Demonetization kicks in - India is

Reacting
Abstract
One of the boldest movement taken by the
Government of India in the history of Indian
economy to ban high value currency notes of
Rs.1000 and Rs.500 with effect from November
8, 2016 midnight. This scheme has received
mixed reaction till now as some of the sections
are told that it can cause hardship for common people while some sections
reacted to this decision with overwhelming support. This scheme is going to
impact the businesses, common people, and financial institutions along with
multi-diverse industrial background of India.

Keywords: Demonetisation, Black money, shadow economy, underground

economy etc..

History of demonetization of Indian Currency

The French were the first to use the word Demonetize, in the years between
1850 -1855. Since then many countries have used the word and the policy
with immense restriction and discomfort, for it disrupts economics and
population at large.

India

has

demonetized

(Saturday), Second

time

on 16

Jan

1978

(Monday), Third

time

on 8th

2016

November

before:

First

time

on 12

Jan

1946

(Tuesday).
In

the

first

time, the

measure did not succeed, as by the end of 1947, out of a total issue of Rs.
143.97 crores of the high denomination notes, notes of the value of Rs. 134.9
crores were exchanged. Thus, notes worth only Rs. 9.07 crores were probably
demonetized, not having been presented. The results of the demonetization
measure were summed up by Sir Chintaman, in his Dadabhai Naoroji
Memorial Prize Fund Lectures, delivered at Bombay in February 1957,
For the second time, The Finance Minister H.M. Patel in his budget speech
on 28 Feb 1978 remarked: The demonetization of high denomination bank
notes was a step primarily aimed at controlling illegal transactions. It is a
part of a series of measures which Government has taken and is determined
to take against anti-social elements.
As the PM did not say anything about the success of the exercise, one can
almost guess that it did not create much impact like in 1946.

In January

1946, banknotes of 1000 and 10000 rupee were withdrawn and new notes of
1000, 5000 and 10000 rupee were introduced in 1954.

The Big Picture- Impact of Demonetization Today

Prime

Minister

Narendra

Modi,

on November 8, announced the

demonetization of higher denomination currency notes. A move to curb

hoarding of black money in our country, the surprise move entails numerous
benefits for the Indian economy. Demonetization may have caused some
trouble to honest citizens, but for the rest, this is proving to be a nightmare.
In this single move, the Government has attempted to tackle all the three

issues affecting the economy i.e. a parallel economy, counterfeit currency in

circulation and terror financing.

Views and Counterviews:

The idea of demonetization is good, but it has to be taken into consideration
that most of the black money is kept in the form of land, buildings or gold or
kept abroad. What is in cash constitutes only 4% of the total amount of black
money on which taxes are not being paid. Out of this, a lot of money is in
circulation in everyday transactions like if someone is building a house; the
bill is not paid through banks for sand, bricks etc. This money goes into the
other systems though it has been drawn from bank. These things will come
under control with this step.
Small farmers, sellers, merchants, daily wage labourers and traders are
suffering because of lack of proper planning, intelligence and foresight such
as recalibration of ATM machines. There was need to pile up enough 100
Rupee

notes

and

other

smaller

denomination notes in the market before

taking this step. It is being said by critics
that this step was taken only to boost the
image of the Prime Minister as he has been
unable to deliver on GDP growth, inflation and bringing the black money from
abroad. People are facing problems because the limit of withdrawal has not
been kept at a higher level. If this would have been kept at a higher level,
there were chances that the recycling of black money might begin. The ideal
money in circulation has to come to the banking channels.

First-hand view on demonetization

In the wake of the strong opposition from rival political parties, Prime
Minister Narendra Modi urged Indians to express their views to take a short
survey on the official Narendra Modi app about the governments decision to
demonetize Rs 500 and Rs 1,000 notes.
The 10 questions through which the government aims to gauge
public reaction on demonetization:

Do you think that black money exists in India?

Do you think the evil of corruption and black money needs to be fought
and eliminated?

Overall,

what

do

you

think

about

the

governments moves to tackle black money?

What do you think of the Modi governments

efforts against corruption so far?

What do you think of the Modi governments

move of banning old Rs. 500 & Rs. 1000 notes?

Do you think demonetization will help in curbing black money,

corruption & terrorism?

Demonetization will bring real estate, higher education, healthcare in

common mans reach.

