CHAPTER-I: INTRODUCTION

1.1 ABOUT DEMONETISATION

November 8, 2016 a day when the Indian Government launched a surprise attack/ Surgical

strike/ Surgery against black money in the economy. The Honble Prime Minister of India, in

an unscheduled live televised address to the nation on November 8, 2016 at 20:15 Indian

Standard Time (IST) declared circulation of all INR 500 and INR 1000 banknotes of the

Mahatma Gandhi Series as invalid with immediate effect. Issuance of new INR 500 and INR

2000 banknotes of the Mahatma Gandhi New Series in exchange for the old banknotes was

announced. With the exchange of new denomination notes of INR 2000 and not INR 1000, the

conversion of black money would be curbed. Demonetization has been done in an effort to:

stop counterfeiting of the current banknotes allegedly used for funding terrorism crack down

on black money in the country.

1.2 BACKGROUND

Similar demonetization has been done in the past. In India, it has been done: 1.In January 1946,

wherein banknotes of INR 1000 and INR 10000 were withdrawn 2.In January 1978 wherein

banknotes of INR 1000, INR 5000 and INR 10000 were demonetized. In 2012 the Central Board

of Direct Taxes (CBDT) had recommended against demonetization, considering demonetization

not to be a solution for tackling black money or economy, which is largely held in the form of

benami properties, bullion and jewelry. Difference with respect to demonetization in 2016 with

that of earlier once obviously is the size. Previous ones barely impacted common people but this

one is huge with 85 percent of currency out of the system

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1.3 THE DEMONETISATION DECISION: EVENT, IMPACT, NARRATIVE AND

MEANING

The original assumptions underlying the decision remain unclear, but it seems to be causing

considerable harm. Although popular right now, demonetization may not end up being a good

bargain.

On November 8, the government announced its decision to discontinue the legal tender status of

Rs 500 and Rs 1000 notes. The original objectives were stated as: eliminating fake currency;

inflicting losses on those with black money; and disrupting terror and criminal activities. Later,

new objectives were tacked on: enabling growth in bank credit, turning India into a cashless

economy. A cost benefit analysis I conducted suggested that the benefits were relatively small

when compared with the costs.

1.4 EXPECTED IMPACT ON FAKE CURRENCY

A study by the National Investigation Agency and the Indian Statistical Institute, in 2016,

estimated that fake Indian currency notes in circulation have a face value of Rs. 400 crore. This

is an incidence of fake currency of 0.022%. The scale of counterfeiting of the Indian rupee is not

out of line with what is seen in other countries, and the procedures adopted worldwide to address

this include investigative actions against counterfeiters, phased replacement of old series of notes

with new notes that have better security features, etc. Demonetisation is generally not seen as a

tool for dealing with counterfeiting. We must also not forget that the counterfeiters will now get

to work on the new 500/2000 rupee notes, while India will likely never do a demonetisation

again.

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1.5 EXPECTED IMPACT ON UNACCOUNTED WEALTH A.K.A BLACK MONEY

The analysis presented in the finance ministrys White Paper on Black Money, 2012, shows (on

page 47) that, on an average, the amount of cash seized during raids by income tax authorities is

4.88% of total undisclosed income admitted in those cases. This data is from more than 23,000

warrants executed. Even if this decision inflicted a 100% loss upon holders of unaccounted cash,

this would imply a loss of only 4.88% of their total unaccounted wealth, which is not much of a

shock for those with such wealth. If, as is more likely, the demonetisation has imposed a 40%

loss upon holders of unaccounted wealth (who suffer a 40% discount when laundering their

money), this implies a loss of just about 2% of unaccounted wealth.

1.6 EXPECTED COSTS

Cash is a store of value (white or black), but it is also a medium of exchange. Most people in

India only transact with cash. More than 90% of shops accept only cash or very short-term credit.

Large numbers of laborers and small value suppliers are paid in cash. While these facts may

change over time, they mean that this sudden ban may be leading to disruptions in consumption

and production. Compared to the 10,000 yen note ($137 in purchasing power parity), the 1000

Swiss franc note ($775), the USD 100 note, or the 500 euro ($530) note, the Rs. 1000 ($31 in

purchasing power parity) and Rs 500 ($15.5) are practical notes that are used for daily

transactions. Hence, demonetisation of these notes is a large adverse monetary shock perhaps the

largest ever such shock in world history. The constraints of ATM recalibration and currency

printing are leading to a long transition period. Even ensuring 50% re-monetization in cash form

about Rs. 7.5 lakh crore by December-end appears hard. The Centre for Monitoring of Indian

3
Economy has estimated that a few elements of the first-round impact give a reduction of GDP of

around Rs 1.3 lakh crore; the total impact will be higher owing to the multiplier effect, the

hysteresis associated with the monetary shock, the impact upon expectations, etc.

