v3 I12 (4) A001

Volume 3, Issue-12(4), December, 2016
International Journal of Academic

Research
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Special issue on
DEMONETIZATION IN INDIA
-The Philosophy, Practice and Problems
Edited by
P.RamaKrishnamRaju
P.V.Rama Raju
INVITATION
UGC Sponsored
National Seminar on
16-12-2016
Organised by
Departments of Commerce
Departments of Commerce
D.N.R. College (Autonomous)
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West Godavari District,
Andhra Pradesh.
UGC sponsored one Day National Seminar on
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December, 2016
CONTENTS
Volume 3 Issue 12(4) December, 2016
Sl. Paper Title Pg.No

No
1 Demonetization - Online Transactions: P.Rama Krishnam Raju 1
2 Demonetization affects India: P.V.Rama Raju, J.Suresh and 5
K.Satyanarayana
3 Economic consequences of demonetization of 500 and 1000 Rupee 8
Notes: P.Hari Krishnam Raju, D.V.Madhavi and K.Sarika
4 India’s demonetization “Shock Therapy” – Financial repression: 11
Issues and Intricacies: J.Chandra Prasad and A.V.Nagavarma
5 Demonetization in India: V. Vijay Kumar 17
6 Making India a cashless economy: U.Madhuri, D.Srinivasa 22
Raju and P.Naga Veni
7 Anil Bokil, Chanakya for the proposed new monetary policy: 25
K.A.S.P.Rama Raju & Ch.Jhansi Lakshmi
8 Present Status of Black Money in India and the Future 28
Challenges: K.Satish Kumar & M. A. Aleem, V. Venkatarao
and K.Ammaji
9 Pros & Cons of Demonetization of Big Currency Notes: Mandru 36
V S Prasad
10 Demonetization - 1978, the Present and the Aftermath: Policies 39
and Challenges- M.L.N.Raju and D.Surya Prabha
11 The Impact of Demonetization on Trade and Commerce: 44
N.Bhagyaraju and V.Vijaya Kumar
12 A note on the advantages and disadvantages of demonetization : 49
Neredimelli Udaya Sri
13 The Impact of Demonetization on Indian Real Estate Sector: 53
A. Uttama Durga Devi
14 Demonetization and effects on Various Sectors: K .A .Emmanuel 57
and P. P. Divakar
15 Demonetisation, a technique to balance the market forces in the 63
economy: C.Satyadevi
16 Notional retrospect of demonetization in India : G. Subbaraju, 67
M. Prudhvy Raju and B. Krishna Prasad
17 A Study on Impact of Demonetization on Common Man: 72
R.Sreenivasa Rao, K. Geetha Lavanya Lahari and V.Vijaya
Kumar
18 The Socio-Economic dimensions of Demonetization in India: 77
G.David Livingstone
19 Impact of Demonetization on Various Sectors & the Economy: 84
K.V. Sridhar and Ch. Madhavi
20 The Present Scenario of Demonetisation in India: Sai Durga 90
Prasad, A.V.R. Gajapathi Raju and Dr. N. Vijaya Kumar
21 Demonetization Consequences – 2016: S Anil Dev, R B 94
Somayajulu, V V Satyanarayana Raju and Dr. N V V
Simhadri
22 Demonization - Cashless Payment System in India: 96
Dr.D.R.K.Subba Raju and B.P.Naidu
23 Demonetisation and Cashless Economy: D. Venkatapathi Raju 101
and V.S.K. Chaturya
24 Cashless Payment System in India: BH.L.Mohanraju and 104
K.Neelima
25 Demonetization on Indian Currency Note Effect Indian Economy: 109
A.Lavanya
26 Impact of recent demonetization in India: R.Sivarama Prasad 114
and R.S.N.Sharma
27 The Socio, Economic and Political Impacts of Demonetization in 121
India: G. Durga and A. Uttama Durga Devi
28 Impact of Demonetization of 1000 & 500 notes on Indian 124
Economy: K. Hymavathi and Santosh Jawahar
29 The Impact of Demonetization In India: R. Radha Rani, D.Naga 129
Lakshmi and M.L.V.A.Priya
30 Demonetization Practices – An overview: V.Vijay Kumar and 133
Thera Rajesh,
31 Socio-Economic dimensions of Demonetization in India: S.Sita 138
Rama Murty
32 India as a Cashless Economy: T. Radha Krishna 141
33 Demonetization - An Analytical Insight: K. Bhanu Prakash and 146
J. Chandhra Prasad
International Journal of Academic Research
ISSN: 2348-7666; Vol.3, Issue-12(4), December, 2016
Impact Factor: 4.535; Email: drtvramana@yahoo.co.in
Demonetization - Online Transactions

P.Rama Krishnam Raju, Principal, D.N.R.College (Autonomous), Bhimavaram
Abstract:
Demonetization is a process by which a series of currency will not be legal
tender. The series of currency will not be acceptable as valid currency. The
demonetization was done in as an effort to stop counterfeiting of the current currency
notes allegedly used for funding terrorism, as well as a crackdown on black money in
the country. The move is also aimed at reducing/eradicating the corruption, drug
menace, and smuggling and to eliminate terrorist and extremist activities in India.
The demonetization, by removing 86 per cent of the currency in circulation, has
resulted in a very severe contraction in money supply in the economy. Rural sales have
been significantly come down in the last few weeks. Replacement of new Currency
notes within short period would help to escape from the major effect on the economy.
Agriculture, Automobiles and Construction sectors have badly affected. The
Government of India should take all steps to upgrade the Banking system as well as in
the Telecom infrastructure that would provide the backbone for digital transactions.
The attitude of the people should also be changed to carryon online money transaction
to the maximum extent. The usage of cash for payments should be minimized. The
public should also use Debit and Credit cards whenever payments are made. Mobile
Banking and Online Banking transactions would minimize the payment difficulties.
Key words: payment difficulties, demonetization, terrorist
Introduction: current currency notes allegedly used for

funding terrorism, as well as a crackdown
Demonetization is a process by on black money in the country. The move
which a series of currency will not be is also aimed at reducing/eradicating the
legal tender. The series of currency will corruption, drug menace, smuggling and
not be acceptable as valid currency. to eliminate terrorist and extremist
Demonetization is not new to India, but activities in India. Hawala transactions
the pronouncement, by our beloved used to be carried out in the
Prime Minister Mr. Narendra Modi in an denominations of Rs. 500 and Rs. 1,000
unscheduled live televised address to the will be stopped. Demonetization of
nation on 08-11-2016 at 08:15 pm, came currency denominations was also taken
as a bolt from the blue. In his address he up in the past. In January, 1946,
declared that all 500 and 1,000 Rupee currency notes of 1,000 and 10,000
currency notes, which are in circulation, rupees were withdrawn and new notes of
stand invalid and announced the issuance 1,000, 5,000 and 10,000 rupees were
of new 500 and 1,000 Rupees currency introduced in 1954. The Janata Party
notes with new series in exchange of the coalition government has again
old. The demonetization was done in as demonetized currency notes of 1,000,
an effort to stop counterfeiting of the 5,000 and 10,000 rupees on 16th January
www.ijar.org.in 1
1978 as means to curb counterfeit money consumption are intrinsically related to

and black money. transactions in the economy, the above
would mean a severe contraction in
The proposal by the present income and consumption in the economy.
government involves the elimination of This effect would be more severe on
these existing notes from circulation and individuals who earn incomes in cash and
a gradual replacement with a new set of spend it in cash. To a lesser extent it
notes. In the short term, it is intended would also affect individuals who earn
that the cash in circulation would be incomes in non-cash forms but need to
substantially squeezed since there are withdraw in cash for consumption
limits placed on the amount that purposes, since a number of sectors in the
individuals can withdraw. In the months economy still work predominantly with
to come, this squeeze may be relaxed cash. In terms of the sectors in the
somewhat. The reasons offered for economy, the sectors to be adversely
demonetization are two-fold: one, to affected are all those sectors where
control counterfeit notes that could be demand is usually backed by cash,
contributing to terrorism, in other words especially those not within the organised
a national security concern and second, to retailing. For instance, transport
undermine or eliminate the “black services, kirana, fruits and vegetables
economy”. After the official and all other perishables, would face
announcement made by Prime Minister compression in demand which is backed
Sri Narendra Modi, the Governor of RBI by purchasing power. This in turn can
Mr. Urjit Patel and Economic Affairs have two effects: while it is expected that
Secretary, Shaktikanta Das explained in supply exceeds demand, there would be a
a press conference that while the supply fall in prices, however, if supply too gets
of notes of all denominations had curtailed for want of a medium of
increased by 40% between 2011 and 2016. exchange, prices might, in fact, rise.
The 500 and 1,000 rupees currency notes Thus, while generally people seem to
increased by 76% and 109% respectively expect prices to fall, it is quite possible
in the same period owing to forgery. The that prices would instead rise.
forgery cash was then used to fund
terrorist activities against India. As a Impact on Rural sales: The Managing
result the decision to eliminate these Director of Godrej Consumer Products
currency notes has been taken up. Ltd. Mr. Vivek Gambhir said that the fast
moving consumer goods (FMCG)
Impact of Demonetization on Economy: industry, which was looking forward to
The demonetization, by removing 86 per good sales following a robust monsoon
cent of the currency in circulation, has this year, has been impacted by
resulted in a very severe contraction in demonetization. Rural sales had begun
money supply in the economy. This picking up post-harvest from October
contraction, by wiping out cash balances onwards due to good monsoon. This has,
in the economy, will eliminate a number however, been significantly came down in
of transactions for a while, since there is the last few weeks due to demonetization.
no or not enough of a medium of Since the rural economy is largely cash
exchange available. Since income and based and wholesaler dependent, the
www.ijar.org.in 2
large cash crunch has led to a slowdown and sales in this segment of the economy
in rural sales. are carried out through cash. With the
elimination of cash from the economy,
Impact on Investment and Employment: sale of kharif crop would be difficult
To keep the flows going, people might unless the crop is sold on the promise of
take recourse to credit - both the retailers payment in future. Given the limited
and other agents in the economy might bargaining power of the farmer, the price
make supplies on credit in the hope that they can realize for the crop can be
when the liquidity status is corrected, the adversely affected. On the other hand, in
payments can be realized. There would the sowing activity, people would not get
be a compression of the demand for non- access to the inputs required since most
essentials by all the agents in the of the inputs are now purchased from the
economy in the face of uncertainty in the market unless they seek access to credit
availability of cash. The demand from from the supplier. Further, if there are
segments which have access to digital agents who do not get access to credit
medium of exchange would remain from the informal sector agents, their
unaffected, but that from the rest of the sowing activity and hence their incomes
economy would get compressed. This in the next season would be adversely
would transmit the effect to the rest of affected. Thus, in spite of a good monsoon
the sectors in the economy as well. The in large parts of the country, the farmer
real estate sector would be badly affected. might not get the benefits.
Investment in construction sector would
be comedown and the employability Impact on Construction and Automobile
opportunities in the said sector would sectors: No doubt the Construction sector
also be minimized. would be adversely affected. This sector
works with a significant amount of cash.
Impact on Agriculture: Replacement of Payments to workers as well as a variety
new Currency notes within short period of purchases might be carried out in cash.
would help to escape from the major So, on the supply side, this sector can be
effect on the economy. This would depend adversely affected. On the other hand, on
on the speed with which and the extent to the demand side, the demand for houses
which the cash is replaced by the and buildings would appear as a demand
authorities. If the entire cash is replaced for non-essentials and might be pushed
within a short duration of time, the on to the back burner until the economic
effects beyond the very short term of two situation normalizes. The Automobile
months might be little. But a few sectors sector has also been facing discouraging
are likely to be seriously affected. It is situation as the sales of Motor Vehicles
known fact that in our Country the drastically come down. Public is afraid of
Agriculture sector has been providing purchasing vehicles out of their own
larger employment opportunities both funds. Previously certain share of the
directly and indirectly which also help to cost price of the vehicle is met out of
have strong economy. This is the sowing black money.
season for the Rabi crop in some parts of
the country and the harvesting season for Implementation of Online banking
the Kharif crop. Most of the purchases transactions: The Government of India
www.ijar.org.in 3
should take all steps to upgrade the shock in the medium term is a function of
Banking system as well as in the Telecom how much of the currency will be
infrastructure that would provide the replaced at the end of the replacement
backbone for digital transactions. Online process and the extent to which currency
transactions are more transparent. in circulation is extinguished. While it
Financial Intelligence Unit will track all has been argued that the cash that would
Online transactions. For people to be able be extinguished would be “black money”
to transact at any time and place as well and hence, should be rightfully
as for them to consider it a reliable extinguished to set right the perverse
medium of exchange, it is important that incentive structure in the economy, this
not only the banking system is upgraded argument is based on impressions rather
to ensure that transactions can be than on facts. The middle class people
completed without a hitch, but the feel that the Government has taken up
supporting infrastructure too is upto the this demonetization so hurry without
mark. The attitude of the people should thinking the difficulties of the common
also change. People should carryon man. What the quantum of new currency
online money transaction to the ( Rs. 2000 notes) seized from the black
maximum extent. The usage of cash for money holders is very little. Large
payments should be minimized. So quantum of the same is still lying with
during this transitional period the Politicians, Bureaucrats, Smugglers,
individuals should change their mindset Corporate people, Anti-social activists etc.
infavour of digital transactions. Demonetization move will be good for the
Indian economy in the medium to longer
Steps to be taken by the Government to term. However, that this challenge is a
carryon online transactions: The temporary one. The situation should be
Government of India has developed some normalized from the last quarter of fiscal
apps to carry out disgital transactions. year 2017 onwards, as the liquidity
These apps are developed in English crunch eases.
language. Those who are not well versed
with English language can’t carry out References
digital transactions of their own. So the
government should develop the said apps http://www.indianjobs4u.com/online-
in regional languages also. The public transactions-limit-india
should also use Debit and Credit cards
whenever payments are made. Mobile http://www.livemint.com/Companies/iHcF
Banking and Online Banking kPVVuATAjxCD5zK4QJ/Digital-
transactions would minimize the payment-platforms-record-surge-in-
payment difficulties. The Government transactions-after.html
should offer certain concessions /
privileges to the people who are doing
online money transactions.
Conclusion: The demonetization

undertaken by the government is a large
shock to the economy. The impact of the
www.ijar.org.in 4
Demonetization affects India

P.V.Rama Raju, In-Charge Head, Department of Commerce,
D.N.R.College(Autonomous), Bhimavaram.
J.Suresh, Lecturer, Department of Commerce, D.N.R.College(Autonomous),

Bhimavaram.
K.Satyanarayana, Lecturer, Department of Commerce, D.N.R.College(Autonomous),
Bhimavaram.
Abstract:
Even as most leading brokerages view the government’s decision to ban Rs 500
and Rs 1,000 notes as positive from a medium-term perspective, the short-term impact
will be negative for most pockets in the economy. As a result, performance of India
Inc as well as the economy is likely to be muted in the ongoing quarter, believe
analysts. Purchase of fertilisers and agrochemicals; usually done via cash, too, could
come down. All metal companies will be negatively impacted as a large part of trading
in steel and other metals is carried on a cash basis currently.
Key words: demonetization, short-term impact, small borrowers
activities in roads, water, railways and
Introduction transmission and distribution sectors,
There are many sectors having high too, will be impacted as payment to
proportion of cash transactions and these labour is usually made in cash. Low
will be impacted even as receivables of number of bank accounts in remote,
companies in these segments will go up. small villages and supply-chain
Among these, real disruptions could affect demand for
estate and jewellery sectors, though, consumer staples for a brief while, believe
would be the worst-hit because these are analysts. The demand impact of large-
the preferred investments of Indian ticket consumer durables items such as
consumers for their black money. apparels, white goods, apparel and the
Typically, the high cash component likes could also head south.
provided working capital for many
builders and its absence could hurt their Likewise, purchase of fertilisers and
financials. Also, it could hurt demand agrochemicals; usually done via cash, too,
emanating from customers inclined could come down. All metal companies
towards paying cash, and consequently will be negatively impacted as a large
force builders to lower real estate prices part of trading in steel and other metals
going forward. “But, in the long run, due is carried on a cash basis currently.
to affordable prices and low supply, this The short-term debt servicing
sector will experience positive demand capacity of small borrowers could be
scenario,” says Vinay Khattar, head of reduced, which may impact the asset
research at Edelweiss Securities. quality as well as credit growth of
microfinance companies such as Bharat
Immediate effects of demonetization : Financial Inclusion, Ujjivan Financial
Upcoming ordering as well as ongoing Services, Equitas, among others, believe
www.ijar.org.in 5
analysts. Housing finance companies, too, a cash basis and, hence, these could
could witness pressure on their credit witness lower demand in the short term,
quality as well as growth, as fall in real believe analysts.
estate prices would impact the loan In the medium- to long-term,
against property (LAP) business. though, this move will provide an edge to
Even e-commerce players are organised players as unorganised players
likely to feel the heat in the near- to might not be able to bear the brunt of
medium-term. Cash on delivery forms cash-less business. Overall, most of these
anywhere between 70 and 90 per cent issues are likely to iron out in the
of e-commerce players’ revenues and, medium term and only aid performance
hence, can impact valuations of retail e- of India Inc.
commerce players, estimate analysts at “This (demonetisation move)
JM Financial. could affect the economic activity in the
near term but will be more than
On the flipside, banks stand to gain outweighed by positive impact on
meaningfully from implementation of improved transparency and tax
demonetisation, but over a period of time. compliance in the medium term,” says
While operating costs could increase in Chetan Ahya, Chief Asia Economist at
the immediate future, there would be an Morgan Stanley. “We believe this move
increase in the low-cost current and will help to reduce black money more
savings accounts (CASA), which in turn systematically, and in the long term,
will rub off favourably on the banks’ improve the ease of doing business in
funding costs and liquidity. Rising use of India.”
credit/debit cards, net banking and other While bringing inflation under
online payment mechanisms will be control, it will also give the Reserve Bank
another positive, as these would not only of India some more room for cutting
lower transaction costs but some of these rates. “The move can be marginally
could help earn some fee income as well. positive for fiscal (as some scramble to
Mining will be another sector to deposit cash into banks by declaring as
benefit from this move as the move to income and paying necessary taxes) and
ban Rs 500 and Rs 1,000 notes will hurt external accounts (by reducing the
illegal/unauthorised mining activities, demand for cash intensive imports such
aiding organised players such as Coal as gold),” says Pranjul Bhandari, chief
India, NMDC, among others, say experts. economist - India at HSBC.
While manufacturers of passenger cars Despite having many positives
and utility vehicles such as Maruti such as rising tax to GDP, higher GDP
Suzuki, Tata Motors, among others, will growth, lower inflation, higher financial
not be impacted meaningfully given that savings, this demonetisation move may
most of their products (80-90 per cent) not curb the root cause of black money.
are sold on a credit basis, the smaller “This initiative addresses the ‘stock’ of
segment of second-hand cars will be black money but not necessarily the
impacted given the cash component flow/fresh creation of black money unless
involved in such transactions. About half some mechanism is built to track the
the tractors and two-wheelers are sold on movement of the new high-value
www.ijar.org.in 6
currency notes,” wrote leading brokerage FRBM (Fiscal Responsibility and Budget
CLSA in a note to investors. However, Management) limitations, the amount of
such a sudden and drastic step by the borrowing that governments can take on
government might dissuade some – if not may be limited and the additional supply
all sections of the society – from creating can mean a decline in the interest rate
new black money reserves. that governments pay on their debt. This
Overall Impact on the sector could be a positive spin-off for the
In the past one year, there have governments. The collision of the shock
been a few positive and potentially long- in the medium term is a function of how
lasting changes in the Indian real estate. much of the money will be replace at the
The passing of RERA (Real Estate end of the replacement process and the
Regulation and Development Act 2016), extent to which currency in movement is
the Benami Transactions Act and now extinguish. While it has been argued that
the demonetization move will ensure that the cash that would be extinguished
going forward, the sector will lose much would be “black money”
of its historic taint and become more References:
transparent. Only players who conduct www.books.google.com
their business with integrity will survive. www.weekipedia.com
This bodes well for end-users, who will be http://dx.doi.org/10.1086/319621
aware of their rights, have the assurance http://www.ifc.org/wps/wcm/connect/b4f9
of not being cheated and will no longer be0049585ff9a192b519583b6d16/SMEE.p
need to contend with constantly rising df?MOD=AJPE
prices. They will be able to buy properties
of their choice at affordable prices, in
projects which will assuredly be delivered
on time.
The demonetization exercise was a

