function of how much of the currency will
be replaced at the end of the replacement process and the extent to which currency
in circulation is extinguished. While it has been argued that the cash that would be
extinguished would be “black money” and hence, should be rightfully extinguished to
set right the perverse incentive structure in the economy, this argument is based on
impressions rather than on facts. While the facts are not available to anybody, it would
be foolhardy to argue that this is the only possibility. As argued above, it is possible
that these cash balances were used as a medium of exchange. In other words, while
the cash was mediating in legitimate economic activity, if this currency is extinguished
there would be a contraction of economic 182 activity in the economy and that is a
cost that needs to be factored in while assessing the impact of the demonetization on
the economy and its agents. It is likely that there would be a spurt in the banking
deposits. While interpreting the phenomenon, however, one has to keep in mind that
a large part of their deposits were earlier used for transactional purposes.
6.) Prof. Sandeep Kaur, an assistant professor in Khalsa College, Mahilpur in his
research paper published in International Journal of Research about the impact of
demonetization concludes that this is a historical step by the Modi Government and
should be supported by all. This decision of government will definitely fetch results in
the long term. From an equity market perspective, this move would be positive for
sectors like Banking and Infrastructure in the medium to long term. This could be
negative for sectors like Consumer Durables, Luxury items, Gems and Jewellery, Real
Estate and allied sectors, in the near to medium term. This move can lead to improved
tax compliance, better fiscal balance, lower inflation, lower corruption, complete
elimination of fake currency and another stepping stone for sustained economic
growth in the longer term.

7.) Boulding (1950), shows that the state’s fiscal policy mostly deals with quantity of
money supply and the monetary policy sets regulation and determines its prices i.e.,
short-term interest rates in the markets. To boost the aggregate demand, Friedman
(1969) has proposed the concept of

“helicopters money”, an irreversible increase in the supply of fiat money by the State.
In contrast to Friedman (969), Minsky (1986; p. 249) has viewed that money is created
and destroyed endogenously at the normal course of banking business [6]. He has
considered money as a “medium of payment”, instead of as a “medium of exchange”
given that taxes bring value to the states, and has replaced the “state money” concept
in knapp (1924) with the “bank money” concept in Schumpeter (1934). Goodhart
(1989) criticises that the orthodox money view keeps “neutral” from the problems the
authority is facing for any given high-power money base as if it “is under their control,
all their operational problems …. have been resolved” Goodhart (1989, p. 129)

8.) Sukanta Sarkar (2010), conducted a study on the parallel economy in

India: Causes, impacts and government initiatives in which the researcher focused on
the existence of causes and impacts of black money in India. According to the study,
the main reason behind the generation of black money is the Indian Political System
that is the Indian government just focused on making committees rather than to
implement it. The study concludes that laws should be implemented properly to control
black money in our economy
9.) Geeta Rani (2016), in her study shows that initially the demonetization effects on
market were painful but this investigate the shopkeepers and consumers to adopt
cashless means such as paytm, debit card use, internet banking to buy goods. By
adopting the cashless means economy will be sound in coming time and Indian
Economy will get benefits of early and hassle free transactions.

10.) Prof. Prabhat Patnaik (2016) in his article published in Countercurrent.org

summarized the demonetization by concluding it as; “The summary way
demonetization has been effected is leading to a riot like situation in the country. We
demand that the Government ensure that common people have immediate access to
enough money to pay for their daily needs and health emergencies. Failing which, we
demand the rollback of demonetization or suspension of demonetization to enable the
common person to make adequate arrangements for daily needs and for more orderly
phasing out of the old notes. The role of the Government is to undertake honest tax
administration and not to treat the common person like a criminal making him/her stand
in line and filling forms to access his/her own legitimate money.”

11.) Rahul Deodhar, an investor and an author in his book Black Money and
Demonetization said that demonetization will not eliminate black money by itself alone.
It is just one move of one piece in the chess board of black money. To check-mate the
black money king, you have to win the board. There are various steps required as
detailed in his book, ‘black money and demonetization’. Government can play all these
moves and still fail if they play improperly. All we can say is that Government is playing
well. But will it succeed? The efforts will bring massive amounts of cash into the
banking system – a benefit in itself. Once the money is in the legitimate channels, it
should be better utilized and revenue will be generated from its use. If that is success
enough then yes.