1.7 WHO BEARS THE COSTS?

While there is much talk about the GDP impact of this decision, a unique feature of this episode

is that there may considerable other costs that fall disproportionately upon the poor. The rich

have access to electronic payments, employees who will stand in queues to obtain cash, and

savings that are used to cope with a decline in income. The poor lack all these. If a poor person

suffers an income shock, or is not able to get medical treatment, the consequences are enormous

for the individual, but the GDP impact may be negligible. In terms of welfare implications, these

costs matter a lot more than the impact on GDP.

1.8 APPROACH TO COMPARING BENEFITS AND COSTS

The benefits are primarily in the form of losses inflicted upon those with black money, while

costs are imposed on legitimate economic and social activities. Ordinary people, going about

their lives, have suddenly been asked to bear a burden associated with the project of imposing

costs upon people who have unaccounted wealth. Some of the costs are incurred by poor people,

whose welfare loss might be much more for a given level of rupee cost incurred. Given this

difference in the nature and incidence of benefits and costs, each rupee of cost should be given a

much higher weight than each rupee of benefit.

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It seems, thus, that the economic costs of this decision are likely to outweigh its economic

benefits.

Some have compared this decision with a surgical strike, but it is more like a nuclear strike. The

nuclear option has been exercised before exhausting other options. Although measures to help

people disclose their undisclosed incomes have concluded, the efforts to directly or indirectly

curb illegality have barely begun. This raises concerns about the wisdom of using this lever of

demonetization.

1. What the media says and doesnt say

The mainstream media narrative around the decision is not as pessimistic as the analysis

presented above. There is a disconnect between the mainstream narrative and the facts emanating

from the ground . In this essay, I look at the discourse, analyse the arguments which are being

presented, and peer into the long term consequences.

Four key arguments are being forwarded in support of the decision:

It is claimed that the decision is likely to have a smaller impact on the poor than what many,

mostly anecdotal, reports suggest.

The monetary shock can be, and will be, quickly overcome by the use of monetary policy

instruments to restore liquidity.

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 This decision will expedite the process of making India a cashless economy, with benefits

that will make short-term costs worthwhile.

Since the decision is popular, it must be good. This raises an interesting question: in a

democracy, can there be a better measure of goodness of a policy than its popularity?

2. Small impact on the poor?

Two ideas have been offered in the claim that the adverse impact upon the poor will be small:

Cash savings as predictors of impact on the poor: Estimates based on national surveys show

that cash earnings of the poor are small, and they usually lack cash savings. So, it is argued,

they are likely to seldom visit a bank branch or post office, and they are not particularly

inconvenienced.

Credit as a mitigant of the impact on the poor: It has been argued that since the rural economy

is significantly credit-driven, the impact on the rural poor will be small. If transacting parties

know each other, they would be willing to extend credit, which would make short-term non-

availability of cash less costly. Given the practices in rural markets, many commercial

relationships are indeed credit-driven, and cash calls are only made periodically.

1.9 USE OF MONETARY POLICY INSTRUMENTS TO RESTORE LIQUIDITY

Some commentators have argued that although the note ban has created a shock to the money

supply, the central bank could soon restore money supply through use of monetary policy
6
instruments, such as open market operations, rate cuts, etc. It is argued that the Monetary Policy

Committee will, in some weeks, see the adverse shock to GDP, and vote in favour of large cuts in

interest rates, which will solve the problem.

However, it is important to keep in mind the distinction between Indias money supply in banks

and Indias money supply in cash. On 8 November, there was Rs.10.5 trillion of demand

deposits, and over Rs.96 trillion of time deposits, which are vastly greater values than the

Rs.14.2 trillion of 500/1000 rupee notes which was disrupted. The electronic money supply was

not disrupted; it was the cash money supply that was disrupted. This matters because cash is a

preferred medium of exchange (money) for most transactions. The constraint today is the

shortage of cash. To overcome the disruption, cash must be restored into the hands of people.

None of the instruments of monetary policy do that. They only enhance liquidity in the banking

system. Cash still needs to be printed and dispensed through bank and postal networks.