very necessary step which was bound to
bring with it a tremendous shake-up
wherever black money has played a major
role. Over the long term, the Indian real
estate sector will emerge stronger,
healthier and capable of long periods of
sustained growth. As of now, there is no
reason for developers and investors who
have conducted their dealings
transparently and legally to panic. It will
essentially be business as usual for them.
Conclusion:
The generation of additional deposits and
credit, as a result of the SLR
requirements can make more credit
available to governments. Given the
www.ijar.org.in 7
Economic consequences of and counterfeit notes. This move is

demonetization of 500 and 1000 Rupee expected to cleanse the formal economic
Notes system and discard black money from the
same. In this report we highlight the
P.Hari Krishnam Raju, Lecturer in probable consequences of this decision on
Commerce, D.N.R.College, Bhimavaram various economic variables and entities.
D.V.Madhavi, Lecturer in Commerce,
D.N.R.College, Bhimavaram
K.Sarika, Lecturer in Commerce, 1) Effect on parallel economy
D.N.R.College, Bhimavaram
Abstract: With cash transactions facing The removal of these 500 and 1000 notes
a reduction, alternative forms of payment and replacement of the same with new
will see a surge in demand. Digital 500 and 2000 Rupee Notes is expected to
transaction systems, E wallets and apps, - remove black money from the economy
online transactions using E banking, as they will be blocked since the owners
usage of Plastic money (Debit and Credit will not be in a position to deposit the
Cards), etc. will definitely see substantial same in the banks, - Temporarily stall the
increase in demand. This should circulation of large volume of counterfeit
eventually lead to strengthening of such currency and - curb the funding for anti-
systems and the infrastructure required social elements like smuggling, terrorism,
espionage, etc.
Key words: demonetization, against
corruption, smuggling, terrorism,
espionage, 2) Effect on Money Supply
With the older 500 and 1000 Rupees
notes being scrapped, until the new 500
and 2000 Rupees notes get widely
Introduction circulated in the market, money supply is
expected to reduce in the short run. To
the extent that black money (which is not
In an important move, the Government counterfeit) does not re-enter the system,
of India declared that the five hundred reserve money and hence money supply
and one thousand rupee notes will no will decrease permanently. However
longer be legal tender from midnight, 8th gradually as the new notes get circulated
November 2016. The RBI will issue Two in the market and the mismatch gets
thousand rupee notes and new notes of corrected, money supply will pick up.
Five hundred rupees which will be placed 3) Effect on Demand
in circulation from 10th November 2016. The overall demand is expected to be
Notes of one hundred, fifty, twenty, ten, affected to an extent. The demand in
five, two and one rupee will remain legal following areas is to be impacted
tender and will remain unaffected by this particularly:
decision. This measure has been taken by
the PM in an attempt to address the Consumer goods
resolve against corruption, black money  Real Estate and Property
www.ijar.org.in 8
 Gold and luxury goods  Households

 Automobiles (only to a certain limit)  Political Parties
 All these mentioned sectors are  Professionals like doctor, carpenter,
expected to face certain moderation in utility service providers, etc.
demand from the consumer side, owing to  Retail outlets
the significant amount of cash
transactions involved in these sectors. The nature, frequency and amounts of
the commercial transactions involved
4) Effect on Prices with these sections of the economy
Price level is expected to be lowered due necessitate cash transactions on more
to moderation from demand side. This frequent basis. Thus, these segments are
demand driven fall in prices could be expected to have the most significant
understood as follows: Consumer goods: impact post this demonetization process
Prices are expected to fall only and the introduction of new notes in
marginally due to moderation in demand circulation.
as use of cards and cheques would
compensate for some purchases.
6) Effect on GDP
The GDP formation could be impacted
Real Estate and Property: Prices in this by this measure, with reduction in the
sector are largely expected to fall, consumption demand. However with the
especially for sales of properties where recent rise in festival demand is expected
major part of the transaction is cash to offset this fall in overall impact.
based, rather than based on banks Moreover, this expected impact on GDP
transfer or cheque transactions. In the may not be significant as some of this
medium term, however the prices in this demand will only be deferred and re-
sector could regain some levels as enter the stream once the cash situation
developers rebalance their prices becomes normal.
(probably charging more on cheque 7) Effect on Banks
payment). As directed by the Government, the 500
and 1000 Rupee notes which now cease to
be legal tender are to be deposited or
5) Effect on various economic exchanged in banks (subject to certain
entities limits). This will automatically lead to
With cash transaction lowering in the more amounts being deposited in Savings
short run, until the new notes are spread and Current Account of commercial
widely into circulation, certain sections of banks. This in turn will enhance the
the society could face short term liquidity position of the banks, which can
disruptions in facilitation of their be utilized further for lending purposes.
transactions. These sections are: However, to the extent that households
Agriculture and related sector have held on to these funds for
emergency purposes, there would be
 Small traders withdrawals at the second stage.
 SME
 Services Sector
www.ijar.org.in 9
8) Effect on Online Transactions fund transfer. On 9th November and in

and alternative modes of payment : some places on 10th November also
With cash transactions facing a ATMs will not work. In the first few days,
reduction, alternative forms of payment there will be a limit of Rs.2000 per day
will see a surge in demand. Digital per card. This will be raised toRs.4000
transaction systems, E wallets and apps, later
online transactions using E banking,
usage of Plastic money (Debit and Credit References :
Cards), etc. will definitely see substantial www.google.com
increase in demand. This should www.hinduarticles.com
eventually lead to strengthening of such www.weekipieda.com
systems and the infrastructure required.
CARE’s View
In spite of the initial hiccups and
disruptions in the system, eventually this
change will be well assimilated and will
prove positive for the economy in the long
run.
Conclusion: Black money hoarders will

definitely lose out, 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. Appendix:
Guidelines by the Government as to what
citizens could do post this decision
Deposit old notes of RS. 500 or Rs. 1000
in bank or post office accounts from 10th
November till 30th December, 2016
without any limit. There will be a limit
on withdrawal and Rs. 10,000 per day
and Rs. 20, 000 per week. This limit will
be increased in the coming days.
Exchange old notes of Rs. 500 or Rs. 1000
at any bank, head post office or sub post
office while showing ID proof. The limit
for this is Rs. 4000 upto 24th
November.No restriction of any kind on
non-cash payments by cheques, demand
drafts, debit or credit cards and electronic
www.ijar.org.in 10
India’s Demonetization “Shock Therapy” – Financial

Repression: Issues and Intricacies
Dr.J.Chandra Prasad, Former Principal, D.N.R. Collge(A) & Director &
Administrative Officer, S.K.S.D. Mahila Kalasala(Autonomous), Tanuku, W.G.Dt.,
Dr.A.V.Nagavarma, Head, P.G. Dept. of economics, D.N.R. College (A),

P.G.Courses & Research Centre, Bhimavaram-534 202
Abstract: On November 8 the shock to the financial system was administered by Mr.
Modi by demonetizing 500 and 1000 rupee notes. India is an overwhelmingly paper
currency country: some 90% of the transactions are done with cash. India’s cash-to-
GDP ratio is 12% more than half of Indians still don’t have a bank account and some
300 million have no government identification. The two scrapped denominations – 500
and 1,000 rupees – account for more than 86% of the value of cash in circulation. By
this diktat the government effectively neutralized around 86 percent of the currency in
India. The staggering implication for the informal sector in the Indian economy which
employs close to 94% of the labour force was disastrous. The daily wage earners,
farmers, small traders and small businessmen were left helpless clutching the dud 500
and 1000 rupee notes in their hands. Even the economist Lawrence Summers, author
of the infamous World Bank Memo was driven to write… “Most free societies would
rather let several criminals go free than convict an innocent man. In the same way,
for the government to expropriate from even a few innocent victims who, for one
reason or another, do not manage to convert their money is highly problematic….”
Key words: financial system, denomination, demonetization
Introduction: living only in the digital world. Surely the
worthies in that institution have some
The RBI had its own Marie Antoinette idea of the conditions under which
moment a few days later in a press banking and money exchange occur for
release of November 12, 2016.It said most Indians? For some families for
“public are encouraged to switch over to whom getting a square meal was a luxury
alternative modes of payment, such as the mocking advice of the Modi
pre-paid cards, RuPay/Credit/Debit cards, government was if you don’t have food
mobile banking, internet banking. All eat plastic cards.
those for whom banking accounts under
Jan Dhan Yojana are opened and cards ATM machines became cashless and long
are issued are urged to put them to use. queues formed outside banks to exchange
Such usage will alleviate the pressure on the old notes for new ones. From this
the physical currency and also enhance inane compliance ritual of standing in
the experience of living in the digital endless queues outside banks, heart
world.” Economist Jayati Ghosh was wrenching stories emerged. A number of
aghast and wrote... “Statements like senior citizens died of exhaustion.
this make one wonder whether the RBI is Children and the elderly who were sick
www.ijar.org.in 11
died as they were refused admission to one has to completely shut down the
hospitals as they could not pay with old banks.
notes. Farmers could not buy seeds for
the sowing season as they did not have Firstly, all black money is not held as
the new currency to pay for it. For the hoarded cash. At best it constitutes 6% of
first time in post independent India the the black money. Bulk of it is spirited
financial system went into a lockdown away in Tax free havens like Switzerland
mode. and Panama from there it is invested
through mail box corporations in equity,
Shock Therapy: The collective real estate and bullion all over the
punishment on India’s poor and the world. It is a matter of utmost irony
informal sector where millions eke out a that a number of the celebrities who
miserable livelihood was severe as close endorsed the demonetization scheme
to 50 percent of them do not have bank figure in the list of names of people who
accounts and formal identification papers used the illegal offshore accounts in
to open bank accounts. However this places like Panama.
draconian measure was justified by the
NDA government of Modi as a patriotic “In an elaborate charade called transfer
duty to eradicate the twin evils of black pricing, corporations with their army of
money and counterfeit currency used by accountants and lawyers create a maze of
terrorists. shell companies (i.e. companies which
have no real business activity) in Tax
Tall and ludicrous claims were made by Havens which have secrecy laws
the BJP ministers that terrorism was concealing the ownership and the source
dealt a death blow by the surgical strike of the funds. The tax strategy is fairly
of knocking out 86% of the Indian simple: book the profits in shell
currency. Critics of demonetisation were companies located in tax havens having
shouted down as unpatriotic with the low or nil rates of tax and show reduced
passionate fervor of McCarthyism. or better still zero earnings in countries
Donning the mantle of a messianic which have higher rates of tax.”
prophet PM Modi exhorted the poorest of
the poor to move towards a cashless Then there is another game called capital
society. round tripping played by big corporate
businesses which bring back their black
Challenges: Cutting beneath the money through bogus companies which
masochistic hysteria of pain and national have no real business. These funds are
sacrifice whipped up by the propaganda invested in the economy as Foreign
machine of corporate media and the Modi Direct Investment. There have been no
government, one discerns fundamental efforts by the Government to clamp down
flaws in the argument that on these activities. At the Mahesh Buch
demonetization eradicates black money Memorial Lecture at Bhopal on October
and counterfeit currency. It is as absurd 5, 2016 former Reserve Bank of India
as arguing that to prevent bank robberies governor Y.V. Reddy said “there is a
subsisting interest in influential policy
www.ijar.org.in 12
circles to keep a window for round counterfeiting instead of firebombing the

tripping open...” currency.
The Indian stock market is also rigged There is no gainsaying that by rendering
through the route called the 86% of the currency as paper trash and
Participatory note where the black carpet bombing the informal sector
money from Indian origin is parked in dependant on cash, the demonetizing of
Mauritius in a shell company from which currency can best be described as a
there is flow back of black money as quixotic venture. Or is it a dress
investment in the stock market causing rehearsal for something more ominous in
inflated share prices. It is no secret that the form of draconian capital controls
demonetization is a wrong policy preventing physical withdrawal of cash
instrument to handle such sophisticated from banks? Is the lack of availability of
chicaneries. It is like slicing a loaf of currency on account of “poor planning”
bread with a hammer. or a manufactured crisis for the
Government to push its agenda for a war
Secondly, the engines of black money are on cash?
left intact especially election campaign
contributions are often accepted in cash Before we discuss this issue we have to
and unaccounted for. The BJP which is take a snapshot of the Indian economy.
now on a moral crusade of eradicating Beneath the rosy headlines of robust
black money has been guilty of accepting GDP growth rates the fact remains that
large sums of unaccounted money as the growth is fueled by expansion of
campaign contributions. Moreover, bribes credit and not incomes from steady job
of government officials and the political growth which in a state of decline. The
class would continue unabated even after top corporate elites have borrowed
demonetization. There are already heavily from public sector banks without
reports that government officials are any hope of paying off the debt. The
taking bribes in freshly printed notes! It public sector banks are groaning under
was reported in the state of Gujarat the weight of corporate loans which may
where Mr. Modi hails from government never be paid. The real estate sector of
officials demanded bribes in freshly the economy is primed up with bank
printed 2000 rupee notes. loans and credit expansion. The stimulus
to the economy is through easy access to
And lastly, counterfeit notes circulating credit for consumer spending. Thus an
in the economy is estimated to be in the illusion of prosperity is maintained on a
region of 400 crores out of a total of mountain of credit.
sixteen lakh crores. In percentage terms
it amounts a mere 0.03% of the entire Crucial Issues:
currency. A sensible policy practiced by
most governments is to gradually phase The crisis point in the Indian economy
out certain notes with certain serial has reached as credit induced asset
numbers to lessen the dangers of bubbles are in imminent danger of
www.ijar.org.in 13
imploding unless there is fresh induction or under the proverbial mattresses. On

of credit into the system. The Indian them the war on cash must be declared to
economy is in a danger of deflationary achieve the big push for credit expansion.
spiral and the credit Ponzi scheme has to There must be a moral crusade against
be maintained through the expansion of physical cash which is hoarded and not
demand of new credit money. But limit to available for the orgy of borrowing and
credit expansion is hitting the proverbial spending. To prise open the cash hoard
road block as there are few lenders and there must be the shock of
few takers of credit as business demonetization and laws against physical
confidence is low and the much lauded withdrawal of cash which ensures that
animal spirits is in short supply. As the physical cash is corralled and
Nicole Foss observes sequestered in the banks for further
credit expansion. The mirage of
“Natural limits for both borrowing and prosperity is maintained by kicking the
lending threaten the capacity to prolong can down the road.
the credit boom any further, meaning
that even if central authorities are However, to nail down the escape hatch
prepared to pay almost any price to do so, for bank customers who may become
it ceases to be possible to kick the can uneasy with deposits not earning any
further down the road. Negative interest interest or worse negative rate of interest
rates and the war on cash are symptoms and withdraw cash physically, it is
of such a limit being reached. As necessary to put in place draconian
confidence evaporates, so does liquidity. capital controls which prevent
This is where we find ourselves at the withdrawals of cash and also prevent the
moment — on the cusp of phase two of messy spectacle of bank runs. Once
the credit crunch, sliding into the same locked in the bank account the depositors
unavoidable constellation of conditions can get a surgical scalping to take care of
we saw in 2008, but on a much larger the messy NPA’s of banks caused by
scale.” profligate lending to corporate elites. The
entire class of savers such as senior
Given the scenario of deflationary spiral citizens, deposit holders belonging to the
and a lull in the credit off take, the access lower middle class would be thrown
to interest free money (bank deposits under the bus.
with zero rate of interest) and worse with
negative rates of interest (where the bank The winners of the demonetization shock
deducts a fee or bank charges from the therapy would be the corporate elites who
deposits made with the bank) become caused the debt crisis for the banks in the
imperative policy push for the coterie of first place. For them the loans would be
financial elites and their political friends written off at the cost of bank customers.
in the government. Following the dictum that every disaster
offers a windfall they would appear once
But the constraint to monetary expansion again as saviours after getting the
is the engendered tribe of savers and the licenses for starting digital banks or
hoards of cash lying dormant in lockers wallets. Here the shell shocked ordinary
www.ijar.org.in 14
people would invest their capital without maximising, cost-minimising, customer-

returns whatsoever for the joy of walking monitoring, control-seeking, behaviour-
cashless in the digital space. It is de predicting commercial bureaucrats” and
rigueur that animal spirits should be tax officials.
rewarded handsomely in the business
friendly environment of NDA Don Quijones at the website “Raging
government. Bullshit” is more blunt when he says...
The demonetization of the currency has ” The reality is a whole lot darker. The
also a shock and awe element to it: the war on cash is being waged for the
shock of losing real money and the awe of exclusive benefit of those who already
being herded in digital pen. Cash carries wield an inordinate amount of power and
a bad odour. Are you using cash because control over the economy and the people
you are engaged in drug trafficking or are that are struggling in it. And they want
you a terrorist wanting to buy arms and more. By slowly, quietly killing cash, they
explosives? Should you be flagged for seek to seize the last remaining thing
suspicious activities for questioning by that offers people a small semblance of
the national security state? privacy, anonymity, and personal
freedom in their increasingly controlled
Conclusion: A part from the searing and surveyed lives. And the way things
stigma that cash is associated with are going, they’ll get it…”
criminality, there is immense pressure on
the denizens of the informal sector to Imprisoned within the narrow confines of
tread the virtuous path to digital- “you this digital panoptic on from which there
pay- we play” pens like Paytm. Also is no exit, we will lose our freedom over
comfortingly called digital wallets they our money. We will no longer have the
offer bleating sheep solace and comfort choice of withdrawing cash from banks
from the ordeal of cash transactions. plagued with bad debts or withdrawing
Once secure in the pay pen the sheep can from irrational credit orgies as the risk of
be burdened with transaction costs which losing our money is too high.
swells the profits of the digital banks and
also the ubiquitous service tax can be Facing the signs of no cash and no exit
imposed by the government which swells we shall be agitated at the first signs of
the coffers of a state hostile to social Financial Meltdown but we shall be
spending. To sum up: pacified by the handlers of the pen. We
1. Every financial transaction can be will be reminded of our patriotic duty to
taxed the state to pay taxes. Ultimately calm
2. Every financial transaction can be will return.
charged a fee
3. Bank runs are eliminated
In this digital pen we shall serve with After all the handlers imbued with the
docility and endure “the stifling hygiene wisdom of Jean Baptiste Colbert the
of the digital panoptic on being French finance minister to King Louis
constructed to serve the needs of profit- XIV know, “The art of taxation consists
www.ijar.org.in 15
in so plucking the goose as to obtain the 8. Who’s powering the War on

largest amount of feathers with the least Cash? http://wolfstreet.com/2016/1
possible amount of hissing.” 0/19/powers-on-forefront-of-war-on-
cash/
References and Notes:
1 Corruption Will Continue, Says

