1.

Demonitization

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.

On 8th November 2016, the Govt of India (GoI) notified that existing
currency notes of Rs 500 and Rs 1000 denomination (Mahatma Gandhi
series) will cease to be legal tender. All citizens were asked to deposit
their cash held in Rs 500 and Rs 1000 denomination bank notes in their
bank accounts by 30th December. They could also exchange their cash
with new bank notes and notes of other denominations subject to
various limits and conditions.

Prime Minister of India Narendra Modi announced the demonetisation in an unscheduled live
televised address at 20:00 Indian Standard Time (IST) on 8 November.[8][9] In the announcement,
Modi declared that use of all ₹500 and ₹1000 banknotes of the Mahatma Gandhi Series would
be invalid past midnight,
Initially, the move received support from several bankers as well as from some international
commentators.
The move has also been criticised as poorly planned and unfair, and was met with protests,
litigation, and strikes against the government in several places across India. Debates also took
place concerning the move in both houses of parliament.[16][17][18][19] The move reduced the
country's industrial production and its GDP growth rate.
By the end of August 2017, 99% of the banned currency was deposited in banks, leaving only
around ₹14,000 crore of the total demonetised currency discarded.[20][21]

So Why Were Rs 500 and Rs 1000 Bank Notes

Demonetized?
As stated by the GoI and RBI and various press releases, the objectives of
D.M are as follows:

1. To fight black money and corruption in the country by preventing hoarding of

cash
2. To fight terrorism by cutting off funding in cash
3. To prevent counterfeiting of currency notes
Other objectives like transition toward a less-cash economy or push for digital
transaction were added later and were not part of the original notification of
either GoI or RBI.

Source: RBI and GoI notifications

Some interesting Facts and Figures

As per RBI data as on 31st March 2016, the total value of Rs 500 and Rs
1000 old currency notes in circulation was Rs 14.18 lac crores which
amounts for 86% of the entire currency in different denominations in
circulation before 8th November.

India has 4 currency printing presses and at their current capacity it will take
them an estimated 6 months to replenish the demonetised notes through
new Rs 500 and Rs 2000 currency notes.

It is estimated that cash forms just 6% of undisclosed money with tax

evaders and cash hoarders. The majority of undisclosed income is held in the
form of jewellery, undisclosed properties, hawala money like Swiss bank
accounts and others. This entire demonetisation exercise targets this 6%
black money or undisclosed income.
India is heavily cash-loving economy with cash transactions accounting for
approximately 90% of all transactions taking place daily.

2. Macro benefits
 The move is expected to extinguish the unaccounted money in
the system and would not only reduce the liabilities of the
government but would add to its finances. This would help the
 government spending on large infrastructure projects, thus
pushing the capex cycle.
 Demonetization is expected to have a 'habit-changing' effect on the Indian
citizens. People would now prefer keeping cash in banks rather than keeping
it at home/lockers. This would boost bank's CASA ratio, reduce the cost of
funds and help bank's NI margins.
 The move is likely to lead to better tax compliance, raise the Tax
to GDP ratio and improved tax collection. This could lead to
lower borrowing and better fiscal management. Also, with lower
cash transactions in the near term, inflation may see downtrend
in the near term.
 Price level is expected to lower due to moderation of demand. In
consumer goods, prices are expected to fall marginally as use
of cards and cheques would compensate to a large extent.
However, for real estate and property, the prices are largely
expected to fall, especially in sale of properties where major part
of transaction is done in cash rather than other mediums.
 With cash transactions facing a reduction, alternative forms of payment will
see a tremendous surge in demand. Digital transaction systems, E-wallets
(like PayTM, Freecharge etc) and apps, online transactions using E-banking,
usage of Plastic money (Debit and Credit Cards), etc. will definitely see
substantial increase in demand.