1.10 CASHLESS ECONOMY

An additional objective has been appended: make India a cashless society. It reflects poorly on

the governments policymaking process to add such a big objective after beginning

implementation of such a momentous decision. If this was indeed an objective, much preparation

should have gone in before the decision was announced. There is no evidence of such

preparation.

Cash is expensive as a store of value it gives negative returns and is amenable to loss and theft.

Many households are forced to save in cash or other similar assets, because they do not have

7
convenient and reliable access to the modern financial system. It would be beneficial for many

households and enterprises to move most of their store of value to financial instruments, but only

if considerable comfort around security, convenience and reliability of these instruments is

created.

The evidence on superiority of electronic payments over cash as a medium of exchange is

limited and context-specific. There is evidence to support making government-to-citizen

payments cashless, but even there, the last mile problems of helping the recipients access and use

this money has yet to be solved. Several research studies show the poor quality of the last mile

banking network in India.

For transactions involving only private parties, the case for going cashless for payments depends

on the context. It would be nice to have more cashlessness, but not in all situations, not for all

persons, and not for all purposes. Cash has many inherent advantages, and in many contexts,

cashless instruments are not superior to cash. For example, in an area with poor telecom

connectivity, cash is more convenient. People should have the freedom to choose, depending on

their context.

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CHAPTER-II: LITERATURE REVIEW

PRADHAN MANTRI GARIB KALYAN YOJNA

Pradhan Mantri Garib Kalyan Yojana, 2016 (PMGKY) is an amnesty scheme launched by

the Narendra Modi led Government of India in December 2016 on the lines of the Income

declaration scheme, 2016 (IDS) launched earlier in the year. A part of the Taxation Laws (Second

Amendment) Act, 2016, the scheme provides an opportunity to declare unaccounted wealth

and black money in a confidential manner and avoid prosecution after paying a fine of 50% on

the undisclosed income. An additional 25% of the undisclosed income is invested in the scheme

which can be refunded after four years.

Valid from December 16, 2016 to March 31, 2017, the scheme can only be availed to declare

income in the form of cash or bank deposits in Indian bank accounts and not in the form of

jewellery, stock, immovable property, or deposits in overseas accounts.

Not declaring undisclosed income under the PMGKY will attract a fine of 77.25% if the income

is shown in tax returns. In case the income is not shown in tax returns, it will attract a further

10% penalty followed by prosecution.

9
CHAPTER-III: METHODOLOGY

3.1 OBJECTIVE

The major objectives of the study are:

To study student perception on demonetization.

To study Demonetization and its effect on Indian economy.

To find out factors affecting demonetization.

3.2 SCOPE OF THE STUDY:

The study helps us to know the student perception on demonetization.

The study will find students opinion about demonetization.

2.3 SAMPLE SIZE:

The study was conducted with sample size of 30 students selected at convenience.

2.4 SAMPLING TECHNIQUE:

Convenience technique was used for sampling.

2.5 DATA COLLECTION:

2.5.1 Primary Data:

A detailed and well-structured questionnaire was presented to the students. Copies of the

questionnaire being distributed to the student at random to obtain their views.

10
2.5.2 Secondary Data:

Secondary data was gathered from Internet.

2.5.3 Analysis:

The data collected through questionnaires distributed to the student was analyzed and interpreted

using the MS-EXCEL.

11
CHAPTER-1V: DATA ANAYSIS AND INTERPRETATION

QUESTIONNAIRE ANALYSIS:

Q1) Do you think that Black money exists in India?

Table No. 1: Response of students over Black money exists in India?

Response No. of Respondents Percentage

Yes 27 90
No 3 10
Total 30 100

120

100
100
90

80

60 No. of Respondents
Percentage
40
27 30

20
10
3
0
Yes No Total

Figure No. 1 : Response of student over Black money exists in India

Interpretation: Most of the student thinks that Black money exists in India.

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Q2) Do you think the evil of corruption and black money needs to be fought and eliminated?

Table No. 2: Corruption and Black money needs to be fought and eliminated

Response No. of Respondents Percentage

Yes 29 96.66
No 1 3.33
Total 30 100

120

100
100 96.66

80

60 No. of Respondents
Percentage
40
29 30

20
1 3.33
0
Yes No Total

Figure No. 2: Corruption and Black money needs to be fought and eliminated

Interpretation: Most of the student thinks that the evil of corruption and Black money needs to

be fought and eliminated.