Former US Treasury Secretary
Larry Summers on
Demonetisation http://thewire.in/8
1659/larry-summers-on-
demonetisation-india/
2. The Political Economy of
Demonetising High Value
Notes http://www.thehindu.com/ne
ws/resources/the-political-economy-
of-demonetising-high-value-
notes/article9348002.ece
3. C R Sridhar Inside the Spiders Web:
Tax havens and Dirty
Money http://www.opednews.com/a
rticles/Inside-the-Spiders-Web-Ta-
by-C-R-Sridhar-
Corporations_Economy_Globalizati
on_Money-Power-Psychopaths-
141028-742.html
4. Former RBI Governor Y.V. Reddy on
Black Money, Tax Evasion and
Lawlessness in India
http://thewire.in/82333/yv-reddy-speech-
black-money/
5. Negative Interest Rates and the War
on Cash part 1- Nicole Foss-
Automatic Earth
6. RBI grants “in-principle” approval to
11 Applicants for Payments
Banks https://rbi.org.in/scripts/BS_
PressReleaseDisplay.aspx?prid=34
754
7. The War on Cash: Officially
Sanctioned
Theft https://www.peakprosperity.
com/blog/93050/war-cash-officially-
sanctioned-theft
www.ijar.org.in 16
Demonetization in India
V. Vijay Kumar
Lecturer in Commerce
SIR C R Reddy Autonomous College , Eluru
Abstract: Demonetization is the act of stripping a currency unit of its status as legal
tender. Demonetization is necessary whenever there is a change of national currency.
With the older 500 and 1000 Rupees notes being scrapped, until the new 500 and 2000
Rupees notes get widely circulated in the market, money supply is expected to reduce
in the short run. To the extent that black money (which is not counterfeit) does not re-
enter the system, reserve money and hence money supply will decrease permanently.
However gradually as the new notes get circulated in the market and the mismatch
gets corrected, money supply will pick up.
Key words: demonetization, new currency unit, money supply
Introduction medium business enterprises across India

that has been hit hard by
Demonetization is the act of stripping the demonetization of high-value notes.
a currency unit of its status as legal
tender. Demonetization is necessary A similar situation prevails with the
whenever there is a change of national world-renowned. “Our trade has seen a
currency. The old unit of currency must sharp decline of almost 60-70 per cent as
be retired and replaced with a new our quilts were bought mainly by tourists
currency unit. There is virtually no — and now they do not have cash,” said a
visible opposition to the enforced ban, for quilt trader in the city. Common people
any politician who opposes the ban risks are ready to stand in long queues for the
having his own misdeeds — and they are growth of our country and to curb the
all corrupt — brought to the public space black money
by MODI A true demagogue, MODI , has
already convinced the gullible, salaried
middle class that anyone who opposes the When we run out of cash, forcibly it
ban is hiding corrupt money and is anti- drives us to pay through our credit/debit
national. Alarmed by the drastic fall in cards. When usage of cards increases;
trade, commerce and business activities cash exchanges reduces further. It founds
by around 75 percent post- to be true, When a reputed E-Commerce
demonetization, traders in Maharashtra giant records unprecedented growth in
have demanded various types of retail transactions following
concessions to help tide over losses since demonetization.
the Rs 500 and Rs 1,000 notes were
demonetized on November 8 in an
ostensible bid to control black money and Parallel Black Economy: This is the most
weed out fake currencies. A huge wail of obvious one. India has a huge parallel
distress is being heard from small and black economy which the government
www.ijar.org.in 17
can’t tax and which forms an island away Money In Circulation So This Will Take
from the main economy. Most Of The Money Out Hence Will
Impact Badly The Terrorist
Organization.
Nobody knows the exact figure but it has

Funding: Funding For Arms,
been estimated to be in the range tens of
Smuggling, Terrorism Will Take A Blow
thousands of CRORES of Rupees in the
Since All The Money Will Get Back To
past to LAKHS CRORES today. You can
Bank And From There It Is Easy To
be sure that a good chunk of this will
Check And The Fake Currency Will Be
come into the main economy.
Discounted.
Make the corrupt lose their money: Well

this is for the first time that the corrupt Security Features: Features Like “ See
are losing their money in large numbers. Through Register”, “Latent Image With
Huge sacks of money are being burnt, Denominational Numeral” Will Made It
thrown or caught. Some of it is also Hard To Fake Currency. So It Will
percolating down as commission for the Impact The Money That Was Coming
poor who are converting the old money Through Bangladesh , Nepal Etc For
into new, so it’s an unexpected benefit for Funding Terrorist Activities In J&K.
them too. You may remember that earlier
also the recent tax amnesty scheme Parallel Economy: Black Money
yielded tens of thousands of CRORE Transactions Would Have Negative
Rupees. The hoarders of black money will Affects As Now They Had To Go Back To
always be wary in the future. Bank For Exchange Of Notes.
An elevation of uncertainty is always a
negative for equity markets. As such, Misc: Other Sectors Like Drug
markets have reacted negatively to this Trafficking, Illegal Trade And The Money
latest news though part of this may be Use In It, Funding Of Election And
attributed to the US election results. Involvement Of Various Terrorist Groups
Markets will recover in the medium-term Will Be Effected Badly. The Money
as the uncertainty eases out. While there Stored By Terrorist In Big Currency Has
exists a possibility of a broad based Become A Piece Of Paper Now.
decline, there will be some sectors (with So Monetization Comes With Immense
linkages to the unorganised economy) Benefit But Should Also Consider About
that would feel the brunt while some Informal Sector Where Most Of The
niche technology sectors related to fin- Payment Is In Cash Only. Hence We Can
tech and e-commerce could gain. The Say The Move Is Good But Utilitarian
long-term outlook remains positive. Principle Would Have Made It Further
Better.
Objectives: Counterfeit Currency: 500

And 1000rs Note Constitute 80% Of The
www.ijar.org.in 18
Effect on parallel economy: The removal Effect on Prices

of these 500 and 1000 notes and
replacement of the same with new 500 Price level is expected to be lowered due
and 2000 Rupee Notes is expected to - to moderation from demand side. This
remove black money from the economy as demand driven fall in prices could be
they will be blocked since the owners will understood as follows:
not be in a position to deposit the same in
the banks, - Temporarily stall the  Consumer goods: Prices are
circulation of large volume of counterfeit expected to fall only marginally due to
currency and - curb the funding for anti- moderation in demand as use of cards
social elements like smuggling, terrorism, and cheques would compensate for some
espionage, etc. purchases.
 Real Estate and Property: Prices
Effect on Money Supply: With the older in this sector are largely expected to fall,
500 and 1000 Rupees notes being especially for sales of properties where
scrapped, until the new 500 and 2000 major part of the transaction is cash
Rupees notes get widely circulated in the based, rather than based on banks
market, money supply is expected to transfer or cheque transactions. In the
reduce in the short run. To the extent medium term, however the prices in this
that black money (which is not sector could regain some levels as
counterfeit) does not re-enter the system, developers rebalance their prices
reserve money and hence money supply (probably charging more on cheque
will decrease permanently. However payment).
gradually as the new notes get circulated
in the market and the mismatch gets Effect on various economic entities
corrected, money supply will pick up.
With cash transaction lowering in the
short run, until the new notes are spread
widely into circulation, certain sections of
Effect on Demand: The overall demand is the society could face short term
expected to be affected to an extent. The disruptions in facilitation of their
demand in following areas is to be transactions. These sections are:
impacted particularly:
 Agriculture and related sector
 Consumer goods  Small traders
 Real Estate and Property  SME
 Gold and luxury goods  Services Sector
 Automobiles (only to a  Households
certain limit)  Political Parties
All these mentioned sectors are expected  Professionals like doctor,
to face certain moderation in demand carpenter, utility service providers,
from the consumer side, owing to the etc.
significant amount of cash transactions  Retail outlets
involved in these sectors.
www.ijar.org.in 19
The nature, frequency and amounts of government to track people who are
the commercial transactions involved having large sums of unaccounted cash or
with these sections of the economy cash on which no income tax has been
necessitate cash transactions on more paid because many people who earn black
frequent basis. Thus, these segments are money keep that money as cash in their
expected to have the most significant houses or in some secret place which is
impact post this demonetization process very difficult to find and when
and the introduction of new notes in demonetization happens all that cash is
circulation. of no value and such people have two
options one is to deposit the money in
Effect on GDP bank accounts and pay taxes on such
amount and second option is to let the
The GDP formation could be impacted by value of that cash reduced to zero.
this measure, with reduction in the
consumption demand. However with the  People disclosing their income by
recent rise in festival demand is expected depositing money in their bank accounts
to offset this fall in overall impact. government gets a good amount of tax
Moreover, this expected impact on GDP revenue which can be used by the
may not be significant as some of this government towards the betterment of
demand will only be deferred and re- society by providing good infrastructure,
enter the stream once the cash situation hospitals, educational institutions, roads
becomes normal. and many facilities for poor and needy
sections of society.
Effect on Banks
As directed by the Government, the 500 Disadvantages of Demonetization

and 1000 Rupee notes which now cease to
be legal tender are to be deposited or
exchanged in banks (subject to certain  Disadvantage of demonetization
limits). This will automatically lead to is that once people in the country gets to
more amounts being deposited in Savings know about it than initially for few days
and Current Account of commercial there is chaos and frenzy among public as
banks. This in turn will enhance the everybody wants to get rid of
liquidity position of the banks, which can demonetized notes which in turn
be utilized further for lending purposes. sometimes can lead to law and order
However, to the extent that households problem and chaotic situation especially
have held on to these funds for in banks and ATMS which are the only
emergency purposes, there would be medium to change the old currency units
withdrawals at the second stage. to new currency units.
 Another disadvantage is that

Advantages of Demonetization
destruction of old currency units and
printing of new currency new units
 The biggest advantage of
involve costs which has to be borne by
demonetization is that it helps the
the government and if the costs are
www.ijar.org.in 20
higher than benefits then there is no use References:

of demonetization. The Political Economy of Demonetising
High Value
 As one can see from the above Notes http://www.thehindu.com/news/res
that demonetization has both advantages ources/the-political-economy-of-
and disadvantages and it is up to the demonetising-high-value-
government to see and analyze all the notes/article9348002.ece
pros and cons and then decide whether it
is beneficial to go ahead with C R Sridhar Inside the Spiders Web: Tax
demonetization or not. havens and Dirty
Money http://www.opednews.com/article
s/Inside-the-Spiders-Web-Ta-by-C-R-
Conclusion Sridhar-
Corporations_Economy_Globalization_M
The idea of demonetization is good but it oney-Power-Psychopaths-141028-
has to be taken into consideration that 742.html
most of the black money is kept in the
form of land, buildings or gold or kept Former RBI Governor Y.V. Reddy on
abroad. What is in cash constitutes only Black Money, Tax Evasion and
4% of the total amount of black money on Lawlessness in India
which taxes are not being paid. Out of http://thewire.in/82333/yv-reddy-speech-
this, a lot of money is in circulation in black-money/
everyday transaction like if someone is
building a house; the bill is not paid Negative Interest Rates and the War on
through banks for sand, bricks etc. This Cash part 1- Nicole Foss- Automatic
money goes into the other systems Earth
though it has been drawn from bank.
These things will come under control RBI grants “in-principle” approval to 11
with this step. Applicants for Payments
Small farmers, sellers, merchants, daily Banks https://rbi.org.in/scripts/BS_Press
wage labourers and traders are ReleaseDisplay.aspx?prid=34754
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 bolster the image
of the Prime Minister as he has been
unable to deliver on GDP growth,
inflation and bringing the black money
from abroad.
www.ijar.org.in 21
Making India a cashless economy

Dr.U.Madhuri, Lecturer, Department of Commerce, D.N.R College(A), BVRM
D.Srinivasa Raju, Lecturer, Department of Commerce, D.N.R College(A), BVRM
P.Naga Veni, Lecturer, Department of Commerce, D.N.R College (A), BVRM
Abstract: The government is working at various levels to reduce the dependence on

cash Even as ordinary citizens queue up for cash and economists are busy estimating
the extent to which economic growth will be hit because of the ongoing drive to replace
high-value banknotes, there has been a lot of discussion on whether the government
can use the current situation to push India towards a cashless future. The government
will have to create conditions—not necessarily by creating cash shortages—to push
cashless transactions to a threshold level after which the network effect will take over.
India may not become a cashless economy in the foreseeable future, but it needs to
reduce its unusually high dependence on cash to bring in much needed transparency
and efficiency in the system.
Key words: cashless transactions, Cost of Cash, Making India
According to a 2014 study by Tufts
Introduction: University, The Cost of Cash In India,
The government is working at cash operations cost the Reserve Bank of
various levels to reduce the dependence India (RBI) and commercial banks about
on cash Even as ordinary citizens queue Rs21,000 crore annually. Also, a shift
up for cash and economists are busy away from cash will make it more
estimating the extent to which economic difficult for tax evaders to hide their
growth will be hit because of the ongoing income, a substantial benefit in a country
drive to replace high-value banknotes, that is fiscally constrained.
there has been a lot of discussion on
whether the government can use the To be sure, the government on its
current situation to push India towards a part is working at various levels to reduce
cashless future. In his radio address on the dependence on cash. Opening bank
Sunday, Prime Minister Narendra Modi accounts for the unbanked under the and
once again pitched for creating a cashless adoption of direct benefit transfer is part
society. of the overall idea to reduce usage of cash
Government pushes for cash less and increase transparency.
transitions:
Reducing Indian economy’s RBI has also issued licences to
dependence on cash is desirable for a open new-age small finance banks and
variety of reasons. India has one of the payments banks which are expected to
highest cash to gross domestic product give a push to financial inclusion and
ratios in the word, and lubricating bring innovative banking solutions.
economic activity with paper has costs. Things are also falling in place in terms
www.ijar.org.in 22
of technology for India. The recently ongoing currency swap. Third, there is a
launched Unified Payments Interface by general preference for cash transactions
National Payments Corporation of India in India. Merchants prefer not to keep
makes digital transactions as simple as records in order to avoid paying taxes and
sending a text message. buyers find cash payments more
convenient. Although cashless
So, will the exercise to exchange transactions have gone up in recent
currency notes and the ongoing currency times, a meaningful transition will
crunch be a decisive factor in making depend on a number of things such as
India a truly cashless economy? Nandan awareness, technological developments
Nilekani, in an interview to this and government intervention. For
newspaper, termed this as “a defining instance, mobile wallets have seen
point in India moving to cashless”. notable traction, and it is possible that a
Shortage of cash has significantly large number of Indians will move
increased the use of digital modes of straight from cash to mobile wallets. A
payment, but the actual shift will only be study by Boston Consulting Group and
visible after the cash crunch eases. It is Google in July noted that wallet users
possible that a section of people which have already surpassed the number of
has used electronic mode of payment for mobile banking users and are three times
the first time due to the cash crunch will the number of credit card users.
continue to transact through this
medium, but there are still a number of However, as noted above, a
hurdles in making India a cashless material transition to a cashless economy
economy. will depend on a number of factors. First,
the availability and quality of telecom
First, a large part of the network will play an important role.
population is still outside the banking net Presently, people face difficulties in
and not in a position to reduce its making electronic payments even in
dependence on cash. According to a 2015 metro cities because of poor network.
report by PricewaterhouseCoopers, Second, as one of the biggest beneficiaries
India’s unbanked population was at 233 of this transition, banks and related
million. Even for people with access to service providers will have to constantly
banking, the ability to use their debit or invest in technology in order to improve
credit card is limited because there are security and ease of transaction. People
only about 1.46 million points of sale will only shift when it’s easier, certain
which accept payments through cards. and safe to make cashless transactions.
Third, the government will also need to
Second, about 90% of the play its part. It will have to find ways to
workforce, which produces nearly half of incentivize cashless transactions and
the output in the country, works in the discourage cash payments.
unorganized sector. It will not be easy for Implementation of the goods and services
the informal sector to become cashless, tax, for example, should encourage
and this part of the economy is likely to businesses to go cashless. Government
be affected the most because of the should also use this opportunity to
www.ijar.org.in 23
revamp the tax administration, as more

than taxes, small businesses fear tax
inspectors.
Conclusions:
The government will have to

create conditions—not necessarily by
creating cash shortages—to push cashless
transactions to a threshold level after
which the network effect will take over.
India may not become a cashless economy
in the foreseeable future, but it needs to
reduce its unusually high dependence on
cash to bring in much needed
transparency and efficiency in the
system.
References:
www.google.com
www.hinduarticles.com
www.weekipieda.com
www.ijar.org.in 24
Anil Bokil, Chanakya for the proposed new monetary policy

K.A.S.P.Rama Raju & Ch.Jhansi Lakshmi, Senior Faculty, P.G. Courses,
D.N.R. College, Bhimavaram
Abtract: The day when currency compression is completed and `50 is the highest
denomination in force, all currency money can be assumed to have come back into the
system,” Thereafter, all bank transactions would yield ‘bank transaction tax’ and the
government would receive revenue in continuously. The effects of these steps would
need to be carefully monitored and fine-tuning action would have to be taken as and
where required, Bokil warns. Tools of monetary governance would have to be
judiciously used to ensure inflation is kept under control.
Key words: inspiration, achievement, currency compression
Introduction and presented their project report to the
local cooperative bank.
The son of retired teachers from Latur “It gave credit in the Rs. 50,000
city in Marathawada region, infamous for to Rs. 2 lakh range,” Bokil says. Within
hundreds of distressed farmers’ suicides, two years, state-owned Bank of
Bokil comes across as a fully possessed Maharashtra and Bank of Hyderabad also
man on his mission. He lives on Rs. 3,500 lent funds, from which Bokil purchased a
he gets from his 80-year-old retired 2-acre plot from Maharashtra Industrial
teacher-mother, who lives with her Development Corporation in Aurangabad
husband in Latur. He is a sanyasi of and set up an industrial cluster model. In
sorts, as he has renounced the world, five years, it became so successful that
shut his bank account, lives on the Bangladeshi Muhammad Yunus, a social
goodwill of people and has devoted his life entrepreneur and banker — and recipient
for a new economic order in the country, of the Nobel Peace Prize for founding the
with a band of about 25 dedicated, like- Grameen Bank and pioneering micro-
minded people he won over during the credit and micro-finance — wanted to
last 16 years. He says he is rich with the replicate it in his country. “A young
goodwill of the people towards his entrepreneur, who set up a foundry unit
mission. He owns nothing. there today owns a BMW, not a small
achievement,” Bokil points out.
His inspiration and achievement:
Looking for solutions through Artha
The turning point in Bokil’s life
Kranti :
came in 1995 when a group of 86
carpenters, welders, blacksmiths, Since 1995, Bokil met many
electricians, etc. who wanted to venture economists and chartered accountants to
into business, were refused credit by a understand why everyone doesn’t have
bank in Aurangabad, Maharashtra. Bokil, access to banks, why they cannot get
who at that time was manufacturing loans or why capital is so expensive. After
import-substitutes for the processing and a deep study with a few like-minded
manufacturing industry, learnt of their people from Aurangabad and Pune, he
plight, studied their case, and prepared
www.ijar.org.in 25
came up with the ArthaKranti strategy in Expected outcome of the mission’s

1999 and invited people to join him. The proposal : Bokil says that on
mission of ArthaKranti Prathisthan, a implementing his proposal, abolition
registered trust, is “an economic of the existing tax system would have
revolution: a way towards Principled, to be done from a single
Prosperous and Peaceful living”. predetermined date. Simultaneously,
the deducting bank transaction tax
Its core five-pronged strategy to from all transactions would
be implemented in toto without any commence.
fundamental changes or dilution is:
1. Withdrawal of existing taxation “Currency notes of denomination
system completely except for higher than Rs. 50 will be phased out in a
customs/import duties. That is, all time-bound manner. All this money will
central, state and local government attract the standard deduction of bank
taxes — direct and indirect. transaction tax and the balance will be
2. Every transaction routed through a treated as legitimate wealth,” Bokil says,
bank will attract certain deduction in adding that regulations governing cash
appropriate percentage as transactions would also come into force.
Transaction Tax, i.e. single point tax
deducted at source (say two per cent). “The magnitude and time of
This deduction is to be effected on revenue generation by this system needs
receiving or credit accounts only, the to be anticipated,” pointing out that
deducted amount is to be credited to initially there would be huge deposits of
different government level like cash of high denomination into banks,
central, state and local (say, 0.7, 0.6 and there would be huge inflows of
and 0.35 per cent respectively), the revenue throughout the phase of
transacting bank will also have a currency compression. “The day when
share (say 0.35 per cent) in the currency compression is completed and
deducted amount as the bank has a `50 is the highest denomination in force,
key role to perform. all currency money can be assumed to
have come back into the system,”
3. Withdrawal of high denomination Thereafter, all bank transactions would
currency. yield ‘bank transaction tax’ and the
4. Cash transaction will not attract any government would receive revenue in
transaction tax. continuously. The effects of these steps
would need to be carefully monitored and
5. Government should make legal fine-tuning action would have to be taken
provisions to restrict cash transaction as and where required, Bokil warns.
up to a certain limit, say Rs. 2,000. Tools of monetary governance would
This means, cash transactions above have to be judiciously used to ensure
this limit will not enjoy any legal inflation is kept under control.
protection.
www.ijar.org.in 26
Bokil’s views on demonetisation : “We

neither welcome nor reject Modi’s
scrapping of the Rs 500 and Rs 1,000
notes on November 8 from our system,”
Bokil says dispassionately. “The Prime
Minister has taken just a part of our five-
point programme to establish a ‘taxless
and less-cash economy’. But the manner
of execution is different from his NGO.
“We want solutions for the economic
system of the country, and not a
punishment,” adding that he accepts the
present demonetisation move in a
positive spirit as a responsible citizen.
“The Prime Minister has started the
process, we are now expecting the rest of
our programme to be adopted,” says
Bokil.
Conclusion:
Honourable Prime Minister