For detailed graphs and points ….Refer to the research paper – macro economic effect of
demonitization

 Government revenue will boost up as more earnings would be declared. The

unbanked people will move to banking like Jan-dhan contributing towards
government’s efforts of financial inclusion.
 Demonetization will set accountability in motion as service/sales tax is not paid by
people like local photographers, tailors etc. and thus their income goes
unaccounted.
 Collection of higher taxes will help in nation building like development of roads,
infrastructure, transportation and many others.
 Increase in nation developmental projects will demand more labor and other
skilled manpower which will give rise to employment opportunities.
 It will bring more business in taxation i.e. GST benefits.
 Cash in system will boost educational loans and business loans thus bringing
more opportunities.
 It will lead to better business environment, less corruption and transparency.
 Substantial increase in the demand of Digital transactions system, E-wallets,
usage of plastic money, online transactions using E-banking etc.
  Gold imports will be reduced because of the investments in gold by people as an
alternative to cash deposit in the bank.

3. Short Term effects

Short-term impacts

 GDP formation will be effected with the reduction in consumption demand.

Consumption ↓→ Production ↓→ Employment ↓→ Growth ↓→ Tax revenue ↓
 Certain sections of the society namely agriculture sector, small traders,
households, SME’s, daily wage earners etc. will face short term disruptions due to
absence of liquid cash.
 Money supply will reduce in the short-run until the new 500Rs. & 2000Rs. gets
widely circulated in the market.
 Negative impact on disposable income and the consumption patterns of the
people is expected.
 Less currency circulation will reduce inflation.
 Short term recession in sectors like real-estate, construction material, textile,
handicrafts etc.
 Its impact will be seen on farmers as this is the harvest time and farmers generally
deal in cash.
 Rate of capital formation growth will go down as no investments will take place.

Write the following points (cut them short)….

Increase in Surveys, Searches & Detection of Black

Money
Based on demonetisation data, the government boosted its enforcement actions which had
the following results:

 There was 158% increase in number of searches (from 447 to 1152 groups)
 The number of seizures increased by 106% (from Rs. 712 crore to Rs.1469 crore)
 There was 38% increase in admission of undisclosed income (from Rs. 11226 crore to
Rs. 15496 crore)
 The government conducted 183% more surveys (from 4422 to 12520)
 Increase in the number of survey resulted in 44% increase in the detection of
undisclosed income (from Rs. 9654 crore to Rs. 13920 crore)

Increase in Return Filing and Tax Collection

 The number of e-returns of Individual taxpayers filed till 5th August, 2017 (due date of
filing) increased to 2.79 crore from 2.22 crore returns filed during the corresponding
period of last year, registering an increase of about 57 lakh returns (25.3%).
 The total number of all returns (electronic + paper) filed during the entire Financial
Year 2016-17 was 5.43 crore which is 17.3% more than the returns filed during FY
2015-16.
 For FY 2016-17, 1.26 crore new taxpayers (return filers + non-filers making tax
payments) were added to the tax base (till 30.06.2017).

Increase in Direct Tax Collection

 Collection of Advance Tax under Personal Income Tax (i.e. other than Corporate Tax) as
on 05.08.2017 showed a growth of about 41.79% over the corresponding period in F.Y.
2016-2017.
 Collection of Self Assessment Tax under Personal Income Tax showed a growth of
34.25% over the corresponding period in F.Y. 2016-2017.

The impact on formal international inward remittances was minimal. MTOs doing cash
payouts were impacted in the short run due to unavailability of large denomination
currency. Families of migrants also reported problems in withdrawing remittances from
ATMs. Formal international outflows were not affected since these are usually made out of
bank accounts.

Informal flows both domestic and international were hit much harder. Hawala
operatorswere stuck with old currency they could not readily convert to new currency.
Furthermore, they were targeted by tax authorities as they tried to facilitate conversion of
stored untaxed or illegal money into gold or foreign exchange for a premium. Authorities
enforcing foreign exchange laws also raided forex dealers making back dated accounting
entries to convert the old currency into foreign currency. For non-residents Indians, the
Reserve Bank of India allowed depositing the currency in their non-resident ordinary
accounts (which are intended for Indian source deposits). Reports indicate that the move
created difficulties for low skilled internal migrants who lacked sufficient documentation to
convert their cash wages and savings into the new currency. It is likely that informal
sector workers from Nepal and Bangladesh also faced similar challenges resulting in lower
informal remittances to those countries.