13
Q3) Overall, what do you think about the Governments moves to tackle Black money?

Table No. 3: Governments moves to tackle Black money

Response No. of Respondents Percentage

Demonetization 10 33.33
Online transaction 15 50
Cashless 5 16.66
Total 30 100

120
100
100

80

60 50
40 33.33 30
No. of Respondents
15 16.66
20 10 Percentage
5
0

Figure 3: Governments moves to tackle black money

Interpretation: The student likes online transaction as the best Governments moves to tackle

Black money.

14
Q4) what do you think of the Modi Governments efforts against corruption so far?

Table No. 4: Modi Governments efforts against corruption

Response No. of Respondents Percentage

Outstanding 14 46.66
Very good 8 26.66
Good 6 20
Ok 2 6.66
Useless 0 0
Total 30 100

120
100
100

80

60
46.66
40 No. of Respondents
26.66 30
20 Percentage
20 14
8 6 6.66
2
0
00

Figure 4: Modi Governments efforts against corruption

Interpretation: Most of the Student likes Modi Governments efforts against corruption.

15
Q5) What do you think of the Modi Governments move of banning old 500 & 1000 notes?

Table No. 5: Modi Governments move of banning old 500 & 1000 notes

Response No. of Respondents Percentage

Great move in the right 20 66.67
direction
Good move 6 20
Will make no difference 4 13.33
Total 30 100

120

100
100

80
66.67
60 No. of Respondents
Percentage
40
30
20 20
20 13.33
6 4
0
Great move in the right Total

Figure 5: Modi Governments move of banning old 500 & 1000 notes

Interpretation: Most of the student thinks great move of the Modi Governments of banning old

500 & 1000 notes.

16
 Q6) Do you think demonetization will help in curbing black money, corruption & terrorism?

Table No. 6: Demonetization will help in curbing black money, corruption & terrorism

Response No. of Percentage

Respondents
It will have an immediate impact 19 63.33
There will be impact in medium to long term 7 23.33
Minimal impact 4 13.33
Dont know 30 100

120 100
100
80 63.33
60
40 23.33 30
19 13.33
20 7 4
0
0 0

Figure 6: Demonetisation will help in curbing black money, corruption & terrorism

Interpretation: Most the student thinks Demonetisation will help in curbing black money,

corruption & terrorism.

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 Q7). Demonetisation will bring real estate, higher education, healthcare in the common mans

reach?

Table No. 7: Demonetisation will bring real estate, higher education, healthcare in the common
mans reach

Response No. of Respondents Percentage

Completely Agree 15 50
Partially Agree 2 6.66
Maybe 7 23.34
Cant Say 6 20
Total 30 100

120

100
100

80

60 No. of Respondents
50 Percentage

40
30
23.34
20
20 15
6.66 7 6
2
0
Completely Agree Maybe Total

Figure 7: Demonetisation will bring real estate, higher education, healthcare in the

common mans reach

Interpretation: Most of student agrees that Demonetisation will bring real estate, higher

education, healthcare in the common mans reach

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Q8) Did you mind the inconvenience faced in our fight to curb corruption, black money,

terrorism and counterfeiting of currency?

Table No. 8:

Response No. of Respondents Percentage

Not at all 20 66.66
Somewhat, but it was worth it 5 16.66
Yes 5 16.67
Total 30 100

120
100
100

80
66.66
60

40 30
20 16.66 16.67
20 No. of Respondents
5 5
Percentage
0

Figure 8: Inconvenience faced in our fight to curb corruption

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Interpretation: Student faced not at all inconvenience in the fight to curb corruption, black

money, terrorism and counterfeiting of currency.

Q9) Do you believe some anti-corruption activists are now actually fighting in support of black

money, corruption & terrorism?

Table No. 9: Some anti-corruption activists are now actually fighting in support of black
money, corruption & terrorism

Response No. of Respondents Percentage

Yes 25 83.33
No 1 3.33
Cant say 4 13.34
Total 30 100

120

100
100
83.33
80

60 No. of Respondents
Percentage
40
30
25
20 13.34
1 3.33 4
0
Yes No Cant say Total

Figure 9: Some anti-corruption activists are now actually fighting in support of black

money, corruption & terrorim

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 Interpretation: Most of the student thinks that some anti-corruption activists are now actually

fighting in support of black money, corruption & terrorism

Q10)Do you have any suggestions, ideas or insights you would like to share with PM Narendra

Modi?

Table No. 10: Suggestions, ideas or insights you would like to share with PM Narendra Modi

Response No. of Respondents Percentage

Yes 23 76.66
No 7 23.34
Total 30 100

120

100
100

80 76.66

60 No. of Respondents
Percentage
40
30
23 23.34
20
7
0
Yes No Total

Figure 10: Suggestions, ideas or insights you would like to share with PM Narendra Modi

Interpretation: Most of the student wants to express their views , suggestions, ideas or insights

with PM Narendra Modi.