Narendra Modi is determined to
implement the fine tuned version of
Artha Kranti mission. One should pray
Almighty to give enough strength to the
spirit of Modiji to take the banking
services to the unreached, thereby
ensuring economic enrichment of the
Indian rural masses.
References:
‘Demonetisation man’ by Michael

Gonsalves, Sunday Chronicle,
Hyderabad, 4th December 2016 p. 1&2.
www.ijar.org.in 27
Present Status of Black Money in India and the Future

Challenges
K.Satish Kumar & M. A. Aleem, Dept. of English, D.N.R. College(A), Bhimavaram
V. Venkatarao, Dept. of English, C.R. Reddy college (A), Eluru
Dr. K.Ammaji, HOD of commerce, B.G.B.S. Women’s College, Narsapur
Abstract: There are many reasons behind it but the basic reason is the “Use of black
money” to a large extent in our country. In Ancient times, the ways to generate money
as well as its usage was very transparent i.e. everyone knew the sources of money and
its application, which may be referred as white money. So, in the past, White Money
was in use but now the colour of Indian money has changed to Black. Before
discussing the use of Black Money one must know what Black Money is.
Key words: Indian money, White Money, Black Money
Introduction developed country very soon, but sadly it

didn’t happen. There are many reasons
“Black Money is so much a part of our behind it but the basic reason is the “Use
white economy, a tumour in the centre of of black money” to a large extent in our
the brain - try to remove it and you kill country. In Ancient times, the ways to
the patient.” ― RohintonMistry generate money as well as its usage was
very transparent i.e. everyone knew the
We know that in Ancient times
sources of money and its application,
our country, India, was popularly known
which may be referred as white money.
as „Golden Bird‟ because people of our
So, in the past, White Money was in use
country were more civilized in terms of
but now the colour of Indian money has
co-ordination and co-operation, worked
changed to Black. Before discussing the
in a very enthusiastic & honest manner
use of Black Money one must know what
so as to provide fruits of their work to
Black Money is.
everyone without any selfishness and/or
jealousy i.e. they were not concerned Review of Literature
about their earnings as compared to
others. They focused on the welfare of the SukantaSarkar (2010) conducted
nation as a whole. So it could be predicted a study on the parallel economy in India:
at that time that our country will become Causes, impacts & government initiatives
one of the greatest economies in the in which he focused on the existence of
world and be at the top as regards causes and impacts of Black Money in
www.ijar.org.in 28
India. According to him, the main reason country up to a large extent it is not
behind the generation of Black Money is possible for us to define it in a very clear
the Indian Political System i.e Indian terms .Different people defines it in
govt. just focused on making committees different ways with different terms such
rather than to implement it.So,he as unaccounted income, black income,
concluded that laws should be black wealth, underground wealth, or at
implemented properly to control Black economylevel it is known as black
Money in our economy. economy, parallel economy, shadow
economy, and unofficial economy.
CA Lalit Mohan Agarwal (2012) Therefore, all in all these terms usually
edited the White Paper on Black Money refer to an income on which the taxes are
studied that violation of laws by central imposed by government but have not
and state govt.leads to criminal activities been paid.
which in turn leads to generation of
Black Money in Indian economy. Black Money refers to that money
which is not fully legitimate property of
Arpit Guru and the owner. It is normally received in
ShrutiKahanijow(2010) researched on Is terms of cash from economic
Black Money an income? Need for activities.i.e.Individuals who received it
amendment in DTAA&ITEAanalysed must hide it, spend it on for the
that Black Money is spread everywhere in fulfillment of their needs.
India up to a large extent which
continuously stashed towards abroad in a National Institute of Public
very large amount. They also studied how Finance and Policy (NIPFP) defines-
Black Money had caused menaces in our “Black Money is the aggregate of incomes
economy and in what ways it is used. which are taxable but not reported to
authorities.” Apart from this, the term
Vijay Kumar Singh presented a Black Money would also include legal
paper on controlling money laundering in income that is concealed or hide from
India-problems & perspectives.To control public authorities:
Black Money in India is a very difficult
task mainly due to the poor To evade payment of taxes which
implementation of laws which lead to includes - income tax, excise duty, sales
sophisticated crime in the economy and tax, stamp duty, etc ;
thus generates black money.
To evade payment of other
What is Black Money? governmental or statutory contributions;
We know that in the present To evade compliance with the

times, Black Money is used in our provisions of various industrial laws
www.ijar.org.in 29
which exists such as the Industrial

Dispute Act 1947, Minimum Wages Act
1948, Payment of Bonus Act 1965, Apart from this, in India Black
Money persists due to the existence of
Factories Act 1948; Demonstration Effect i.e. the way to live
a life in terms of others’ point of view or
To evade compliance with other laws we say to live a life by looking at others’
and administrative procedures applicable livelihood. People of India are very much
in India. affected by the lifestyles of other people
of the society who are maintaining
Generation of Black Money :
considerable high status, and in turn
It is generated through twomain want to be like them. For this, they want
activities or means – Illegal means and to generate money by any means.
Legal means Therefore to fulfil these desires or to
maintain their status in society they force
It is earned through Illegal means such themselves to generate and use black
as drug trafficking, weapons trading, money.
terrorism, selling counterfeit or stolen
goods etc. Another reason for the existence
of Black Money is the presence of
By Corruption which includes bribe Corruption in every field of the economy.
given to and by public officers. For example,
Hiding income through Legal activities 1. If any common man wants to get a job
i.e. not reported to public authorities or in any public institution like a bank, or
we say to the govt.for the purpose to any transport or educational institution
evade taxes. etc., then he will have to pay adequate
consideration to the authority of that
Even commercial classes generate
respective institution i.e. bribeshave to
Black Money through Trade.
be paid. For this, common man is forced
Black Money in India to generate money by illegal means. In
this way, we can say that, both, the
Almost every sector in public authority and a common man
our country generates and uses Black generate and use Black Money in a
Money for its survival in the market, considerable manner.
society....etc. It includes Real estate,
financial market, bullion &jewellery 2. Likewise, if a student wants to get
market, non-profit organisations, admission in any big and reputed
external trade and so on. institution, he will have to pay some
www.ijar.org.in 30
extra money other than fees in the form

of Donations, etc
Country Money Deposited
3. Also in some Educational institutions,
more fees are charged for examination INDIA $ 1,456 billion
forms or for practicals which is
RUSSIA $ 470 billion
considerably higher than the quoted fees.
In this way, Black Money is generated UK $ 390 billion
and used in big and reputed educational
institutions. UKRAINE $ 100 billion
Another aspect of Black Money is CHINA $ 96 billion

very astonishing for society from which
significant amount of Black Money is
generated and used and that is the From the above analysis it is
spirituality. The cases of Nirmal Baba clear that India has a Top Position in the
RadheMaa, etc., are good examples. case of Black Money deposits.
Another sector which generates
and uses significant proportion of Black
Money is the Indian Political System. Another aspect through which
significant amount of black money is
The Leaders/Ministers of this generated is by Manipulation of
system focus only on their personal Accounts in which the accounts are
growth instead of the economic manipulated tomisrepresent the
development of the country. At the time authorities which help to generates large
of elections, they spend a significant amount to black money.
amount of money to win or, as is said, to
get a chair and after winning they just Effects of Black Money
focus on earning large amounts of
money by taking bribes, even for small It leads to increase in inequalities of
activities. Such Black Money is either income which widens the gap between
deposited in foreign banks likeSWISS the rich and the poor people of our
BANK or invested in Real-Estate in other country.
countries like Dubai etc. According to 3rd
It leads to wasteful consumption in
report published in May, 2012
our economy i.e. money which should be
SWISS NATIONAL BANK estimates used for investment but wasted at
total deposits as below: consumption.
www.ijar.org.in 31
It leads to decrease in working India to bring back money from abroad

efficiency of people as they get used to .However; it is a goal that cannot be
earn Black Money by easy means and achieved by government action alone as
they start preferring leisure to work. it requires co-ordination and co-
operation of other countries as well as
Future Challenges of Black Money authorities to achieve this.
Above we have studied a Special Investigation Teams:-
comprehensive analysis of factors leading
to generation of Black Money in our In order to control and curb
country. At the same time, it is not prevalence of Black Money in India,
possible to curb, control and finally govt.has makes a team which is known as
prevent the generation of Black Money in Special Investigation Teams to
near future as well as repatriation of investigate on the issue of black money.
black money. It is possible only if a So, at present in India, it works under
comprehensive mix of well-defined the chairmanship of retired SC Judge B.
strategies and policies is pursued with P. Jeevan Reddy. But its success
patience and perseverance by the central depends upon the team members of
and state government and put into committee as it requires a significant
practice in a very co-ordinated manner. effort to work on this issue.
There are some challenges which So, government must take quick
might be faced by the government as action in setting SITs, then potential
explained below:- Black Money holder will definitely
reduce. It is big challenge in front of
To control criminal activities government to properly implement the
special SIT which helps to bring back
As we know, in country like India
stashed Black Money in the country.
there are many illegal activities and
crimes that lead to generation of Less formation of Committees:
significant amount of Black Money
incomes. It includes counter fiet We think this is one of the
currency, drug trafficking etc. Each of biggest challenges which are going to be
them is a major source of unaccounted or faced byIndian govt. to form fewer
black money. committees. i.e. Ministers in Indian
Political System are just focussing on
Repatriation of Black Money stashed setting up new committees evenfor a
abroad:- very small issue in order to rot the issues
i.e. our politicians only know how to
We think it is the one of the
delay the process of action and
biggest challenge of our government of
www.ijar.org.in 32
thereafter, making lame excuses rather To Strengthen the Social Values:

than providing solutions for a problem
i.e. Corruption and black money. We think to control the
generation of Black Money in our
Reduction in the Cost of Compliance and economy requires a combined effort by all
citizens of a country. Or, it needs to be
Administration: fought by every citizen at various levels
which includes Political, Economical and
As we know that the transaction
administrative levels etc. At ethical level,
cost associated with compliance and
we have to reinforce our moral education
Administration is one of the major
in the school curriculum particularly
disincentives for generation of Black
highlighting the ills of Black Money
Money in a very large amount. It
which in turns leads to tax evasion. At
includes cost of compliance,
economic level, there must be a
administration, maintance of books of
reduction in wasteful consumption or
accounts etc. which is being borne by the
expenditure, and to encourage savings,
citizens of our country, or we say tax
frugality and simplicity which in turn
payers who are in turn compelled to
reduces the gap between the rich and the
evade taxes. In this way Black Money is
poor.
being generated in our country.
Therefore it must be reduced which again So, to strengthen the value
proves to be a challenge for the system of our country at individual level
Government of our economy. is proving to be a challenge for an
economy.
To control corruption:
Recommendations & Suggestions
As all know that there is only one
major reason behind the generation of After studying the concept of
Black Money, and that is – corruption. It Black Money & its various sources of
is perceived as one of the biggest generation in our country, it’s time for
challenges faced by our country which is some Recommendations & Suggestions
almost impossible to counter. As we study that may help to control Black Money in
above all the factor that leads to India. These are as follows:
generation of Black Money are directly
related to corruption. So to control Black Our Government should make its
Money. It is essential to curb and control foremost objective to control Black
corruption which requires multipronged Money in our country.
strategies with assigned the
responsibility to prevent it. E-Governance should be started by
the Government i.e. the use of
www.ijar.org.in 33
technology be made as far as possible like order to address the issue of Black Money
E-Registration with Revenue Authorities, and corruption in public life.
E-Filing of Returns, etc. because more
the involvement of human beings, moreis There is no doubt that existence
involvement of corruption, ultimately of Black Money has a significant impact
generating Black Money. on social, economic and political levels of
our lives which has a significant effect
Black Money revolves around in cash on the institutions of governance and
only so the Government should put conduct of public policy in the country.
restriction on cash transactions wherever
possible and instead should increase the References:
use of Plastic Money like Debit Cards, Currentaffairs.appsc.blogspot.in/2012/05
Credit Cards, etc. and by other such white_paper_on_black_money_a_few_sug
means. gestions_should_be_dropp/
Agriculture income should be taxed for Economictimes.indiatimes.com/opinion/bl

those who have both the agricultural as ackmoney_rerouted_intoindia_via_realest
well as non-agricultural income. ate_deals_articles/13386465/
The Government should not give

absolute power of work to any one www.financialexpress.com/news/columns
person as it creates monopoly and _black_money_white_paper/957949/5_jun
instead should segregate the work among e_2012/
many persons. fimmin.nic.in/reports/whitepaper_blackm
oney/2012.pdf.
All the aspects of its generation should
be looked into and stopped. www.indianexpress.com/new/white_paper
_on_black_money_soon_no_mps_in_list_o
Competitive bids should be motivated. f_evaders_pranab/888048
Conclusion www.moneylife.in/article/white_paper_on
_black_money_hide_and_i_cant_see_gam
This paper presents the different e/25883.html
aspects of Black Money and its www.studymode.com/subjects/corruption
relationship with policy and s_and_black_money_page3.html
administrative measures in our country.
It also reflects the policy and strategies
that the Government has been pursuing www.articlesnatch.com
in the context of recent initiatives, or www.google.com
need to take up in the near future, in www.msn.com
www.wikipedia.com
www.ijar.org.in 34
www.wisegeek.com bharatkalyan97.blogspot.in/2012/05/junk
_paper_on_rs_24_lakh_crore_black.html.
Gupta, S.B. (1982), Monetary
Economics-Institutions, Theory & Policy, www.swamyassociates.in/swamyuserfiles/
S.Chand and Company, New Delhi. file/may%202012/editorial_blackmoney.p
Ahuja, R. (2007). “Social Problems in
df
India” (2nd Ed). Jaipur: Rawat
n.wikipedia.org/wiki/Indian_black_money
Publications.
Nafees.A.Khan, P.T.Chaudhary, "Black
http://www.bjp.org/images/pdf/feb_08_bjp
Money: Its Impact on the Indian
_task_force_report_ii.pdf.Indian.bla
Economy," Tax Reforms in India (Ed.),
Srinawas Publications, Jaipur,pp. 150- ckmoney Abroad a 2008 report by BJP
155,2003.
SukantaSarkar (2010). “The parallel

economy in India: Causes, impacts &
government initiatives”. Economic article.wn.com/view/2012/05/26/white_pa
Journal of Development Issues, Volume per_on_black_money_a_few_suggest
11-12 no.(1-2) p.124-134.
ions_should_be_dropp/
Vijay Kumar Singh, (January 2009)

“Controlling money laundering in India –
problems & perspectives” To be
presented at the 11th Annual Conference
on Money and Finance in
the Indian Economy- At the Indira

Gandhi Institute of Development
Research
CALalit Mohan Agarwal(2012), edit.

“White Paper On Black Money”, Journal
of Securities Academy & faculty for e-
education, vol.72.
businesstoday.intoday.in/story/white_pap
er_on_black_money_features/1/185177.ht
ml_24_jan_2012.
www.ijar.org.in 35
Pros & Cons of Demonetization of Big Currency Notes

Mandru V S Prasad, D.N.R.College, Bhimavaram, W.G.Dt., A.P. India-534202
Abstract: Corruption and black money are the major obstacles in our country. It is
weakening the efforts to remove poverty. Our country is rapidly increasing in terms of
growth and we are in No.1 position in terms of growth but we are ranked 76 in Global
Corruption Perception ranking. It clearly shows how corruption and black money have
spread their tentacles. By replacing all the Rs.500 and Rs.1000 denomination notes, as
ordered by the government, could cost the RBI at least Rs.12000 crore. It will be very
difficult for half of the population who are not well versed with the card transactions.
The major problem is that big fishes will be left out whose black money is in the form
of foreign currency, gold and property and stashed in tax havens.
Key words: denomination, Global Corruption, gold and property
Introduction to sponsor terror-this was proven many a

times.
It is a transformational decision taken by
the government to ban Rs.500 and Corruption and black money are the
Rs.1000 notes from circulation in the major obstacles in our country. It is
market. The decision was taken to weakening the efforts to remove poverty.
minimise the black money and Our country is rapidly increasing in
corruption. The RBI will be issuing terms of growth and we are in No.1
Rs.500 and Rs.2000 notes from today position in terms of growth but we are
onwards. They have released a statement ranked 76 in Global Corruption
by saying that all the Rs.500 and Rs.1000 Perception ranking. It clearly shows how
notes are to be deposited at nearby banks corruption and black money have spread
or post-offices. This will be a regular their tentacles.
currency circulation all throughout India.
All those people who are panicked with Impacts of Demonetization
this move by the government need not
worry at all as the government has Inflation : It will cause deflation in the
assured that ‘Your money will be yours. market as people who have earned money
You will not lose anything so there is no through illegal ways would be afraid to
point in being scared. There will be no declare the money as they may be
restrictions on non-cash payments by prosecuted by the Income tax department
cheques, demand draft’s, and electronic on the legitimacy of their income.
fund transfer.
Reduction in Monetary Circulation: This
Reasons of Demonetization will lead to reduction of money
circulation in the economy leading to
We knew terrorism is a frightening deflation. Value of money will be
threat, but who funds these terrorists? increasing which we have because the
Our enemies they use the fake currency total money supply will be going down
www.ijar.org.in 36
but the commodities and things available Financial Intelligence Unit will track all
in the market have not gone down. It will details of the transactions from the
lead to inflation slowly but not banks. So now it is really difficult to get
overnight. rid of the black money.
Cash Deposits in Banks: A lot of cash Real estate industry is totally corrupted
which are legally earned will be deposited and now by this stringent decision the
in the banks and now the banks with real estate sector will bring in more
more deposits will be able to do more transparency. By doing it in this way we
lending. will have more credibility, making it
more attractive to the foreign investors
Easy Loans: Loans will become easier and as well as domestic investors.
interest rates may come down. As banks
will have more money so more loans will Disadvantages:
be given out which will increase the
money supply in the market and it will It will cause great inconvenience to
create inflation. common man who will start running to
bank to exchange Rs.500 and Rs.1000
Advantages: notes.
The major decision which is made by the By replacing all the Rs.500 and Rs.1000
government will help us to eradicate denomination notes, as ordered by the
black money, corruption to some extent. government, could cost the RBI at least
Rs.12000 crore.
Due to lack of funding there will be no
arms smuggling and all the terrorist It will be very difficult for half of the
activities will also be choked. population who are not well versed with
the card transactions.
The government has proposed the new
limits on ATM withdrawals being The major problem is that big fishes will
restricted to Rs.2000 per day, withdrawal be left out whose black money is in the
from bank account is Rs.10000 a day and form of foreign currency, gold and
Rs.20000 a week. It indicates that card property and stashed in tax havens.
transactions will slowly replace the cash
transactions in our daily prone activities. Conclusions
Exchange of money in banks can only be The advantages are much dominating
done producing valid identity cards like and it will be in the long term interest of
PAN, aadhar card and electoral card from our country comfortably outweighing the
10 to 24 November with a daily limit of disadvantages. Government need to take
Rs.4000. By doing so it will be easy for all the necessary steps so as to ensure
the government to track the money that there will be a smooth flow of
which is being exchanged in banks. There currency exchanges. It would turn into
is no limit if the amount which we are chaos if government takes no necessary
exchanging is legal amount. steps to circulate money correctly. It will
make a massive change in our economy.
www.ijar.org.in 37
We congratulate the entire government

and those hidden brains of our democracy
that brought this decision.
References
R Sridhar Inside the Spiders Web: Tax

havens and Dirty
Money http://www.opednews.com/article
s/Inside-the-Spiders-Web-Ta-by-C-R-
Sridhar-
Corporations_Economy_Globalization_M
oney-Power-Psychopaths-141028-
742.html
Former RBI Governor Y.V. Reddy on