4. History of Demonitization

This link has cool pictures of old notes which were demonitized…..
https://www.ncaacademy.com/know-all-about-history-of-indian-currency-
demonetisation/

The first currency ban:

In 1946, the currency note of Rs 1,000 and Rs 10,000 were removed from
circulation. The ban really did not have much impact, as the currency of such
higher denomination was not accessible to the common people. However, both
the notes were reintroduced in 1954 with an additional introduction of Rs 5,000
currency.
Rs 500 and Rs 1000 notes were introduce in 1934 and after four years in 1938, Rs
10,000 notes were introduce.

The second:
 That came in 1978; the then Prime Minister of India Morarji Desai announced the
currency ban taking Rs 1000, Rs 5000 and Rs 10,000 out of circulation. The sole aim of
the ban was to curb black money generation in the country.

 The sudden move to demonetize Rs 500 and Rs 1,000 currency notes is not new.
Rs 1,000 and higher denomination notes were first demonetized in January 1946
and again in 1978.

5. Similarities in 1978 and 2016 ban:

 The note ban by Morarji Desai also aimed to drive away black money out of circulation in
the economy. Hence, The High Denomination Bank Notes (Demonestisation) Act was
implemented.
 Narendra Modi announced the currency ban is an address that was broadcasted across
all news channels. Similarly, Desai announced the ban over the radio after which the
banks were closed the following day.
 Both the affairs were kept confidential.
Differences in the ban:

 Unlike Modi, Desai didn’t have the backing of the RBI Governor. The Governor I.G. Patel
believed that the ban was implemented simply to immobilize the funds of the opposition
party. Patel also believed that people never store black money in the form of currency
for too long.
 It didn’t have much effect on the people and affected only the privilege few. While the
recent ban had shaken the whole country.
Coming back to 2016, there is also a buzz that smaller denomination currency notes like
Rs 50 and Rs 100 will also be replaced by incorporating new features and design. And
that reminds us of an incident dating back to early 70s, when there were rumours of
withdrawing Rs 100 note from circulation, and immediately hoards of people were seen
rushing to banks to exchange their Rs 10 and Rs 20 currencies.

6. Impact on GDP

Forecasts[edit]
Global analysts cut their forecasts of India's GDP growth rate for the financial year 2016-17 by
0.5 to 3 percent due to demonetisation.[283][284] India's GDP in 2016 is estimated to be US$2.25
trillion, hence, each 1 per cent reduction in growth rate represents a shortfall of US$22.5 billion
(₹ 1.54 lakh crore) for the Indian economy.[285] According to Societe Generale, India's quarterly
GDP growth rates would drop below 7% for an entire year at a stretch for the first time since
June 2011.[286]
Results[edit]
India's GDP growth for the quarter Jan-Mar '17 was 6.1% as against a forecast of 7.1% by
economists.[292] The GDP growth for the entire fiscal year was 7.1%, a reduction from the 8% of
the previous year.[293]This drop in GDP was attributed to demonetisation by economists.[294]
The GDP growth rate for the quarter April - June 2017 dropped to 5.7%, in comparison to 7.9%
for the same quarter in the previous year.[295] This drop in GDP growth was attributed to
demonetisation.[296] This was the lowest growth in GDP since 2014.[297] The drop in GDP growth
was exactly as predicted by Manmohan Singh in November 2016.[298][299]

India’s economic growth fell to 6.1 per cent in the fourth quarter (Q4) of 2016-17 (FY17),
primarily because of demonetisation adversely affecting economic activity. This was at
least a four-quarter low.

The sectors worst affected were construction and financial services.

Without indirect taxes, growth figures would be more dismal. Gross value added (GVA),
the difference between gross domestic product (GDP) and net indirect taxes, grew by
only 5.6 per cent in Q4 — the lowest in at least eight quarters, according to official
figures released on Wednesday.