12.) Dr. Dinesh Kumar Gupta, a Ph.D in management holder author in his research
about the demonetization concluded that Inspite of a number of criticism of the big
step of demonetization, it is true that proponents of demonetization certainly had good
intentions, which proved with the overwhelming response to the government in the
assembly polls of February and March 2017, but the suffering it has caused to millions
of Indians is unwarranted. Government has come out with a number of incentives on
cashless transactions like waiver of surcharge on transactions in cashless mode. But
the banks find difficulty in getting other alternate modes of revenue generation.
Specially the Public Sector Banks, which are already burdened with whooping NPA
and subsidies on a number of credit schemes and they are extending services in the
remotest areas of the country, inspite of losses, just for the cause of rural banking and
bank to the unbanked. As far the other motives behind the big step are concerned,
only the time can tell as the steps for curbing of black money may have far reaching
effects and will be visible in the time to come. It is hoped that the general public will
adopt the cash less mode of banking transactions wholeheartedly in their own interest
and understand the need of hour. It is also hoped that the huge amounts spent on
technology up gradation by the banks for secured and hassle free alternate channel
banking, will not go waste and the trigger for cashless adoption by the general masses
will gain momentum.

13.) Dr. Paritosh Chandra Sinha, in his research Demonetization of the Indian
Economy: Philosophical Research stated conclusion as, “The demonetization drive
has boosted the aggregate deposit base in the hands of the banks and resulted huge
savings. It can improve monetary transfusion in the economy and can reduce lending
rate. It can enlarge tax net, induce positive impact in the bond market, create rooms
for monetary accommodation and financial inclusion via Jan Dhan Yojana, and finally,
it can enhance the GDP growth potentials of the nation state. The heterodox school
argues that the government may create a reserve capacity for future spending without
causing inflation.

14.) G R Hari, Chief Executive Partner of Manohar Chowdhry & Associates Chartered
Accountants firm in his report study demonetization as the term demonetization has
become much more than a household name since the old Rs 500 and Rs 1,000 notes
were pulled out of circulation. While as per dictionary demonetization means "ending
something (e.g. gold or silver) that is no longer the legal tender of a country", one
needs to understand that there is much more than the literal meaning to the word. One
need to understand that 80% of India's labour force is employed in the informal sector,
which comprise of 45% of the GDP of our country. Over 60% of population of India
lives in below the international poverty threshold line of 1.9$ per day. Since our
economy is an under banked economy, present demonetization move, would no doubt
cause a severe social experiment, across the segment of our population. At the first
place, and on a short term basis this move would benefit the Government, which shall
effectively deploy its resources to percolate the impact to the poor and needy of our
country.

15.) Biswajit Chatterjee, in an article Square Patton Boggs reviewed the impact of
demonetization by concluding his article as, “the comprehensive long term impact of
these demonetization measures cannot be fully ascertained at this stage, the overall
economy is expected to benefit from a decrease in unaccounted cash transactions
and an elimination of counterfeit currency notes, leading to more effective tax
collection and increased transparency in ascertaining transaction costs. An increase
in transparency is also likely to improve attractiveness for foreign investors, while
higher bank deposits and formalizing large hitherto unaccounted for income streams
is expected to improve the fiscal deficit of India.”

V.2 BACKGROUND OF THE STUDY:

India is facing problem of black money in the currency form and fake currency notes.
To eliminate that problem from roots, Government introduced demonetization. The
study of impact of demonetization is conducted to research on its impact over the
agents of the macro economy and the economy as a whole and to know about the
preferences and opinions of the individual persons to get the general view.

The research of the impact of demonetization over economy was done through
secondary source of data such as previous research papers, articles, news articles
and review by experts.
The research of its impact on individuals was studied by carrying out survey in the form
of questionnaires filled by individual persons. In the questionnaire individuals have to
give their response about the questions regarding the aftereffect of currency ban and
their review about the experience of whole demonetization move.