Black Money, Tax Evasion and
Lawlessness in India
http://thewire.in/82333/yv-reddy-speech-
black-money/
Negative Interest Rates and the War on

Cash part 1- Nicole Foss- Automatic
Earth
RBI grants “in-principle” approval to 11

Applicants for Payments
Banks https://rbi.org.in/scripts/BS_Press
ReleaseDisplay.aspx?prid=34754
www.ijar.org.in 38
Demonetization - 1978, the Present and the Aftermath:

Policies and Challenges
M.L.N.Raju,
Head, Dept. of Economics, D.N.R.College(Autonomous), Bhimavaram
D.Surya Prabha,
Lecturer, P.G.Dept. of Economics, D.N.R.College(Autonomous), Bhimavaram
Abstract: India’s previous experience with demonetisation was when the then
President of India promulgated the High Denomination Bank Notes (Demonetisation)
Ordinance on 16 January 1978, demonetizing the ₹1,000, ₹5,000 and ₹10,000 currency
notes with the objective of eliminating “the possible use of such notes for financing
illegal transactions” (RBI 1977–78: 77). At that time, demonetisation received limited
public attention and had little impact on the daily lives of people. High denomination
notes demonetised then formed just a minuscule fraction—about 0.6%—of the total
currency in circulation. Further, the demonetised notes were of significantly high
value, having little use for common people. The current situation is different; the
demonetised ₹500 and ₹1,000 notes constitute over 85% of total notes in circulation by
value.
Key words: currency, liberalization, Currency Holdings
Introduction Currency Holdings since 2001–02:
Phenomenal changes have taken place in The authorities responded by

the economy during the past decade and reintroducing high denomination notes
a half. There has been considerable for ease of trade and general economic
diversification in favour of services sector activities. Until the introduction of ₹500
in total gross domestic product (GDP), notes in October 1987 and reintroduction
which obviously absorbs higher amounts of ₹1,000 notes in November 2000, ₹50
of currency. Liberal economic policies and ₹100 notes had held sway. In 2000–
included sizeable reductions in marginal 01 about 65% of the notes in circulation
tax rates, impetus for trade, easing of were in the form of ₹50 and ₹100 notes
controls on foreign direct investment, as and by 2015–16, their share dwindled to
also portfolio investment in share just about 10%. The ₹500 and ₹1,000
markets, liberalisation of commodity notes have increased in share: ₹500 notes
trading, and opening up of large numbers from about 25% in 2000–01 to 47% in
of organised retail outlets. All of these 2015–16, and ₹1,000 notes which were
have created a liberal economic issued in 2000–01 grew to 38% in 2015–
environment which has given impetus to 16. Thus, the two together accounted for
people to hold large amounts of cash. as much as 86% of the total notes in
Over time, due to persistence of inflation, circulation, which showed that
the value of the rupee has also eroded. transactions in India have been
www.ijar.org.in 39
preponderantly through these two notes, particularly high denomination

denominations. notes, altered the behaviour of money
supply in the economy? In India, both
Currency and GDP Growth: A narrow (M1) and broad money (M3)
comparison of the growth of note concepts are used. M1 consists of
issuances with other macroeconomic currency with the public, demand
indicators such as growth rate of GDP at deposits, and other deposits with the RBI,
market price and the inflation rate while M3 additionally includes time
produces interesting results. First, the deposits. M1 has expanded during the
rate of increase in high denomination last few years essentially due to sizeable
notes outpaced the increase of total bank increases in currency with the public,
notes throughout the post-independence while demand deposits have grown at
period. Second, the annual growth rates high rates in some years. M3 mostly
in total currency as well as those in high comprises time deposits, a little over
denomination notes have been much three-fourths, though a marginal
higher than the nominal GDP growth reduction is seen during the last two
(which could be partly due to years. Amongst the components of M1,
monetization). For instance, the annual currency with public is the primary one.
average of high denomination notes Although the ratio of currency with
growth during the eight-year period from public to M3 (also known as currency
2005–06 to 2012–13 worked out to 22.2%, ratio) has been declining over the years,
which has been much higher than the except in the last two years, demand
average annual GDP growth of 15.3% in deposits as a ratio has remained nearly
nominal terms. Even the average growth the same. The percentage variation of M1
of total currency issues at 15.8% has been was higher than that of M3 in recent
somewhat higher than the average GDP times due to sluggish growth in time
growth. This was as per the 2004–05 deposits. In the overall expansion of M3,
series of GDP estimates. According to the the share of M1 has doubled from 14.4%
2011–12 GDP series, high denomination in 2013–14 to 28.8% in 2015–16, with
notes grew at 12.3% in 2012–13, which simultaneous reduction in the share of
was 0.9 times of the GDP growth rate. By time deposits. Within M1, the share of
2015–16, high denomination notes grew currency with the public has gone up
at 16.5%, surpassing the GDP growth from 9.3% to 19.2%, and demand deposits
rate of 8.7%, that is, 1.9 times higher. A went up from 5.2% to 9.5% between
similar trend is noticed when we compare 2013–14 and 2015–16. Thus, the bulk of
growth of issue of bank notes to GDP increase in money supply (that is,
growth rate. Increase in the issue of high liquidity generated) during these years is
denomination notes and total bank notes attributable to the huge rise in currency
have taken place in spite of lower order of with the public and demand deposits.
inflation rate during the last few years.
Normally, the impetus for currency It fell from 127.5% in 2013–14 to 123.4%
expansion comes from high inflation. in 2014–15 and then increased to 130.9%
in 2015–16. It thus explains the
High Cash and Demand Deposits: Has persistence of relatively higher growth in
the phenomenal rise in the issue of bank bank notes and high denomination notes
www.ijar.org.in 40
in the last two years. We may attribute be absorbed to prevent it from

this to the public’s propensity to treat precipitating further crisis. The shock
money also as a store of value, apart from absorbers include stepping up private and
being a medium of exchange. What is public investment, and global demand for
more, these are years in which inflation domestically produced goods.
rate was lower than earlier years and
hence the public would have viewed The interest rates are expected to go
minimum erosion in the value of money, down due to a surfeit of liquidity in the
which in turn would have increased their banking system with the public
propensity to view currency as a store of depositing high denomination notes and
value. That alone does not justify withdrawing only limited amounts. This
demonetisation unless such currency is very unlikely to boost private
holdings are largely illegal or have large investment as firms anyway would have
unaccounted sources. excess capacity. Global demand cannot be
expected to drive domestic production
Expected Outcomes: and employment as the global economy
still trails. Demand for imported goods
Whether demonetisation this time will can go down due to depressed price
achieve its stated purpose can be situation and want of liquidity in the
understood only when more statistics market. This can make the dollar cheaper
become available. The extent of (or rupee stronger) which will further
demonetised high denomination currency weaken export competitiveness (unless of
that finally fails to be exchanged for new course the demand for the dollar
notes or be deposited in banks will be an increases due to other reasons).
important indicator.
Based on the prediction of money market
Economic consequences of the equilibrium models, we know that any
demonetisation measure have many inward shift in the money supply curve
dimensions. Short-term can be further (which demonetisation can easily do) will
divided into two parts: disruptions in the put pressure on the interest rate, if there
lives and day-to-day activities of people, is no discernible shift in the money
and the shock leading to contractions in demand curve. Due to the inconvenience
consumption, trading and household caused and for want of currency for
incomes. Savings are unlikely to be transaction purposes, the money demand
affected as currency holdings will be curve could shift downward, thus leaving
converted into bank deposits, though no interest rates unaffected, but having
doubt such actions will have medium- adverse effects on the level of output. In
term implications, particularly on other words, withdrawal of high
interest rates. denomination notes will certainly have a
short-term impact on market
The tremors that demonetisation has transactions and hence output level in
sent across the economy were clearly the economy. That is, aggregate demand
visible in the course of last many days in the economy gets adversely impacted
with trading activities crumbling. One in the short run, which perforce implies
may treat this as a shock. But this has to that the price level in the economy would
www.ijar.org.in 41
go down in the next few months (if attacking the phenomenon of

revelation is not a public policy choice). If unaccounted money, it has to strictly
aggregate demand falls due to reduction regulate political party funding. When all
in money supply with a simultaneous fall these fairly straightforward alternatives
in prices, inventories will build up, which exist, the government machinery did not
firms may not want due to the have to inflict such hardships on the
opportunity costs involved, and this can public.
eventually impact production.
Adjustments in outsourcing firms, and References and Notes:
small and medium enterprises would be
exposed to a higher order of demand risk 1 This is evident from the fact that total
affecting employment in that segment. currencies with banks and government
Thus, the short-term impact could have treasuries were worth above ₹96,080
far-reaching consequences. crore, while the high denomination notes
in circulation alone in March 2016 were
Public Policy and Public Pain: of the order of ₹14,17,940 crore. Total
non-public holdings of all currencies were
Studies on corruption practices in India then only 6.4% of high denomination
have shown that the system of bribes, currencies in circulation.
underhand dealings and use of dubious
means to get things done, are rampant. 2. The RBI’s publications including
These practices, it cannot be denied, are relevant RBI history volume (RBI 2005:
all pervasive. The abundant supply of 450–53) make no reference to the
₹2,000 notes, a poorly thought-out move, treatment of those high denomination
will gravitate towards those interested in currency notes not tendered then for
unaccounted transactions, once again exchange. A sense that we get after a
encouraging illegal transactions. careful scrutiny of RBI’s Annual
Reports for 1978–79 and 1979–80,
The malaise of unaccounted transaction and Report on Currency and
ought to have been addressed at its root, Finance 1977–78, 1978–79, 1979–80 and
that is, by closely examining high value 1980–81, is that, under the
transactions to uncover their sources of demonetisation of 1978, those notes
financing; for instance by raiding real which were not tendered for exchange
estate and jeweler sector operators. It is were very likely not extinguished from
not for nothing that a study by the World RBI’s balance sheet and continued to
Bank staff has placed India at the top of remain with the public as “notes in
emerging market economies as moving circulation” (public including banks and
the highest share of shadow economy in government treasuries).
total GDP (22.2%) as compared with
China’s 12.7% and Japan’s 3. This is the country average for the
11%.6 Further, there is a need to monitor period from 1999 to 2007. See Schneider
conspicuously high levels of expenditure et al (2010: 27–30).
in India and even abroad, on marriages
and other such extravaganzas. Besides, if
any administration is sincere about
www.ijar.org.in 42
4. Reserve Bank of India (1977–

78): Report on Currency and Finance
1977–78, Mumbai: RBI.
5. — (1978): Annual Report 1977–78,

Mumbai: RBI.
6. — (2005): History of the Reserve Bank

of India (1967–1981), Volume 3, Mumbai:
RBI.
7. — (2014): Annual Report 2013–14,

Mumbai: RBI.
8. — (2015): Annual Report 2014–15,

Mumbai: RBI.
9. — (2016a): Annual Report 2015–16,

Mumbai: RBI.
10. — (2016b): Handbook of Statistics on

Indian Economy 2015-16, Mumbai: RBI.
11. — (2016c): Frequently Asked

Questions Withdrawal of Legal Tender
Character of the Existing Bank Notes in
the Denominations of ₹500 and ₹1,000
(Updated as on 18 November 2016),
accessed at
the https://www.rbi.org.in/Scripts/FAQVi
ew.aspx?Id=119
www.ijar.org.in 43
The Impact of Demonetization on Trade and Commerce

N.Bhagyaraju,
Lecturer in Commerce, Department of commerce, DNR college(A), Bhimavarm
V.Vijaya Kumar,
Research Scholar, P.G.Dept. of Commerce, P.G.Courses & Research Centre, D.N.R.
College (Autonomous), Bhimavaram-534 202
Abstract: The proposal by the government involves the elimination of 500 and 1000
these existing notes from circulation and a gradual replacement with a new set of
notes. In the short term, it is intended that the cash in circulation would be
substantially squeezed since there are limits placed on the amount that individuals can
withdraw. In the months to come, this squeeze may be relaxed somewhat. The reasons
offered for demonetisation are two-fold: one, to control counterfeit notes that could be
contributing to terrorism, in other words a national security concern and second, to
undermine or eliminate the “black economy”. There are potentially two ways in which
the pre-demonetisation money supply will stand altered in the new regime: one, there
would be agents in the economy who are holding cash which they cannot explain and
hence they cannot deposit in the banking system. This part of the currency will be
extinguished since it would not be replaced in any manner. Second, the government
might choose to replace only a part of the currency which was in circulation as cash. In
the other words, the rest would be available only as electronic money. This could be a
mechanism used to force a transition to cashless medium of exchange.
Key words: demonetization, Inflation, national security
Introduction individuals can withdraw. In the months

to come, this squeeze may be relaxed
The government has implemented a somewhat. The reasons offered for
major change in the economic demonetisation are two-fold: one, to
environment by demonetising the high control counterfeit notes that could be
value currency notes – of Rs 500 and Rs contributing to terrorism, in other words
1000 denomination. These ceased to be a national security concern and second, to
legal tender from the midnight of 8th of undermine or eliminate the “black
November 2016. People have been given economy”.
upto December 30, 2016 to exchange the
notes held by them.1The proposal by the The first major and sustained
government involves the elimination of effect of demonetisation would follow
these existing notes from circulation and from the extent to which the currency is
a gradual replacement with a new set of extinguished and what this currency was
notes. In the short term, it is intended being used for. It is being assumed that
that the cash in circulation would be all currency which will potentially be
substantially squeezed since there are extinguished would be currency being
limits placed on the amount that used as a store of value in the first and
www.ijar.org.in 44
second category of transactions in the payment gateways, cards and banking

table above. If this assumption is correct, system. Life will become simpler in the
then the impact of extinguishing this new financial system that is the only
currency would be limited. On the other viable option.”
hand, if the currency is used for any of
the other transactions in the economy, The Demonetisation and its impact on
either as a store of value or more SME Sector
importantly, as a medium of exchange,
then the impact on the economy and the How are small and medium
agents in the economy could be enterprises coping with the fall out of
substantial. demonetisation? Traditionally, these
enterprises run on thin budgets and often
The second change as discussed suffer long delays in recovering dues for
above, from demonetisation would arise if supplies already made. With a liquidity
only a part of the currency deposited in crunch all over the country, these
the banks is returned to circulation as enterprises are having a hard time.
cash. This change, if it is executed, would Industry insiders admit to some difficulty
dramatically change the economic here and there, but nothing that they
environment in the country by forcing cannot tide over.Some of the small and
agents to move from using cash as a micro units, used to paying workers in
medium of exchange to using cash cash on a weekly basis, have felt the cash
substitutes. This appears to be a real crunch. Though they have been crying
possibility given that the Finance hoarse about the tight money situation,
Minister as well as the Governor of the workers did not openly attack the
Reserve Bank of India have repeatedly management for deferred payment.
emphasised that agents should be moving Industry representatives had initially
to the use of cashless medium where issued statements stating that they would
there are no problems in comparison to have to stop operations as withdrawal
the cash based medium. For instance, limits are small and they would therefore
The Hindu reported that “ Reserve Bank not be able to source material or pay off
of India (RBI) has urged citizens to workers, particularly those on weekly
switch to alternative modes of payments basis. But most of these micro and small
such as pre-paid cards, credit and debit units are still operational. There seems to
cards, mobile banking, and Internet be no visible signs of industrial unrest
banking.”2 In a press conference on due to nonpayment of wages. For
November 12, the Union Finance industrialists though, life goes on like
Minister too said that “Those in before. A small scale industrialist didn’t
businesses should start using digital disrupt his holiday plans despite the
payment gateways, cards and banking liquidity crunch. He said he had gone to
system. Kerala for the weekend with his family
and friends with just Rs. 150 in his
In a press conference on wallet, a couple of the now invalid Rs. 500
November 12, the Union Finance and Rs. 1,000 notes, and plastic cards as
Minister too said that “Those in well.“Gas stations accept these notes, we
businesses should start using digital settled our hotel dues by swiping our card
www.ijar.org.in 45
and got back with the money in the The future of e-commerce is
wallet intact. If you ask, most people, bright despite cash burn and losses
even small shops accept cards in Kerala, incurred by e-commerce players amidst a
and banks are giving Rs. 4,000 in drying up funding environment, as India
exchange for these notes,” he said. is still an under penetrated market, said
Meanwhile, bankers think some Sachin Bansal, Flipkart Co-founder and
customers seem to be making good use of Executive Chairman, who was the first
loopholes by walking into different banks speaker at the third edition of the Global
with the photocopy of his/her identity Mobile Internet Conference that opened
card, and walking out with enough in the city. Stating that e-commerce
change. companies will have to continue to invest
in talent, physical supply chain and
Impact On Growth And Inflation logistics and in building systems and
processes to support the inevitable
One question that crops up is the impact growth of ecommerce in the country
on growth rate. Certainly, the temporary before focusing on becoming profitable,
disruptions can have an adverse effect on he foresees that “Only those companies
growth if they continue to linger. Over that bet and invest in data and AI will
the longer run, the beneficial effects are survive in the next 10 years. Cash burn
the spread of the organised financial and cash crunch is a function of the stage
system with more and more transactions of the market. The question we should be
being channelled through the digital asking is when is the right time to stop
mode. Also, if followed up by other burning cash and switch to profitability,
measures, the generation of black money which can be done anytime we want
can come down. The immediate impact to.”Asked whether he was afraid of the
on prices will also be beneficial. To the prospect of either being bought out or
extent that some part of the currency will destroyed by American and Chinese firms
get extinguished, it may have the same like Amazon or Alibaba, Bansal said
effect on inflation as reduction in money “absolutely not.” Explaining that India is
in circulation. This will happen only at a very different market, he predicted that
the end of the period given for surrender business models that are unable to get
of old currency. Even as people welcome the masses of India on board and are just
the measure to demonetise, the major serving the elite who look much like
concern is the inconvenience because of Americans and European in their income
the lack of adequate new currency. It also levels and behaviour, will be bought out
affects the livelihood of the poor. Small or will have to shut down, as already seen
businesses, particularly, can face over the last 12 months. Businesses that
shortage of liquidity which can hurt them are able to Indianise for Indian needs and
seriously. The Government, the RBI and aspirations and are able to solve local
banks must handle this problem on a problems using local resources in a much
war-footing; otherwise the generally more efficient way will survive.“If you
welcome measure may turn sour. want to beat NASA, don’t replicate the
NASA model, but be like ISRO which did
The Demonetisation and its impact on e-
the same things at much lower costs. My
commerce Industry
www.ijar.org.in 46
strong belief in Indian management and The demonetisation undertaken by the

entrepreneurial talent leads me to believe government is a large shock to the
that there will be a large number of economy. The impact of the shock in the
Indian companies, which will not only medium term is a function of how much
stand on their own but also will be of the currency will be replaced at the
buying their American counterparts and end of the replacement process and the
will take their model to other developing extent to which currency in circulation is
countries as it is the best suited model for extinguished. While it has been argued
other developing nations,” he said.Bansal that the cash that would be extinguished
said digital payments is the largest bet in would be “black money” and hence,
the mobile internet space from the should be rightfully extinguished to set
technology point of view, becoming an right the perverse incentive structure in
enabler for a whole set of other the economy, this argument is based on
businesses, whether it is selling cabs or impressions rather than on facts. While
mobile ads or any kind of transaction on the facts are not available to anybody, it
the internet.To accelerate the use of would be foolhardy to argue that this is
digital payments, Bansal feels the the only possibility. As argued above, it is
government should subsidise low-cost possible that these cash balances were
$100 smart phones and bring it down to used as a medium of exchange. In other
$50. don’t replicate the NASA model, but words, while the cash was mediating in
be like ISRO which did the same things legitimate economic activity, if this
at much lower costs. My strong belief in currency is extinguished there would be a
Indian management and entrepreneurial contraction of economic activity in the
talent leads me to believe that there will economy and that is a cost that needs to
be a large number of Indian companies, be factored in while assessing the impact
which will not only stand on their own of the demonetisation on the economy
but also will be buying their American and its agents.
counterparts and will take their model to
other developing countries as it is the References:
best suited model for other developing
nations,” he said.Bansal said digital 1. Under certain circumstances people
payments is the largest bet in the mobile can exchange their currency at specified
internet space from the technology point offices of RBI till March 31, 2017
of view, becoming an enabler for a whole
2.http://www.thehindu.com/business/econ
set of other businesses, whether it is
omy/rbi-urges-public-to-a dopt-digital-as-
selling cabs or mobile ads or any kind of
atms- 3
transaction on the internet.To accelerate
the use of digital payments, Bansal feels
the government should subsidise low-cost 3.http://www.thehindu.com/news/national
$100 smart phones and bring it down to /demonetisation-arun-jaitley-on-atms-
$50. going-dry/article9338238.ecerun-
dry/srticle9339020.ece
Conclusions
www.ijar.org.in 47
4. Demonetization D.P. Sengupta, Suranjali Tandon and Sri

http://www.investopedia.com/terms/d/de Hari Nayudu, NIPFP, New Delhi. No.
monetization.asp#ixzz4QRacCuLL 182 ,14-Nov-2016 Tax Research Team.
5. How Demonetisation Has Impacted the