The effect of demonetisation was evident in the figures, with growth being pushed
primarily by agriculture and government spending. In Q4, excluding agriculture and
government spending, GVA grew a mere 3.8 per cent, down from 8.4 per cent in Q1.

In FY17, economic growth was at a three-year low of 7.1 per cent. The previous year, it
was 8 per cent.

7.
8.
 6. Impact on automobiles

One of the most severe impacts of the recent demonetization of the high-value currency
notes has been felt on the ‘discretionary’ spends segment, basically spends that are not
essential and that can be put off for later. Purchasing a personal vehicle comes under this
segment, and to that end, there has been a huge visible impact on the sales figures of the
Indian car industry in general and the private vehicle segment in particular as a result of
the demonetization.

Whereas the automotive industry itself is cyclical in nature and is impacted by the overall
economic upturns or downturns that are periodic and event driven, the demonetization of
high-value currency has actually made most prospective car buyers halt their decisions
and postpone those till a time more clarity emerges on the issue. In any case, the devalued
currency cannot be accepted by the car dealerships and the new currency is not available
in the system, therefore for people who are not heavy users of the banking system or
electronic payment modes, especially in the villages and towns are left with no other
system than to wait it out.

BY HOW MUCH

According to FADA (Federation of Automobile Dealers Association), the footfalls at car

dealerships have slowed down to less than half and the overall car sales have been
reported lower by almost 30%. Another reason for the drop in sales has been the fact that
persons that wanted to upgrade their cars by selling their existing cars are not being able
to do so due to the dearth of cash in the system as well as the fact that people are not
ready to make any high-value purchases until more cash in infused in the system, which
can take months. The used car dealers in Delhi are reporting the decrease in sales and
inquiries by more than half. This is significant because more used cars are sold in this
country yearly than new ones and typically people sell an old vehicle to buy a new one.

7.Impact on banking

Refer to research paper -impact on banking

the first four days after the announcement of the step, about ₹3 trillion (US$47 billion) in
the form of old ₹500 and ₹1,000 banknotes had been deposited in the banking system
and about ₹500 billion (US$7.8 billion) had been dispensed via withdrawals from bank
accounts, ATMs as well as exchanges over the bank counters. Within these four days,
the banking system has handled about 18 crore (180 million) transactions.[41] The State
 Bank of India reported to have received more than ₹300 billion (US$4.7 billion) in bank
deposit in first two days after demonetisation.[177][178][179] A spike in the usage of debit card
and credit card post demonetisation was also reported.[180]
Between November 10 and November 27, banks reported exchange and deposits of
demonetised banknotes worth ₹8.45 trillion(US$130 billion) (exchange of ₹339.48
billion (US$5.3 billion) and deposits of ₹8.11 trillion (US$130 billion)). During this period,
an amount of ₹2.16 lakh crore (US$34 billion) had been withdrawn by people from their
accounts.[181]
In Malda, a district believed to be a transit-point for fake Indian currencies,[182] a large sum
of cash deposits in dormant accounts were also reported. According to The Economic
Times, more than 80 percent of fake currency in India originates from Malda district
in West Bengal.[183]