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CHAPTER-V: FINDINGS AND CONCLUSION

5.1 FINDINGS OF THE STUDY

Demonetization of Indian Currency to Impact Students Coming To Study in The U.S.

China and India are the two leading sources of international students coming to the U.S.

As at November 2016, American universities and colleges enrolled over 202,000 students

from India and 314,000 from China, according to the latest data released by the Student

and Exchange Visitor Program (SEVP), part of U.S. Immigration and Customs

Enforcement (ICE).

Any major shift in the number of students coming from these two countries can have

serious implications for international enrollment at many American institutions. With the

increase in concerns about the China slowdown, institutions have been banking on India

as the next big source country to meet enrollment goals.

However, a recent change in the Government of India policy can negatively affect the

growth of Indian students going abroad. On November 8, the Prime Minster of Indian

announced a demonetization policy which made 86% of the currency in circulation

invalid as a legal tender.

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 One of the key motivations for demonetization was to flush the black money generated

through tax evasion and corruption and take India towards a cashless economy.

However, cash was also the mechanism of short-term borrowing for many Indian

students.

Visa approval processes for international students requires showing proof of availability

of funds for the first year of tuition and living expenses. Given that total annual expenses

can range from US$ 30,000 to US$ 70,000, many Indian students were using short-term

borrowing for visa approvals and education abroad.

The timing of demonetization could not have been worse for many institutions who were

still making sense of the implications of the American Presidential elections on

international students. The deadlines of most institutions range from November to

February creating further time pressure as there is a lot more uncertainty about the

external environment.

Clearly, in this context demonetization is likely to affect the willingness and ability of

Indian students to study abroad, however, the impact will differ by the level of education.

Traditional segment of masters students: Seeking career advancement

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 Nearly 80% of all Indian students in the U.S. enroll at the masters level. This is the

traditional segment of Indian students who seek to minimize the cost of education and

maximize the potential for job and career advancement

5.2 LIMITATIONS

As the project is prepared for academic purpose only, it suffers from the limitations of

time and money, due to which analytical study into all the was not possible.
The study was completed within short span of time that was available.
The report also suffers from the limitations of exhaustiveness as far as the information is

concerned.
The limitations could be mentioned in terms of data insufficiency, time & expertise

constraints etc.

5.3 SUGGESTION:

Internet services connectivity is improvised in every part of our country for better

cashless transaction by one and all for internet, mobile and other type of e-banking.
Reserve Bank be asked to make free the banks from pay-slip and cheque especially to

those who hold accounts and use thumb impression and provide them biometric cards to

deposit and withdrawal in all branches of state owned and private banks etc.
All ATMs should have both withdrawal and deposit facilities, regular and biometric

facility

5.4 CONCLUSION:

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 The advantages are much dominating and it will be in the long term interest of our

country comfortably outweighing the disadvantages.

Government need to take all the necessary steps so as to ensure that there will be a

smooth flow of currency exchanges.

It will make a massive change in our economy.
We congratulate the entire government and those hidden brains of our democracy who

brought this decision.

QUESTIONARE

Q1) Do you think that Black money exists in India?

Yes

No

Q2) Do you think the evil of corruption and black money needs to be fought and eliminated?

Yes

No

Q3) Overall, what do you think about the Governments moves to tackle Black money?

Demonetization

Online transaction

Cashless

Q4) what do you think of the Modi Governments efforts against corruption so far?

Outstanding

Very good

25
 Good

Ok

Useless

Q5) What do you think of the Modi Governments move of banning old 500 & 1000 notes?

Great move in the right direction

Good move

Will make no difference

Q6) Do you think demonetization will help in curbing black money, corruption & terrorism?

It will have an immediate impact

There will be impact in medium to long term

Minimal impact

Dont know

Q7). Demonetisation will bring real estate, higher education, healthcare in the common
Mans reach?

Completely Agree

Partially Agree

Maybe

Cant Say

Q8) Did you mind the inconvenience faced in our fight to curb corruption, black money,

terrorism and counterfeiting of currency?

26
Not at all

Somewhat, but it was worth it

Yes

Q9) Do you believe some anti-corruption activists are now actually fighting in support of black

money, corruption & terrorism?

Yes

No

Cant say

Q10) Do you have any suggestions, ideas or insights you would like to share with PM Narendra

Modi?

Yes

No

27
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