Indian Equity MarketData as on
November 17,2016 (Source:
NSE,Personal FN Research)
6. Dr. Rangarajan, The writer was

chairman of the economic advisory
council to the Prime Minister and
governor of RBI.
7. BARENDRA KUMAR BHOI

Demonetisation’s good policy too: The
writer was principal adviser to the
monetary policy department, RBI. The
views are personal. Via The Billion Press.
8. RADHIKA MERWIN Demonetisation

will serve two purposes, columnist,
Business Line
9. AARATI KRISHNAN Short-term pain

for long-term gain? Columnist, Business
Line
10. NS VAGEESH,NBFCs see delay in

loan repayments, Columnist, Business
Line
11. V SAJEEV KUMAR, Professionals too

feel the pinch of currency shortage,
Columnist, Business line
12. Bureau, The future of e-commerce is

bright, Business line
13. USHA THORAT The dream of a

cashless society, the writer was a former
deputy governor of the RBI. Via The
Billion Press.
14.Dr. Kavita Rao, Dr.Sacchidananda

Mukherjee, Dr.Sudhanshu Kumar, Mr.
www.ijar.org.in 48
A note on the advantages and disadvantages of demonetization

Neredimelli Udaya Sri
D.N.R. College, Bhimavaram, W.G.Dt., A.P. India-534202
Abstract: The withdrawal of Rs.500 and Rs.1000 notes is one of the boldest step taken by
government of India in recent times. PM Modi took this decision, fully aware that the
move can be detrimental for his political career and at first it occurred that the
decision was taken in a moment This scheme is going to impact the businesses, the
daily labour, and financial institutions all at some level or the other. The government
is repeatedly assuring the citizens not to worry and that “Your money will be yours.
You will not lose anything so there is no point in being scared. There will be no
restrictions on non-cash payments by cheques, demand drafts, and electronic fund
transfer.”
Key words: hardships to people, political career, GDP.
Introduction because by then the money would have

been circulated.
A lot has already been written, printed,
spoken about demonetization of Rs.500 This scheme is going to impact the
and Rs.1000 currency notes. People more businesses, the daily labour, and financial
knowledgeable than me have put forward institutions all at some level or the
their opinions here and I couldn’t help other. The government is repeatedly
but agree with the points made by them. assuring the citizens not to worry and
The withdrawal of Rs.500 and Rs.1000 that “Your money will be yours. You will
notes is one of the boldest steps taken by not lose anything so there is no point in
government of India in recent times. PM being scared. There will be no restrictions
Modi took this decision, fully aware that on non-cash payments by cheques,
the move can be detrimental for his demand drafts, and electronic fund
political career and at first it occurred transfer.”
that the decision was taken in a moment.
The scheme has received mixed reactions There will be a heavy adverse impact of
till now and as the conundrum subsided, demonetization in the following sectors:
people reacted to this decision with
irresistible support. The opposition as  Black money hoarders - A recent
well as some people is of the opinion that study had pegged India’s black market
it is a draconian scheme that is causing economy at over Rs 30 lakh crore or
extreme hardships to people. They argue about 20 percent of total GDP. This is
that the implementation of the scheme is even bigger than the GDP of countries
a complete mess and that it would’ve like Thailand and Argentina. The black
been better if two to three days notice money holders are now left with just two
had been given. But that would have options – deposit the money in banks,
defeated the entire purpose of the scheme declaring it to be their income or burn all
of it. In first case, the question arises
www.ijar.org.in 49
that how did they earn that income? completely cashless transactions. In the
Their files would be subjected to scrutiny short term, people in rural India who
and a minimum tax of 60 percent (30 have a significant amount of Rs 500 and
percent general tax rate with 100 percent Rs 1000 notes, but no official form of
penalty) would be payable on the identification, will have a tough time in
declared amount if it is found to be exchanging their notes.
undisclosed previous income. Even if  Agriculture - Transactions in the
they show this as income in the normal Indian agriculture sector are heavily
course of business, they will have to pay dependent on cash and is hugely affected
taxes on it as per current rate. by the demonetisation of Rs.500 and
 Fake note circuits - Militants Rs.1000 banknotes. Many farmers have
operating against India use fake notes of insufficient cash to purchase seeds,
Rs 500 and Rs 1000 (total worth about fertilizers and pesticides needed for the
$7.50 at current exchange rates, source : plantation of rabi crops.
Media Report). But have you ever  The unorganized sector - The
thought about how these militants and poor do not have black money. They
terrorists get their money? Enemies from work hard to earn two squares of meal
across the border run their operations and do not have sufficient savings so as
using fake currency notes. Hence, the to deposit in any bank. They are the
withdrawal of these currency notes is people who are most affected by this
equivalent to carrying out a surgical sudden decision. How do you expect
strike on these people. people running grocery shops, street
 Illegal election fundings - We all venders, and maids to leave their
know how much black money is used by businesses and stand in a queue to
political parties. It will be a very tough deposit these notes in the bank?
task to use trucks of money at least for  Transportation - Major highway
the upcoming five state elections. toll junctions on the Gujarat and Delhi-
 Rural economy - A very strong Mumbai highways also saw long queues
criticism of the scheme that came across as toll plaza operators refused the old
is the possible draconian impact it can banknotes. Nitin Gadkari, the Minister
have on the rural economy. India of Transport, subsequently announced a
reportedly has somewhere around 10 suspension of toll collections on all
lakh bank branches all over India. national highways across India until
However, there are 6.8 lakh villages midnight of 11 November, later extended
alone and most of these villages are until 14 November and again until
without a bank. Rural economy mostly midnight of 18 November, and yet again
thrives on currency transactions. Most of till 2 December.
the population does not even have the  No big impact on foreign
slightest idea of banking. This is likely to accounts - The big fish will be left out
come across as a huge shocker for such whose black money is in the form of
sections. Jan Dhan scheme, UPI/digital foreign currency, gold, and stashed away
payment stack, and payment banks are in Swiss/Panama Banks, offshore
still in the nascent stage. It will be a long accounts, gold, and property, etc. How
time before rural India moves to
www.ijar.org.in 50
the government plans to nab these  The owners of the consumer

offenders is yet to be seen. perishable stock like vegetable vendors,
The demonetization is going to have local grocers, and milk and fruit sellers
a favourable impact on the following will face huge trouble. Do they let their
sectors: stocks rot and refuse to accept the Rs 500
note?
 Surge in bank deposits - Banks  Medical care is also likely to
are expected to witness a spike in their suffer. As per the scheme, government
deposits from people and businesses who hospitals would accept these notes.
have a lot of legally earned money. As However, many of these government
per the new scheme, up to Rs 4,000 will hospitals ask you to buy medicines from
be immediately exchanged by banks and outside. How are those transactions to be
the balance amount would be credited to settled? Also, over 80 percent of
the account holder. This will increase healthcare is through private hospitals
bank’s deposits by a huge margin, and nursing homes. How do they provide
increasing the lending activities. for critical care and surgeries?
 Deflation - Sectors like real  How do tourists handle their
estate, construction material, transactions? Do tourists need to queue
unorganized trade and services will see up outside banks, changing Rs 4,000 at a
significant pain in the near term. time whenever the banks get new
 Jewellery and real estate currency stocks and open again?
business - Gold demand will rise as  Not more than 10 percent of
people will have more faith in the gold Indian population know ‘how to operate
than the currency notes, creating an ATM’. Thus, there will be huge
destabilization for a little while, but queues in the banks and people(including
overall it is expected to benefit the daily wage workers) will have to apply
industry. Unorganized builders and leave to stand in those long queues.
secondary (resale) property market But people have found ways to evade the
would be adversely impacted following decision:
the government’s decision. Housing
prices could witness downward pressure,  Gold purchases
which in turn will revive demand in the  Donations in religious
sluggish housing segment. institutions
 On the way to cashless  Multiple bank transactions
economy - With limits on ATM  Railway bookings
withdrawals and bank accounts, it will  Municipal and local taxes
drive the card payments across the Conclusion
country.
The decision of the government has been
taken for welfare of public and many
Some practical difficulties that people people support the decision
will face: wholeheartedly. But there is no denying
that the government has failed miserably
in its implementation. The government
www.ijar.org.in 51
could have brought this decision a bit

earlier. Had the implementation been
better than what it is now, had the
government kept enough Rs. 100
deposits to keep the cash economy
rolling, the furore that the Opposition is
creating (mainly over mismanagement)
would not have been there. Overall, the
decision to ban Rs. 500 and Rs. 1000 was
taken with good intentions.
The decision is right; the implementation

is not.
References
http://www.thehindu.com/business/econo
my/rbi-urges-public-to-a dopt-digital-as-
atms- 3
3.http://www.thehindu.com/news/nationa
l/demonetisation-arun-jaitley-on-atms-
going-dry/article9338238.ecerun-
4. Demonetization
http://www.investopedia.com/terms/d/de
monetization.asp#ixzz4QRacCuLL


governor of RBI.
www.ijar.org.in 52
The Impact of Demonetization on Indian Real Estate Sector

Dr. A. Uttama Durga Devi,
Reader in Commerce and HOD of MBA,
Ch. S. D. St. Theresa's College for women,
Eluru, W.G. Dist, Andhra Pradesh
Abstract: Demonetization means the process of removing a currency from general
usage; or circulation. In the same way gold was demonetized when it ceased to be used
as a daily currency. Demonetization is the act of stripping a currency unit of its status
as legal tender. Demonetization is necessary whenever there is a change of national
currency. The old unit of currency must be retired and it is replaced with a new
currency unit. The current issue in India is Demonetization. It is one of the boldest
initiatives taken by Government of India in the history of Indian economy to ban high
value currency notes of Rs. 1,000 and Rs. 500 with effect from November 8, 2016. It
has received mixed reaction till now as some of the sections are telling that it can
cause hardship for common people while some sections reacted to this decision with
overwhelming support. This initiative is going to influence the business, common
people, and financial institutions along with multi-diverse industrial background of
India. This is the third demonetization exercise undertaken by the Indian authorities.
The objective of this paper is to study the Impact of Demonetization on Real Estate
Sector.
Keywords: Demonetization, Real Estate Sector, Currency, Indian Economy, Business,
Financial Institutions, Primary and Secondary Market.
Introduction: rather than the ones dealing in black
money. They remain unaffected. The
India has a thriving cash cash economy is responsible for the
economy. A majority of businesses in existence of rampant corruption. Money
India run on cash with no transparency just runs the system with no
of the country. It is a ‘leakage’ from the accountability. With demonetization, it is
economic cycle adversely impacting the not necessary that corruption will be
working of the Indian economy. weemed out of the system, but it will
According to reports, two thirds of India’s definitely enable the system to capture
GDP is cash economy – around Rs 90 the flow of money.
lakh crores.
In India, demonetization
The law abiding tax paying occurred one-and-a-half years before
citizens of the country subsidize the ones independence in 1946 and again in 1978.
dealing in black money. With a large A step like this can result in the cleaning
amount of unaccounted money in the up of a system for which many believed it
economy, the government is unable to could not be done. However, the decision
collect enough tax revenues. This forces by Prime Minister Modi is one of the
them to increase taxes. This in turn most historic steps in Independent India.
impacts the honest taxpaying citizens A decision like this can help curb
www.ijar.org.in 53
inflation, recapitalize banks, reducing the projects undertaken by reputed and

interest rates and making the economy credible developers in the top 8 Indian
vibrant, with capital inflows. The taxes cities – will remain more or less
will be spread to a much larger unaffected. There might be an impact on
population. At present only 2.6 per cent quite a few projects in tier 2 or 3 cities
of the Indian population pays taxes. Some where cash has played a major role even
just don’t make enough and the others in primary residential sales. The
who do, siphon off the money. If this plan secondary or resale market will, however,
works, the ramifications of the currency certainly be impacted, given the fact that
demonetization can touch all parts of the this segment does seen the involvement
Indian economy. Inflated property prices of cash component.
will be the first one to get affected by this
The following are the major points at
clamp down of black economy. There how real estate segments will fare:
were properties that were selling at a
ratio of 90 per cent black money and 10  Residential real estate: The
per cent white. primary sales segment is largely
influenced by home finance players, and
Objectives of the study:
these deals tend to be facilitated in a
The objective of the study is to transparent manner. This segment will,
analyse the Impact of Demonetization on therefore, see at best a limited impact in
Real Estate Sector. the large cities, though some tier II and
tier III cities, where cash components
The Impact of Demonetization on Real have been a factor even in primary sales,
Estate Sector: will see a business crunch. The secondary
or resale market will, however, certainly
Most of India’s business get impacted, given the fact that this
environment has been tremendously segment does see the involvement of cash
shaken up by the recent demonetization component.
of the higher currency notes by the Modi  Real estate investment
government. This is the third markets: Projects could get stretched as
demonetization exercise undertaken by informal sources of capital may not be
the Indian authorities. It is still too early available. This, in fact, spells more
to accurately gauge the depth of the opportunities for institutional capital.
shakeup this has caused, but its impact FDI, private equity and debt players will
on the real estate sector is immediately suddenly find the market even more
visible. transparent and attractive. Moreover
banks could start funding land
The real estate sector will transactions, thereby decelerating land
definitely be affected by the prices.
demonetization exercise, as it has  Retail real estate: Retailers could
traditionally seen a very high see some impact on their business in the
involvement of black money and cash short-to-medium term due to reduced
transactions. The primary market – or, cash transactions. The luxury segment is
more specifically, the market formed by likely to be hit because of the historically
www.ijar.org.in 54
high incidence of black money acceptance positive and potentially long-lasting

in this segment. However, credit/debit changes in the Indian real estate. The
cards and e-Wallets should come to the passing of RERA (Real Estate Regulation
rescue. Overall, the domestic and Development Act 2016), the Benami
consumption story remains intact, with Transactions Act and now the
no threat to the overall strength and demonetization move will ensure that
growth of the Indian retail industry. going forward; the sector will lose much
 Commercial real estate: There of its historic taint and become more
will be a minimum impact on transparent.
office/industrial leasing and transactions
business, given that cash components do Only players who conduct their business
not play a significant role in such with integrity will survive. This bodes
transactions. well for end-users, who will be aware of
 Land sales and leasing: Where their rights, have the assurance of not
land transactions have been happening in being cheated and will no longer need to
the realm of joint ventures, joint contend with constantly rising prices.
development or facilitating corporate They will be able to buy properties of
investments, will see very little impact of their choice at affordable prices, in
the demonetization move. This is because projects which will assuredly be delivered
Joint Ventures, JDs and corporate on time.
investments are all quite
institutionalized, with little or no cash The demonetization exercise was a very
involvement. necessary step which was bound to bring
 Developers: There will be with it a tremendous shake-up wherever
minimal impact on large institutionalized black money has played a major role.
players with a solid brand and Over the long term, the Indian real estate
governance framework. Sales largely sector will emerge stronger, healthier and
driven by the salaried class or investors capable of long periods of sustained
with limited cash involvement would not growth. As of now, there is no reason for
suffer. Smaller developers are developers and investors who have
understandably very concerned right now conducted their dealings transparently
because many of them have depended on and legally to panic. It will essentially be
cash transactions. We are very likely to business as usual for them.
see a clean-up of non-serious players due
to this ‘surgical strike’ on the parallel Conclusion:
economy. The impact of RERA will The demonetization decision is
further discipline the industry, which will expected to have far reaching effects on
be good for its health in the long term. real estate. Resale transactions in the
Hotels and hospitability-related real real estate sector often have a significant
estate in the organized sector will see a cash component as it reduce incidence of
very negligible impact by the capital gains tax. Black money was
demonetization. responsible for sharp appreciation of
properties in metros; real estate prices
Overall Impact on the Sector: In the
may now see a sharp drop.
past one year, there have been a few
www.ijar.org.in 55
Real estate sector can be categorized

into 3 types namely tier 1 cities, tier 2
cities and tier 3 cities. By the
demonetization scheme both tier 2 and
tier 3 cities will be definitely affected.
Whereas in property type, the
office/commercial property very less
affected, new property will be definitely
affected, and resale property will be badly
affected.
References:
 Admin, Demonetization Impact

on Affordable Properties.
 Vishal Bisht, Impact of
Demonetization in India.
 Demonetization Wikipedia
 Sharekhan, Demonetization
www.ijar.org.in 56
Demonetization and effects on Various Sectors

Dr. K .A .Emmanuel M.sc .,Ph.D Dr. P. P. Divakar M.sc .,Ph.D
Associate professor in chemistry Associate Professor in Physics
SIR C R R Autonomous College , SIR C R R Autonomous College
Eluru Eluru
Abstract : This measure has been taken by the PM in an attempt to address the
resolve against corruption, black money, terrorism and counterfeit notes. The sudden
decline in money supply and simultaneous increase in bank deposits is going to
adversely impact consumption demand in the economy in the short term. This coupled
with the adverse impact on real estate and informal sectors may lead to lowering of
GDP growth. The GDP formation could be impacted by this measure, with a reduction
in the consumption demand. However, with the recent rise in festivals, demand is
expected to offset this fall in an overall impact. Moreover, this expected impact on
GDP may not be significant as some of this demand will only be deferred and will re-
enter the stream once the cash situation becomes normal.
Key words: demonetization, consumption, investment, production, employment
Introduction 40% but the circulation of Rs. 500 and Rs.