9. Insurance
The story so far
According to the monthly numbers of life insurance companies released
by IRDAI, the individual single premiums collected in November for all
life insurance subscriptions were Rs 6,692 crore. This was a whopping
507% more than what was collected in November 2015. In fact, even on
monthly basis, the insurance segment grew by 170% from Rs2,481
crore collected in October. The total amount of first-year premiums
(both regular and single premium) grew 113% on a year-on-year basis,
and 45% compared to the collections in October 2016, revealed the
IRDAI data.
The insurance industry, which was growing at a decent 28% on a
month-on-month basis, grew more than 40% in November. It was a
pleasant surprise for all players in the sector.
Rerouting savings
The IRDAI numbers are an indicator to the already changing savings habit of
Indians. Real estate and gold are the two traditional sectors where Indians
prefer to park their money. But demonetisation has robbed the sheen from
both of them. People have begun investing in insurance, leading to the
exponential growth of the sector.
The unexpected corpus
It can be reasonably said that demonetisation had a major role to play in the
insurance sector suddenly becoming cash-rich. Nearly Rs 12.44 trillion has
entered the organised insurance system and a significant part of the collection
will surely be invested in financial assets. A lot of money has come into the
formal channel and the financial products industry is expected to see a bigger
inflows. Not only insurance, even mutual funds are likely to see a spurt in
growth. The trend would carry on, at least in the near future, so long as the
increased liquidity is there in the banking system.
The added liquidity, in fact, has given an opportunity to banks to sell third-
party insurance products. Banks, in November alone, sold twice as much of
what they otherwise used to sell monthly in third-party products.
10. Agriculture
 Reports of stress in agriculture have begun to appear because of
demonetization. Cash is the primary mode of transaction in
agriculture sector which contributes 15% to India’s total output.
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 distribution of 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.
 Currently, many of these networks are operating sub-optimally
or altogether at a standstill, depending upon location, market
links and other item-specific factors. The input side is equally
affected as many payments/purchases, such as seeds,
fertilizers, implements and tools, are outright in cash.
Borrowing-financing operations of larger farmers and
organized producers are also cut off or severely clipped.
 The impact is visible in different sub-segments. Winter crops
such as wheat, mustard, chickpeas are due for sowing in a
fortnight. Wheat prices were already up due to low stocks and
anticipated shortfall in 2015-16 output and have firmed up
further as demonetization fallout pushes traders to build more
 inventories. Production in 2016-17 could drop if sowed acreage
(rabi) reduces for want of enough seeds on time to exploit the
adequate soil moisture. Yields could fall from late sowing and
subsequent exposure to rough spring weather, the lack of
sufficient or timely application of fertilizers, pesticides, etc.
Farm labour, vital for this period, is reported to be unpaid as
farmers have no cash. Many of them are reported to be
returning from some northern parts to homes in UP and Bihar.
Labour shortages and wage-spikes may follow with a lag.
 Plantation crops such as rubber, tea, jute, cardamom are seeing
no wages paid to workers. Small-medium tea growers have few
buyers now (a third of the tea was unsold in recent auction in
the south). Raw jute trade is halted as paucity of funds affects
procurement-delivery by traders. Projections of scarcity have
appeared with appeals for official procurement support. Cotton
is witnessing havoc: daily arrivals have plunged to 30,000-
40,000 bales against the usual 1.5-2 lakh bales at this time
(harvest) as per reports and prices have soared 9% in a week,
pushing up global prices in turn.

11. Real Estate

Short-term: Market to undergo a slowdown

The sudden ban on Rs 500 and Rs 1000 currency notes has resulted in a
situation of limited or no cash in the market to be parked in real estate
assets. This has subsequently translated into an abrupt fall in housing
demand across all budget categories in the short term. While a share of this
dwindled demand could be attributed to distractions caused by the move,
many industry experts opine that this is a result of a trust deficit in the
market. Money has become dearer, leading to cautious spending and
minimal transactions.

The slowdown owing to this announcement has been more severe in NCR
particularly Gurgaon, Mumbai Metropolitan Region (MMR) and certain Tier
II markets such as Surat and Vadodara. Minimal impact of demonetisation
has been felt in markets such as Bangalore, Pune and Chennai, which are
primarily end-user driven and rely on bank funding. iquidity has been
severely impacted and this would result in a deflation with limited sales
over the next three months. In short, the move has taken the real estate
sector by a storm, and it would take time for all stakeholders in the sector –
brokers, buyers, owners and developers - to assess its repercussions on
their businesses and decisions.
In particular, transactions in the premium housing sector and the
residential land category – overtly dependent on the cash component -
would come to a standstill in the short term.

In the short term, buyers and sellers in the middle of transactions might be
impacted as cash component would be involved in such deals. Mid-term
Impact: Reduced inflation, better home ownership appetite, improved
rental landscape

With limited money floating in the economy, the inflation rates are
expected to fall in the next 2-3 quarters. This, coupled with key policy
developments such as speculative repo rate cuts by the Reserve Bank of
India (RBI), could mean a better home ownership appetite. However, this
could be restricted to the affordable housing category.