Did you mind the inconvenience faced in our fight to curb corruption,
black money, terrorism and counterfeiting of currency?

Do you believe some anti-corruption activists are now actually fighting

in support of black money, corruption & terrorism?

Do you have any suggestions, ideas or insights you would like to share
with PM Narendra Modi?

Survey Results NaMo app

The survey result was read out by IT and Telecom Minister Ravi Shankar
Prasad at Cabinet meeting, prompting the Prime Minister to say that it
"reflects the mood" of the people. In just over 24 hours of the survey, more
than 5 lakh people have participated and
expressed their opinion, it said, adding "This is
a staggering number by any stretch. No
opinion survey conducted in India, on such
policy or political issues, even comes close to
sampling so many responses." More than 93
per

cent

people

support

the

move

to

demonetize the old 500 and 1000 rupee notes,

it said. Of the over 5 lakh responses so far,
only 2 per cent have rated the move as 'very
poor' or 'one star', the survey result said.

This demonetization will be Having Adverse Impact on

Following Sectors
Black Money Hoarders
The main reason behind this demonetization is to eradicate/ curb black
money, with this move black money holders either have to show their
income source from which they earned their black money to the department
or to burn the stashed income. However , people declaring their income in
excess of threshold limit will be subjected to scrutiny.
Fake Note Circuits
Terrorism is a frightening thing and has been running their operations using
fake currency notes. Hence withdrawing the entire series of these high-value
currency notes and introducing new currency definitely tantamount to a
surgical strike on these groups.
Rural Economy
People in rural India who have a significant amount of Rs.1000 and Rs.500
notes, but no official form of identification will have a tough time in
exchanging their notes. Most of the rural population does not have even the
slightest idea of banking. Hence this is likely to come across as a huge
impact for such sections.
Domestic/Household Sector
The logic behind this demonetization is to curb the use of these high value
notes in the black money market. Now almost everyone has Rs1000/500
notes so now it would become difficult for the common people to do their
business/ household works easily.

Favorably Impacts on Following Sectors

Bank Deposits will Spike
Banks are expected to witness a surge in deposits, this will increase banks
deposits by a huge margin and this will increase their lending activities.
Deflation in the Economy is Expected
The combined effect of above would lead to a wider impact on the economy
namely deflation. Sectors like real estate, construction material and
unorganized trade will see significant pain in the near term.
Impact on Jewelry and Real Estate Business
The decision of government has been welcomed by the jewelery industry as
demand for gold will rise and people will have more faith in gold than the
currency notes. Hence it is expected to benefit the industry.
On the Way to Cashless Economy
As we know cash withdrawals limit from ATM and Banks is being restricted,
this will lead to payment mechanism through online/card payment (in simple
words card transactions will slowly replace the cash transaction in daily
activities).
7 Reasons Why Demonetization Is A Masterstroke By Modi
1. Boost deposit base and savings
2. Improve monetary transmission and reduce lending rates
3. Create room for further monetary accommodation
4. Ready, steady, now go: financial inclusion via Jan Dhan

5. Support government finances

6. Positive impacts from a bond market perspective
7. Rise in GDP growth potential
Conclusion:
In a single master stroke, the government was attempted to tackle all three
malaises currently plaguing the economya parallel economy, counterfeit
currency in circulation and terror financing.
In addition, the Indian economy has been provided a new lease of lifea
"reset" if you willwith huge positive implications for liquidity, inflation,
fiscal and external deficit in the short term. Over the next two-three years,
improvement in India's position on transparency and corruption in the global
stage will further add to its investor appeal. With GST on the anvil, India is
now on the cusp of higher growth in the medium termto be steered by the
organized sectors including MSMEs and the revival of the private sector
capex cycle.

REFERENCES
1. https://www.quora.com/What-is-the-history-of-demonetization-ofIndian-Currency
2. http://www.insightsonindia.com/2016/11/16/big-picture-impact3.
4.
5.
6.

demonetization/
http://blog.saginfotech.com/demonetization-impact-on-indian-economy
The Hindu
Times of india
A Study Of Issues And Challenges Of Tackling Black Money Menace In
India Prof.Dr. Rahul Goyal, Dr Parul Saxena, ISJTM Vol. 5 Issue 8 Aug
2016

Author:
S. Shiny/ Assistant Professor
KV Institute of Management and Information Studies,
Kurumbapalayam, Coimbatore
Email: shiny@kvimis.co,in