1000 notes relatively speaking, the
It creates a situation where lack of economy has grown only by 30% which is
currencies jams consumption, way below the money circulation. At an
investment, production, employment etc. aggregate level, this move will
In this context, the exercise may produce significantly eliminate the existing stock
following short term/long term/, of black money, fake currency and will
consumption/investment, welfare/growth benefit the economy in the medium- to
impacts on Indian economy. The long-run, but, the question as to how the
intensity of demonetization effects clearly creation of black money in the future will
depends upon the duration of the be prevented still remains unanswered. It
liquidity shocks at demonetisation on is expected to remove black money from
Indian economy. This measure has been the economy as they will be blocked
taken by the PM in an attempt to address considering the holders will not be in a
the resolve against corruption, black position to deposit the same in the banks.
money, terrorism and counterfeit notes.
This move is expected to cleanse the
Effect on GDP: Downward Bias to GDP
formal economic system and discard
Growth
black money at the same time. One of the The sudden decline in money supply and
reasons that prompted the Government simultaneous increase in bank deposits is
to demonetize Rs. 500 and Rs. 1000 notes going to adversely impact consumption
is that their circulation was not in line demand in the economy in the short
with the Economic Growth. As per the term. This, coupled with the adverse
Finance Ministry, during 2011-2016 impact on real estate and informal
periods, the circulation of all notes grew sectors may lead to lowering of GDP
www.ijar.org.in 57
growth. The GDP formation could be wage employment in the informal sector.
impacted by this measure, with a The construction sector has one of the
reduction in the consumption demand. highest employment multipliers. The key
However, with the recent rise in festivals, segments of the economy where cash
demand is expected to offset this fall in transactions play a vital role are real
an overall impact. Moreover, this estate, gold and the informal sectors,
expected impact on GDP may not be which may face near term contraction.
significant as some of this demand With more money coming into the
will only be deferred and will re-enter the banking ambit, deposit growth is likely to
stream once the cash situation becomes improve and positively impact the savings
normal. rate. The medium- to long-term gains are
likely to outweigh the short-term pains
Lower Money Supply has a
Deflationary Effect: Effect on Online Transactions and
alternative modes of payment:
With the older 500 and 1000 Rupees
notes being scrapped, until the new 500 With cash transactions facing a
and 2000 Rupees notes get widely reduction, alternative forms of payment
circulated in the market, money supply is will see a surge in demand. Digital
expected to be reduced in the short run. transaction systems, E wallets and apps,
Reduction in money supply can also have online transactions using E banking,
a deflationary effect in the economy. usage of Plastic money (Debit and Credit
However, whether the impact of the Cards), etc. will definitely see substantial
reduced money supply will lead to increases in demand. This should
deflation or contraction in demand or a eventually lead to strengthening of such
mix of both will vary from sector to sector systems and the infrastructures required.
depending on the nature of goods &
services. To the extent that black money Bank Deposit Rates to Soften:
(which is not counterfeit) does not re-
enter the system, reserve money, and We can expect a large amount of cash in
eventually, money supply will decrease circulation to be brought within the
permanently. However, gradually as the purview of the formal banking system by
new notes get circulated in the market way of deposits. This is structurally
and the mismatch gets corrected, money positive for banks, as part of this cash
supply will pick up speed. gets deposited as current account and
savings account (CASA) deposits,
Credit Impact across Sectors: reducing banks dependence on higher
cost borrowing. Deposit deployment
Impact of this policy measure will flow to remains a challenge in the short to
the economy mainly through the Real medium term due to the current tepid
Estate sector, which has strong linkages demand for credit, subsequently pushing
with sectors such as cement and steel and deposit rates lower. Across the medium
which will turn credit negative in the term, the demand for real estate,
short-run. A significant impact in the especially in the secondary market where
short-run will be on the daily/weekly the cash component, as a proportion of
www.ijar.org.in 58
transaction is significant, could face a which is strongly rumoured to have a

slowdown. This trickle-down effect could large cash component involved, to suffer
encompass the entire real estate sector in the short term, which may in turn
putting pressure on the demand itself. improve demand for residential real
This could adversely impact housing estate in the primary market.
financers with a large proportion of
exposure Mortgage built with a self- Demand for Gems and Jewellery to
employed customer profile. We believe Decline: We can expect the demand for
that Micro Finance Institutions and gems and jewellery to decline in the next
Small Finance Banks may not be two to three quarters. This would result
significantly impacted in the long term, in a weakening in the credit profile of
considering that the cash flows of the industry players due to the high working
borrower segment are usually in the capital cycles and high operating
smaller denomination. leverage. The unorganised segment will
be hit particularly hard, given the large
Payment Banks to Benefit: proportion of unaccounted inventory and
high proportion of cash sales. Over the
Payment banks and others entities which medium-term the organised industry
are part of the transaction ecosystem are players will benefit at the cost of the
likely to be long term beneficiaries, as unorganised players. Gold imports
more and more cash finds its way into the through the unofficial channels are likely
formal banking channels. We believe the to reduce. There will be no significant
cumulative measures taken to reign in impact on jewellery exporters because it
black money will improve banking habits, is mostly an organised market and sales
create financial and transactional history are against invoices.
of the informal & cash dependent
segments and could, over the long term, Effect on Banks
make them ‘bankable’.
As directed by the Government, the 500
Impact on Consumption Sectors and 1000 Rupee notes, which now cease
to be legal tender are to be deposited or
Agreement Cost of Real Estate May Rise: exchanged in banks (subject to certain
We expect that the real estate demand limits). This will automatically lead to
from end users is unlikely to be impacted, more amounts being deposited in Savings
since a majority of them are backed by and Current Accounts of commercial
funding from bank loans. Demand from banks. This, in turn, will enhance the
investors for real estate however may liquidity position of the banks, which will
come down since in some cases, investors be later utilized further for lending
prefer cash transactions. If the purposes. However, to the extent that
proportion of earlier transactions in the households have held on to these funds
real estate sector, which were allegedly for emergency purposes, there are
done through partial cash payment expected to be withdrawals at the second
reduces, the registered prices for real stage
estate will go up. We expect the supply of
real estate in the secondary market,
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Private Educational Institutions: Since This is bad for the following reasons:
Private Educational Institutions take
huge amounts of donations in Cash which More deposits than the available money
is 40 % to 50%, we expect that this move in the system before demonetisation
will impact the Private Education increases government liability and
Institutions receipts. weakens its financial architecture.
It exposes the government claim of

Cashless Economy: The gradual unearthing black money. Black money
transition towards digitization and a hoarders may have actually laundered
cashless economy will definitely help curb their black money into white by taking
corruption in the long run. The increased advantage of loopholes in government
transparency and record of transactions schemes.
will make it considerably difficult to hold
black money and carry out under-the- This will expose the MODI government
table deals. The added convenience of to a frontal attack from the Opposition,
using digital payment solutions and which will say that instead of achieving
virtual wallets can’t be ignored either. its stated objective of demonetisation, the
.For example, small and marginal government has attracted more black
farmers in the fruits and vegetables money because of its sloppy
category typically require off-loading of implementation.
their produce in the local in cash and
could see an immediate impact. A sudden This is a gloomy scenario for the MODI
demonetization will adversely impact this government, both economically and
segment of the economy and it will politically. It will also put pressure on the
witness immediate contraction, though rupee given the upward trend in
this impact will diminish over time. international oil prices hurt the economy.
With cash transactions lowering in the Bad economics may well prove to be bad
short run, until the new notes are politics for Modi and the BJP as millions
naturalized widely into circulation, of Indians line up in long queues outside
certain sections of the society could face banks and ATMs across the country to
short term disruptions in facilitation of withdraw their own money and who have
their transactions. These sections are: not been getting even the rationed cash
after waiting in the queues for hours.
Agriculture and related sectors
Small traders It is a long haul and there is no magic
SME wand to shoo away the cash crisis.
Services Sectors Consider these facts:
Households
The RBI could print currency notes in its
Professionals like doctors,
four presses to the tune of Rs 2,700
carpenters, utility service providers, etc.
CRORES daily. This has now been
Retail outlets
increased to Rs 4,000 CRORE daily, but
the daily requirement is Rs 13,000
CRORE.
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It takes 9 days for the making of a Pay tm , Ola Money etc.: This
currency note. One currency note costs behavioural change could be a game
the exchequer Rs 37, irrespective of its changer for India.
face value.
Temporary chaos and confusion
The printing presses can't run non-stop
for 24 hours and need to switched off for Public will face minor problem for a few
three hours in a day. Deposits will create days owing to the scarcity of lower
more demand for government bonds and denomination notes in the system.
other high rated bonds in a situation of
tepid demands for credit, leading to lower As most of the unaccounted wealth is
bond yields especially in the shorter end particularly widespread in real estate
of the curve. At the same time, a sector, the central government’s latest
reduction in leakages in systemic decision on note ban is expected to cause
liquidity will reduce the scope for open problems for developers. As there will be
market operation purchases in the the liquidity stress on them, they may
coming days. We believe that the RBI will slow down the construction works and it
continue to sterilize excess liquidity from would eventually increase the number of
the banking system to keep the short residential projects getting delayed on its
term rates aligned with the policy rate. completion.
This essentially represents a change in Conclusion
regime for the real and financial
economy. Domestically, there could be Since most of the Rural Economy is based
some turmoil as the effect will be on Cash, it’s going to impact the Rural
disproportionately felt by the lower and Economy Sectors with a sizeable
upper income classes. Internationally, the magnitude of Cash transactions such as
government is likely to get a thumbs up Real Estate, Construction, Jewellery,
for the move and more countries could high-end retail, White Goods and travel &
potentially see this as a viable option to tourism are expected to adversely affect.
curb black money and stem illegal It will push the economy because of flow
financial activity of more money into the banking system.
In the long term, the economy will
The demonetization decision is expected benefit from the reduction of the black
to have far reaching effects on real estate. money, which will lead to higher tax
Resale transactions in the real estate collection, better business environment,
sector often have a significant cash less corruption & transparency. It will
component as it reduces incidence of improve the situation of Fiscal Deficit of
capital gains tax. Black money was the Country and hence reduce the fiscal
responsible for sharp appreciation of deficit. Interest rates will decline further
properties in metros; real estate prices because of decrease on Inflation as banks
may now see a sharp drop. are flushed with huge inflows. It
creates a situation where lack of
Demonetization will likely result in currencies jams consumption,
people adopting virtual wallets such as investment, production, employment etc.
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In this context, the exercise may produce

following short term/long term/,
consumption/investment, welfare/growth
impacts on Indian economy. The
intensity of demonetization effects clearly
depends upon the duration of the
liquidity shocks at demonetisation on
Indian economy.
References
http://www.thehindu.com/news/national/
demonetisation-arun-jaitley-on-atms-
Demonetization
How Demonetisation Has Impacted the

November 17,2016
Dr. Rangarajan, The writer was

governor of RBI.
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Demonetization, a technique to balance the market forces in

the economy
Dr.C.Satyadevi,
HOD Commerce, St Theresa’s College for Women, Eluru
Abstract
Money play a significant role in the smooth development of the economic system of a
nation especially if is a developing country like India. Money as a medium of exchange
and store of value is an inseparable part of the socio-economic system of those
countries where more people are illiterate s and majority are just above poverty line or
below poverty line and are over populated . Small trade in unorganised sector takes
major share of retail trade in such economies. For such economies money as medium of
exchange play crucial role. Such economies are responsible for the mounting black
money also. Thus demonetisation is good to some extent to eradicate the problem of
black money and corruption but sudden and unplanned demonetisation is dangerous.
Key words: Monetary Policy, Medium of exchange, Store of value, Legal tender,
Currency Regulations
Money is little like aeroplane – marvellous when it works, frustrated when it is

immobilised, and tragic when it crashes.”
C.L.Harrriss
Introduction The policy that deals with money and its

Money as a medium of exchange and regulation is monetary policy. The
store of value became an integral part of monetary policy guides the Central bank
man’s socio-economic life. Money in the of the country to manage the money in
form of legal tender or the currency made circulation.
life of man comfortable in dealing with
routine life activities. Money is a Depending on the socio-economic
wonderful invention of man and today’s conditions and the political situation, the
economic system depends on money for central bank advices the Government on
its survival and expansion. money expansion and contraction in the
economy. Thus the monetisation and
Money as medium exchange, store of demonetisation are basically to regulate
value, standard of deferred payments money flow in the circulation.
became an essential element for smooth
socio economic life of the world. Money is Objectives of the study
responsible to make things happen
around the world and is the chief  To know what is money and its
motivator for sustainable development of role,
the world at large and an individual in  To know how monetary policy
particular. works as an instrument in the hands of
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the Central Bank and also the Monetary policy is executed by the
Government. central bank of the country, the
 To know the impact of monetary authority of the country. The
monetisation and demonetisation objective of the policy is to influence the
 To Identify some practical level of income of the economy.
solutions to handle the situation.
Thus regulation of money in circulation
What is money? is a technique to balance the economic
system according to the changing needs.
Money is primarily the medium of Monetary regulation includes changing
exchange. There is no precise definition rates of interest in money market
of the term money but it is defined on the through techniques such as bank rate
basis of its functions. policy, open market operations or
selective methods of central banks or
According to Robertson, “Anything which expansion and contraction of currency in
is widely accepted in payment for goods circulation.
or discharge of other kinds of business
obligations.” All the nations generally adopt the credit
control techniques of the central bank to
According to Halm, “The word money has regulate the money in circulation.
been used to designate the medium of Withdrawing or cancelation or abolition
exchange as well as standard of value.” of money is a rare decision of both the
central bank and the Government.
Currency is one of the forms of money
Because this decision disturbs the
which includes coins also. This is called economy.
legal tender. The most important
function of money is medium of exchange Need for demonetisation
and store of value. As a medium of
exchange money became the most wanted Demonetisation is something like
thing in the world and as a store of value withdrawing currency from circulation by
this is desired by all. different means. The government under
the guidance and advice of the central
Monetary policy bank of the country decides to
demonetise. Important reasons may be
Monetary policy is the Government policy
with regard to issue of currency and its  To bring equilibrium between
regulation through the central bank. demand for and supply of money in the
circulation.
According to Prof. Kent, monetary policy
 To reduce the increasing
refers to “the management of the
inflationary conditions
expansion and contraction of the volume
 To check black money
of money in circulation for the explicit
 To control illegal holding of
purpose of attaining a specific objective
such as full employment”. currency
 To control illegal, anti social and
anti national activities
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 To reduce physical currency  Printing and maintenance of

transactions to bring transparency in all currency in circulation is very
dealings. expensive task. According to the
 To check corruption annual reports of RBI the Bank spent
more than Rs.3500 cr to print
Impact of demonetisation currency in one year. It also needs a
large number of employees to
With some of the above objectives the manage. All such unnecessary
Government of India abolished Rs1000 expenditure can be reduced and the
and 500 notes. The core thrust according same can be diverted to more
to the Prime minister is to eradicate productive activities.
corruption and weaken the terrorists.
Problems
Advantages of demonetisation are:
 India is a country with more low
 It is easy and quick method of income groups and illiterates who
bringing black money into light. find it difficult to manage routine life
 This can disturb the black money when money in circulation is
holders and put them in a helpless suddenly withdrawn.
state.  Indian population is very large and it
 Unhealthy inflationary conditions is humanly impossible to meet their
can be controlled because the illegal currency requirements in short time.
money will be reduced..  For several centuries people are
 More people can be brought under accustomed for a strong medium of
the scope of tax. In India the exchange and it is practically difficult
percentage of direct tax payers are to transform the economy into
very insignificant. Now more people currency less economy.
can be brought under the scope of  Common man is the most suffered
direct taxes. than others with the decision of the
 It can help to control the prices of Government. Because Indian
real estate sector which are the economy is dominated by daily wage
heaven to black money holders earners, very small traders, farmers
 Transparency can be in all business and income–less dependents such as
dealings and all kinds of payment children, students, house-wives and
 Corruption especially among senior citizens who are the worst
bureaucrats can be checked sufferers of demonetisation
efficiently  For small traders and daily wage
 Corruption in politics especially workers it takes long time to recover
during elections can be reduced by and come to normal state and by that
reducing the individual money time a huge damage will be caused to
reserves. the economy.
 Hoarding of currency which is not  The other strata suffered are senior
good for economic development can citizens and remote rural and tribal
be discouraged. people. Who are unable to access
banks
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 Black money holders are able to makers need to balance the pains and
convert some percentage of currency gains of general public and decide the
through various means. future tax policy of India. Otherwise the
sacrifices and troubles of general public
What to do to improve the situation will be wasted.
The decision of demonetisation to reduce References

black money and control inflation is
really a good decision and all appreciated  Prof. Malhothra – Monetary theory
it. But people suffered more because of and Practice -- Malhotra Book
wrong estimations and unplanned Depot
decisions created more troubles.  Dr.C.Satyadevi -Financial Services
Banking and Insurance -S.Chand
RBI being the monetary authority is and Co, New Delhi
unable to estimate the situation of  M.H.De Kock – Central Banking --
sudden withdrawal of currency notes Crosby Lockwood Staples, London
which are in great need without making  Robert J.Gordon – Macroeconomics -
alternate facilities. - Little Brown and Company,
Boston
If the Government is able to bring some
 Deccan Chronical News papers
liberal tax policy, more can become the
tax payers.
The tax policy is such that they squeeze

the payers so much that they are afraid
to declare the income. So it is in the
hands of the Government to make a
public friendly tax system so that many
can become the tax payers.
The immediate steps to be taken by the

RBI and the Government should be to
reduce man-hours lost in standing queues
in-front of bank counters and ATMs. If
not the damage caused to the economy
cannot be repaired in short time.
The development of currency less

economy should be gradual but not
sudden to protect the economy
Conclusion
It can be concluded that the decision of

the Government is good if its results are
beneficial to the country. The policy
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Notional retrospect of demonetization in India

Dr. G. Subbaraju,
HOD-MBA Dept, Shri Vishnu Engineering College for Women, Bhimavaram.
M. Prudhvy Raju,
Asst. Prof-MBA Dept, Shri Vishnu Engineering College for Women, Bhimavaram.
B. Krishna Prasad,
Asst. Prof- DNR School of Business Management, Bhimavaram.
Abstract:India right from the traditional times despite of having good resources was
striving very hard to be a developed economy and to have its legal, rightful place
among the list of developed nations in the world. India wants itself to transform from
developing country to developed country and any leaders and economists have done
many reforms towards this. One daring reform towards this concept will be
Demonetization by the central govt under the leadership of Shri. Narendra Modi. The
whole country was suddenly stumbled to hear this unique strategy by the govt aimed
to eliminate the black money which was acting as a main hindrance towards the
economic development and to maintain a corruption free and a transparent economy.
This paper highlights the Demonetization concept as a whole and tries to enlighten the
readers on the same with a objective of creating awareness among the readers and the
society.
Key Words: Economy, Development, Corruption, Black Money, People, Banks etc.
Introduction:
“The demonetization, move could change the face of the Indian economy.”–Crisil
Report
Demonetization is a dynamic step country. However in case of India this

to make the legal money as an illegal and was not the first time alone and the same
to make it invalid. Generally this will be was done in the year 1946, when Indian
done when there is the new currency govt eliminated the then Rs.1000 and
coming in place of the old ones. European Rs.10000 notes from the circulation and
Union followed the same when they again it was demonetized in 1978 by the
decided to adopt Euro as the common Morarji Desai Govt.
currency. During this process the old
currency can be exchanged for the new The aim of this scheme was certainly to
currency. There are many countries curb the menace of black money and
which have undergone demonetization make it as taxable and beneficial.
process earlier like Zimbabwe, Fiji, Moreover the high notes are also acting
Singapore, Philippines etc. In the Indian as a finance for terror operations which
context this decision was taken to was a big threat to the entire world.
eliminate the black money and fake However because of this scheme there are
currency notes which were acting as main chances that the GDP growth of India
hindrances for the development of the can get down by 0.5% during the second
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quarter of 2016-17. However the change with a score of 36 and it has recently
in GDP in a positive manner can be reached the rank 76 which is certainly a
noticed during the coming years. The good improvement but certainly not at all
demonetization of currency was certainly the desired improvement. The major
a bold step taken by the govt which was portion of this is coming in the form of
welcomed by the people of India and bribes paid to govt officials by the
across the world. The problem of civilians. The govt at all the levels I.e.
counterfeit currency can be abolished top, bottom and middle levels are vexed
only when the new currency was put into with this corruption. Economic reforms
circulation. This counterfeit and old are acting as a basic source of corruption
money left with the terrorists are only for many politicians. The sources of
pieces of waste paper. It is also a general corruption can be traced to scarcity,
view that every year nearly 70 crores property rights and their enforcement,
worth of black money is pumped into the transaction costs and information
economy and so naturally this will act as asymmetries, and political position
a blessing in disguise for the common and (Patibandla and Sanyal, 2009).
middleclass man.
Black Money in Hawala & Crime:
However this may not be the accurate
activity to curb black money as already This involves transferring of money
this money is pumped into the companies without moving and it and nearly $100
across the world. In case the people have billion to $300 billion are transferred
bought land, gold etc using black money every year through hawala. In India as
then this cannot be identified and taxed per the Interpol, hawala amount comes to
and hence these may not utilize 40% of the GDP every year. Criminal
affectively. However it is really not activities like drug trafficking,
possible to curb this evil immediately and gunrunning; extortion etc also can be
a careful evaluation of this scheme is to efficiently controlled using
be done. demonetization.
The main issue with back money is 1) Indian Economy & Demonetization:
who has it? And 2) How much do they
have? There are no real calculations on  This process is going to hit the
the extent of black money available in the economy in the short term.
country and as per the govt estimates
 Indian economy consumption
these may range anywhere in between
would be coming to a virtual halt.
$500 billion to $1400 billion and out of
these Corruption, Hawala and Crime are  Service sector, which plays an very
the main sources and out of which important role in the economic
Corruption is the prominent one. activity will be the hard hitter.
Black Money in Corruption:
 Sectors like real estate, jewellery,
As per 2011 reports, India has ranked in logistics etc will face instability in
94th rank out of 176 in corruption index the short run.
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 Tough time ahead for the  Credit access and financial

companies with more debts and inclusion will be increased.
they may become defaulters also.
 Interest generated from caught
 There will be added replacement black money can be used for the
costs relating to the new currency. welfare of the society.
 Taking the standard of people in  Inflation to fall in the long run.