The heavily cash-dependent secondary market could bear a colossal brunt

of the demonetisation move. With the gap between circle rates and market
rates bridging, owners would reduce ‘ask’ prices, impacting the average
housing prices across cities. Resale properties would, thus, become
cheaper and this could pressurise the primary market, as well. Developers
might offer new projects at discounted rates or propose incentives to
magnetise buyers. Long-term impact: Transparency, revived trust and
capital inflows in the realty sector

The real estate sector is expected to get cleansed of its ailments in the due
course of time owing to the elimination of black money clubbed with
multiple regulatory changes such as the Goods and Services Tax Act, Real
Estate (Regulation and Development) Act and amendment of the Benami
Transactions (Prohibition) Act. Subsequently, project approvals will be
quicker, resulting in a substantial reduction in the total cost of
construction, thereby, the ‘per unit’ cost. Fair pricing would mean a revived
demand for new projects in the market.

Demonetisation could also mean fresh sources of funding for developers to

complete their projects. Some of the alternate sources may include the
following:

• Developers will be forced to clean up their balance sheets so that they

can avail funding from legitimate sources, however, this may come at
extremely high costs from the Non-banking financial companies (NBFC)
segment.
• Developers can avail short-term loans from their existing buyers at
 market price with a promise to deliver the project on time and at an
interest rate as per the agreement in the sales deed.
• Investments from private equity firms would usher positive sentiment
across the market, helping developers to source funding and strengthen
end-user demand.
12. Retail

Refer to link:

http://dataanalyticsedge.com/2016/12/29/demonetization-and-its-
impact-on-retail-industry/

This impact is being felt largely by small traders and the unorganised
retailing segment prevalent on many high streets across the country, as
compared to the organised retailing and malls.

Segments such as jewellery and luxury have seen a higher impact than
others, and this situation is likely to continue for a while. These two
segments will take much longer to revive, though plastic money and
online payments will help them sustain for now. In the medium-to-long
term, however, there is no threat to these sub-segments, as the
domestic consumption recovers from the temporary cash crisis.

Importantly, the fact that retailers will encourage alternate/ digital

payment solutions will help the marketplace become more transparent
and structured. The luxury segment, with its historically high incidence
of black money acceptance, will see more transactions in white than
ever before. This bodes well for this business.

Lower footfalls in shopping malls is a passing phase and is expected to

normalise in a few weeks as more of the newer currency denominations
come into circulation, enhancing the purchasing power of consumers
once again. The long-term growth scenario of Indian retail continues to
be resilient and growth-oriented. The domestic consumption story
remains intact thanks to a strong economic base, favourable
demographics and FDI-friendly policies.

13. Conclusion
Implementation of Demonetisation of Old
Currency Notes
Now that we are aware of the objectives of the demonetisation policy and the
facts and figures associated with this exercises, let us analyse the
implementation of this profound economic policy till now.

Absolute Secrecy Maintained

Since the original objective of this entire demonetisation exercise was to target
the black money in circulation in the economy, absolute secrecy was required
to be maintained so that black money hoarders could not get sufficient time
to convert their stash of 500 and 100 rs notes to white.

ATMs not Re-calibrated

One of the unintended consequence of the secrecy veil was that banks did not
have advance information about the demonetisation policy and hence they
could not get the ATMs re-calibrated for the new Rs 500 and Rs 2000 currency
notes. This resulted in ATMs running out of cash within 10-15 minutes since
they were dispensing only Rs 100 notes instead of high value notes.

Ever Changing Policy

The policy of the Govt. changed on a continuous basis. While earlier it was
declared that old notes could be exchanged for new until 30th December, this
facility was suddenly withdrawn on 2nd December.

The exchange limit also kept fluctuating from Rs 4000 to Rs 4500 to Rs 2000 to
nil over a period of 20 or so days. The daily cash withdrawal limit from ATMs
was also changed from Rs 2000 initially to Rs 2500 later.
Harassment to the General Public
Perhaps the biggest drawback of the demonetisation exercise has been the
undue hardship caused to the common man, including, the salaried class, the
students, labourers, farmers and housewives with small savings and need for
urgent cash.

Due to acute shortage of funds, Banks resorted to rationing of cash and

shutters have been drawn over most of the ATMs due to unavailability of cash.

Productive workforce that should actually be engaged in doing work is

actually standing in unending queues to withdraw their salary from their bank
accounts.

Temporary Relief Provided

However the govt. did provide some relief to the public by allowing toll free
movement of vehicles for about 20 days, allowing the use of old currency
notes at petrol pumps, to pay school fees, for hospital fees, purchase of seeds
for farmers etc. It also increased the weekly cash withdrawal limit from Rs
10,000 to Rs 24,000 at banks.

Income Disclosure Scheme Announced

In order to achieve the original aim of the demonetisation exercise i.e. reduce
the amount of unaccounted black money in circulation, the govt. launched a
income disclosure scheme by which undisclosed income could be declared by
30th September 2017 and which would be taxed at 50% of the declared value.
Impact of the Demonetisation of Old
Currency Notes
This requires a separate blog post of its own and will be discussed in detail in
the next article.

Conclusion
While the objectives of demonetisation i.e to fight black money, corruption
and terrorism are praise worthy and cannot be faulted, the means adopted to
achieve this objective i.e. demonetisation of high value currency notes and the
manner of implementation of the policy is debatable. It is estimated that
almost the entire value of Rs 500 and Rs 1000 currency notes pegged at Rs
14.18 lac crores will come bank into the system by 30th December, then the
dividend that the govt. had hoped for by way of at least 3-4 lac crores never
returning back into the system may not be realised.

Hence the introduction of the Income Disclosure Scheme by which the govt.
hopes to collect about Rs 2.5 lac crores by means of tax.

The need for maintaining secrecy contradicted with the need for proper
planning and preparation before such a significant economic decision was
taken. As a result ATM’s were not re-calibrated and more importantly, new
notes were not available in the economy while the old notes were being
withdrawn. This has resulted in great inconvenience for the people, the
overwhelming majority of whom have nothing to do with black money.

If only 6% black money is kept in cash, then what is the purpose in disturbing
the entire economic scenario to get to this unaccounted wealth? Wouldn’t it
have been better to target the big fish who have the majority of the black
money through raids on benami properties, high value transactions, and
offshore bank accounts?
Since only 28%-32% Indians have access to financial institutions, the rest of
the population with Rs 500 and Rs 1000 denomination notes will find it very
difficult to deposit their money or exchange it for new notes.
However, some gains will still be realized if the claimed funding to terror
organisations is choked and future generation of black money is minimised.
There could also be other unintended benefits like increase in digital
payments, fall in interest rates and property prices. But this will take some time
to be realised.

Conclusion of Demonitisation..

 99% of the money belongs to the demonetised currency that was being
circulated has come back to RBI..
 2000 rupee has been introduced for the first time, some of the proponents
of demonitisation was claimed that 1000 rupee note is one of the factor
behind black money as it is easy to store but after withdrawing the 1000
new 2000 has been introduced, thinktanks might have some thing else to
say..
 Demonitisation period created a frenzy in the digital money space,
companies like pay tm and other mobile wallets had got a tremendous boost
and their penetration level has been improved..
 Government is saying that the tax payer base has been improved..
 Banks have reduced savings banks and fd rates but waiting for the 'right'
time to pass on the benefit to the borrowers..
 RBI is still on the process of counting the discontinued currency!
 Those who have supported initially the drive also in a dilemma, whether the
demonitisation was a success or failure, was it a plunge without careful
deliberation or intentional and well thought out move, Did any mechanism
functioned for the failure of the process? Many

P.S- itni mehnat ke liye I deserve a Cadbury Silk( badi wali) !!!!

LOL :P …just kidding…

Hope this helps……