India, it is very difficult to
implement cashless society.  Banking system to get a boost as
new money to enter into the
 Negative impact on inflation and system.
customer spending will be a hit.
 Cost of handling and risk is safer
 Food item inflation will have a with soft money.
drastic and adverse effect.
 Cash will be useless with the
 Deposit rates and lending rates to people who have the black money.
fall in banks.
 Reduces tax avoidance.
 Banks will slash further the repo
rates.  Jewellery like sectors will also
come under tax sector.
 Indian equity markets will be
falling.  Tax and interest rates on loans in
the longer run will be coming
 Value of rupee will further be down.
declined.
 Helps in driving disposable
income.
Pro’s of Demonetization:  It will have a positive impact on

consumption demand in the days
 It will have a drastic affect on the to come.
corrupt practices.
Views and Counter Views:
 Enemy country’s with hefty of old
notes involved in terrorism like  This should be done after
activities will be suffered. considering that majority of the
black money is invested in land,
 Smuggling and fake currency will jewellery etc.
come to the halt.
 Improper planning and
 Banking system to improve as we implementation of this scheme is
are headed to the cashless society. done. There is no foresight. Many
sectors of people like farmers,
www.ijar.org.in 69
daily wagers, laborers etc are singh and PV Narsimha Rao are credited
facing a lot of troubles. for saving the Indian economy by
globalizing it and today the fruits of
 The market needs to be piled up which are enjoyed by the people of India
by Rs.100 and other smaller and that is the reason why they are
denomination notes before this remembered forever. However its now
scheme but unfortunately it was the time to see whether Mr. Modi will
not done. join the likes of Mr. Singh and Mr. Rao
and only answer for this can be given in
 This was affectively done without the days to come and one should wait for
any announcement; otherwise this that time. Indians are always optimistic
would be of no use. in nature and towards this scheme also
they are optimistic and we sincerely wish
 There are many problems as the
that our optimism will be paid and come
limit of withdrawal was not
true. All the Indians are eagerly waiting
higher. However this was good
to see their country and their economy as
because in case its higher it will
a developed one and the day is really not
again result in black money.
far where the Indian flag will be held
high among the likes of the developed
 India, one of the largest countries
nations of the world. India will be the
in the world in terms of population
is moving towards a cashless largest democratic country with largest
population, secularism, tolerance and
society which is a good sign of
development.
digital literacy.
References:
Conclusion:
1. http://www.stanforddaily.com/201
There was no hesitation in saying that
6/12/02/indias-demonetization-and-the-
this was a very bold step and this should
future-2/
be welcomed by all but at the same time
one should also have a look at the bigger 2. http://www.japantimes.co.jp/opini
picture in the days to come. One should on/2016/11/27/commentary/world-
not forget that this is what the people of commentary/economic-political-risks-
the country are asking for a long time indias-demonetization/#.WEaFQ9J97IU
and finally the govt has taken initiation
to start the same. The govt also should 3. https://www.bloomberg.com/gadfl
not forget that it had touched a bee nest y/articles/2016-11-09/india-chose-a-bad-
and if everything goes on well, it certainly day-to-usher-in-cashless-future
gets the credit and by chance
unfortunately if the implementation was 4. http://www.insightsonindia.com/2
a failure then this govt will be credited 016/11/10/6-discuss-demonetization-rs-
with the name and fame behind 500-rs-1000-notes-impact-terror-
jeopardizing the Indian economy which financing-200-words/
certainly is a hope of light for the
countries around the world. Manmohan
www.ijar.org.in 70
5. http://www.cnbc.com/2016/11/21/i
ndia-demonetization-news-expect-short-
term-pain-analysts-say-as-growth-
expected-to-take-a-hit.html
6. http://www.forbes.com/forbes/wel
come/?toURL=http://www.forbes.com/sit
es/greatspeculations/2016/12/02/modis-
demonetization-is-a-cure-worse-than-the-
disease-for-
india/&refURL=https://www.google.co.in/
&referrer=https://www.google.co.in/
7. http://www.vox.com/world/2016/1
1/29/13763070/india-modi-cash-
demonetization-protests
8. http://www.cnbc.com/2016/12/05/i
ndia-demonetization-news-short-term-
growth-to-suffer-after-modis-move-but-
experts-expect-fiscal-2018-growth-
rebound.html
9. http://thediplomat.com/2016/12/if
-indias-demonetization-was-all-about-
going-digital-then-why-the-rush/
www.ijar.org.in 71
A Study on Impact of Demonetization on Common Man

Dr.R.Sreenivasa Rao ,
Professor, Department of Management Studies, MBA Programme, Sir C.R.Reddy
College, PG Courses, Eluru-534 007, West Godavari District.
K. Geetha LavanyaLahari,
Final Year Student, , Department of Management Studies, MBA Programme, Sir

C.R.Reddy College, PG Courses, Eluru-534 007, W.G. District.
V.Vijaya Kumar ,
Seniour Lecturer, Department of Commerce, Sir C.R.Reddy (A) College, Eluru-534
007, West Godavari District.
Abstract: Demonetization has caused widespread chaos in the nation, with people
(mostly lower strata) facing sudden cash shortage, long queues accumulating in front
of Banks and ATMs. It has also been argued that this demonetization strategy will
have no significant effect on curbing black money, because of two reasons: firstly ,
most of the black money is deposited in foreign banks and is not in Indian currency,
secondly even in India, a bigger chunk of the black money is not kept in liquid form,
but as Gold. Now, both of these are true to much extent but to focus only upon these
will not show a correct picture of the impact of demonetization. In November,
everyone appreciated the ban, then some started arguing and now everyone is
struggling. It is more like the hypocrite in us speaking this. Based on the facts, this
paper focused on problems of demonetization, and impact of demonetization on
common man.
Key words: demonetization strategy, terrorism, hypocrite
Introduction: Rs.50, Rs.20, Rs.10 and Rs.5 of the series

The demonetization of Rs.500 and remained as legal tender and were
Rs.1000 banknotes of Mahatma Gandhi unaffected by the decision.
series was a policy ordained by The Government claimed this decision
Government of India on 8th Nov 2016. was taken to stop counterfeiting of the
Immediately from the next day onwards current banknotes used to fund terrorism
i.e. from 9th Nov 2016 these notes were and as a fight against to reduce/ eradicate
ceased to be legal tender in India. The corruption, black money, drug menace
announcement was made by Prime and smuggling. As every coin has two
Minister Mr. Narendra Modi on 8th Nov sides it does have some problems along
2016, in an unscheduled live television with its advantages. Here in this paper
address at 20:15 (IST) and declared those I’d like to focus on the impact of
currencies will be invalid and announced demonetization on common man and the
the issuance of new Rs.500 and Rs.2000 troubles he faced because of
banknote for exchange of old currency. demonetization.
Howbeit, the denominations of Rs.100,
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Need for the study: The 500 and 1,000 studied and identified the critical
rupee notes were the largest challenges facing the common man in
denomination of money, which made up India. The study has undertaken with the
for 14 lakh crores in circulation. help of secondary sources of data and
Demonetization has a direct impact on already published data like news papers,
sectors dealing with cash—vendors, auto websites and different reports given by
rickshawwallahs, taxi drivers, daily wage the government.
earners and small traders. The Indian Problems of demonetization:
system mainly functions on cash, and so, The demonetization of currency
less cash means disruption in the flow. denomination was also made in the past.
Even sectors like real estate, which deal In January, 1946, denominations of 1,000
with illegal cash transactions, will go and 10,000 rupees were demonetized and
through a rough patch leading to fall in new notes of 1,000, 5,000 and 10,000
profits. Further, When money is were introduced in 1954 and again these
deposited in the bank, one earns interest notes were abolished by the coalition
for the same. After the announcement of government on 16th January 1978 to curb
note ban, there have been huge cash counterfeit money and black money.
deposits in banks. In fact, some of the Now, after the announcement of
leading public and private banks have demonetization many officials, politicians
reduced the interest rates on deposits. and presidents and prime ministers of
Depositors might get lesser interest on different nations has praised Mr. Modi to
their deposits, but the good news is that take this initiative. Even though it is a
it will have a long-term positive effect on good task, it does affect common man a
the economy as the lending rate (interest lot and made him uncomfortable with
rate on loan) will fall. This will boost this decision.
credit and investment, to recover the There are some other problems as with
slumping economy, with this backdrop, along the good things that,
the present study taken up for examine  The scarcity of cash due to this
the impact of demonetization on common policy has led to chaos and most people
man. holding old bank notes, faced difficulties
Objectives of the study: to exchange them by standing in the
Keeping in view of above endless queue outside of banks and ATMs
mentioned facts, the following are the across India, has become a daily routine
objectives of the study: for millions of people waiting to deposit
 To study the impact of old notes and to withdraw new banknotes
demonetization on common man form the day 1.
 To analyze the pros and cons of  ATMs and banks were running
demonetization out of cash aftera few hours of being
 To offer suitable suggestions to functional and about half of the ATMs
concerned stakeholders. were non-functional.
Methodology of the study:  Even there are cases of violence,
The study is basically conceptual in looting and deaths due to standing in
nature and for the purpose of the study; queue to exchange old notes and lack of
an extensive review of literature has been
www.ijar.org.in 73
medical help due to refusal of accepting new banknotes and in some cases there
old currency notes by hospitals. were deaths, attacks, agitations and
 the black money will reemerge as sporadic violence at banks and ATMs.
now paying bribes will be much easier 4. Transportation Halts: After
with Rs.2000 notes. demonetization was announced, about
 In fact, if the same government eight lakhs, truck drivers were affected
does not come to power again, then there with scarcity of cash, with around four
may be the risk of reversal of some of lakhs trucks stranded at major highways
these policies. across India were reported. Even at major
 Bribes may be paid in the form of highway toll junctions the toll plazas
gold, foreign currency or smaller have refused to accept old notes. Later
denomination notes or through consumer government has extended support by
durables. announcing of suspension of toll
 The whole plan may boomerang collections on all national highways
as there is a complete demand collapse across India until 2nd December.
and people lose their jobs in unorganized 5. Agriculture: Business
sector in the near term. transactions in the agricultural sector are
Impact of demonetization on common majorly on cash. Thus they were
man: adversely affected by demonetization.
1. Hindrance to daily activities: Due to scarcity of new banknotes, many
From the day 1 of the policy enactment farmers have inadequate cash to
common man has faced the trouble of purchase seeds, fertilizers and pesticides
doing his daily economic activities as the needed for plantation of rabi crops
old currency notes became invalid and usually sown around mid- November.
the only way for exchange is through Farmers and their unions conducted
banks. protests against demonetization as well
2. Inconvenience for having as against the restrictions imposed by
exchange of old currency notes at petrol RBI on DCCBs which were ordered not to
pumps and hospitals: people had faced a accept or exchange demonetized
lot of trouble to exchange the old banknotes.
currency notes. Even though the 6. Business: The blow of
government had said that the notes will demonetization has affected small
be accepted at petrol pumps and hospitals businesses and sole traders a lot. They
they have rejected for exchange in most have experienced the reduce of
cases and in some cases at petrol pumps transaction at their business as the
the person has to buy petrol for some of customers are in cash deficit and they
the amount he wants to exchange it for. cannot accept the old banknotes. This has
3. Inadequacy of supply of new also affected e-business units as they
currency notes even at banks and ATMs: experience a decline in Cash on Delivery
One has to wait for hours in the queues orders
for exchanging of currency at banks and 7. Investors: Investors also
ATMs but they are unsure about experience the effect of demonetization.
procuring the new notes as the demand Many prospective investors had lost their
for exchange is more than the supply of investments in stock market crash.
www.ijar.org.in 74
8. Rabi crop: Sowing of rabi crop who read the history, which was
slowed down in the last week of announced over All India Radio. Then,
November compared with a normal India was not digital enough. We did not
season. According to a report by have too many banks. But today, it is
Edelweiss Securities, while 50 per cent of slightly a different story.
the rabi sowing has been completed, The men and women who have cash in
sowing activity remained slower than their hands as part of their idea of
normal until November 25 because of the savings, accumulating cash for an
cash crunch in the economy. However, it emergency expense. A habit from the past
was still 4.5 per cent higher on a year-on- without ATMs and Digital Banking. Do
year basis and 7.5 per cent lower than a not see that habit changing, especially
normal sowing season. Last year, the given the fact that money from ATMs is
sowing activity was impacted by low now limited and does not depend on your
water reservoir levels. Market experts account.
said the lower sowing of rabi crop could References
be attributed to demonetisation of Rs 500
1. "Withdrawal of Legal Tender
and Rs 1,000 currency notes, which left Status for Rs.500 and Rs.1000 Notes: RBI
the farmers short of cash. They are facing
Notice (Revised)". Reserve Bank of India.
difficulty in buying seeds and fertiliser.
8 November 2016. Retrieved 8
However, the government has taken
November 2016.
steps to ease the cash crunch at the rural
level. It has allowed state-run 2. Abhinav (8 November
distribution centres to accept old 2016). "Watch PM Modi's Entire Speech
currency notes for agri-input purchases. on Discontinuing 500, 1000 Rupee
9. Retail real estate: Retailers Notes". NDTV India. Retrieved 8
could see some impact on their November 2016.
business in the short-to-medium
3. "Demonetisation of Rs. 500 and
term due to reduced cash
Rs. 1000 notes: RBI explains".The Hindu.
transactions. The luxury segment is
likely to be hit because of the
November 2016.
historically high incidence of black
money acceptance in this segment. 4. "Here is what PM Modi said
However, credit / debit cards and e- about the new Rs 500, Rs 2000 notes and
Wallets should come to the rescue. black money". India Today. 8 November
Overall, the domestic consumption 2016. Retrieved9 November 2016.
story remains intact, with no threat
5. "Notes out of circulation". The
to the overall strength and growth
Times of India. 8 November 2016.
of the Indian retail industry.
Conclusion: 6. "Corruption fight". first post. 12
The demonetization announced by Prime November 2016.
Minister Modi was sudden, and came as a
7. "BJP policy". The Times of India.
shock. People who were born after 1978
10 November 2016.
would not remember anything about the
past demonetization, except for those
www.ijar.org.in 75
8. "India demonetisation: Chaos as

ATMs run dry". Al Jazeera. Retrieved 9
November 2016.
9. "Demonetisation: Chaos grows,
queues get longer at banks, ATMs on
weekend". 12 November 2016.
10. "India: Demonetisation takes its
toll on the poor". Al Jazeera. 16
November 2016. Retrieved 17
November 2016.
11. "Demonetisation Death Toll Rises
To 25 And It's Only Been 6
Days". huffingtonpost. Retrieved 15
November 2016.
12. "Sensex crashes 1,689 points on
black money crackdown, U.S.
election". The Hindu. Retrieved 9
November 2016.
13. "Demonetisation: Opposition calls
for countrywide protest on November
28". The Indian Express. Retrieved 23
November 2016.
14. "Demonetisation: Opposition
parties join hands, to hold 'protest day' on
November 28". The Indian Express.
Retrieved 24 November2016.
15. "'Demonetisation protest sure to
succeed with people's support'".The
Economic Times. Retrieved 24
November 2016.
www.ijar.org.in 76
The Socio-Economic dimensions of Demonetization in India

Dr.G.David Livingstone
HOD of Politics, D.N.R.College (Autonomous), Bhimavaram, AP
Abstract: The argument posited in favour of demonetisation is 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. While the
facts are not available to anybody, it would be foolhardy to argue that this is the only
possibility. Therefore, it is imperative to evaluate the short run and medium-term
impacts that such a shock is expected to have on the economy. Further, the impact of
such a move would vary depending on the extent to which the government decides to
demonetize. This paper elucidates the impact of such a move on the availability of
credit, spending, level of activity and government finances.
Keywords: demonetization, cashless transactions, credit, tax evasion
1. Introduction regime: one, there would be agents in the
The government has economy who are holding cash which
implemented a major change in the they cannot explain and hence they
economic environment by demonetising cannot deposit in the banking system.
the high value currency notes – of Rs 500 This part of the currency will be
and Rs 1000 denomination. These ceased extinguished since it would not be
to be legal tender from the midnight of replaced in any manner. Second, the
8th of November 2016. People have been government might choose to replace only
given upto December 30, 2016 to a part of the currency which was in
exchange the notes held by them.1 The circulation as cash. In the other words,
proposal by the government involves the the rest would be available only as
elimination of these existing notes from electronic money. This could be a
circulation and a gradual replacement mechanism used to force a transition to
with a new set of notes. In the short cashless medium of exchange. The
term, it is intended that the cash in empirical extent of these two components
circulation would be substantially will be unraveled only over the next six
squeezed since there are limits placed on months. These two would have different
the amount that individuals can effects on the economy in the short term
withdraw. In the months to come, this and in the medium term, as will be
squeeze may be relaxed somewhat. The explored below.
reasons offered for demonetization are
two-fold: one, to control counterfeit notes To understand the effects of
that could be contributing to terrorism, these dimensions, it is important to first
in other words a national security understand what is it that cash does in
concern and second, to undermine or the economy? There are broadly four
eliminate the “black economy”. kinds of transactions in the economy:
accounted transactions, unaccounted
There are potentially two ways in transactions, those that belong to the
which the pre-demonetisation money informal sector and illegal transactions.
supply will stand altered in the new The first two categories relate to whether
www.ijar.org.in 77
transactions and the corresponding generated would extend to the formal

incomes are reported for tax purposes or sector as well. The next question to ask
not. The third category would consist would be: would these activities/agents
largely of agents who earn incomes below choose to come within the folds of the
the exemption threshold and therefore do formal sector as a result of the changed
not have any tax liabilities. The uses that economic environment or would they
cash is put to for these various segments remain outside or worsen the activities
of the economy can be summarised in the and would be extinguished along with the
form of Table 1. Finally, there would be losses generated from the cash that was
demand for cash for illegal purposes like extinguished.
bribes in elections, spending over
sanctioned limits, dealings in crime and The second change as discussed
corruption. above, from demonetisation would arise if
only a part of the currency deposited in
Turning to the effects of the banks is returned to circulation as
demonetisation, the first major and cash. This change, if it is executed, would
sustained effect of demonetisation would dramatically change the economic
follow from the extent to which the environment in the country by forcing
currency is extinguished and what this agents to move from using cash as a
currency was being used for. It is being medium of exchange to using cash
assumed that all currency which will substitutes. This appears to be a real
potentially be extinguished would be possibility given that the Finance
currency being used as a store of value in Minister as well as the Governor of the
the first and second category of Reserve Bank of India have repeatedly
transactions in the table above. If this emphasised that agents should be moving
assumption is correct, then the impact of to the use of cashless medium where
extinguishing this currency would be there are no problems in comparison to
limited. On the other hand, if the the cash based medium. For instance,
currency is used for any of the other The Hindu reported that “ Reserve Bank
transactions in the economy, either as a of India (RBI) has urged citizens to
store of value or more importantly, as a switch to alternative modes of payments
medium of exchange, then the impact on such as pre-paid cards, credit and debit
the economy and the agents in the cards, mobile banking, and Internet
economy could be substantial. If, for banking.”2 In a press conference on
instance, the extinguished cash was used November 12, the Union Finance
as a medium of exchange in financing Minister too said that “Those in
unaccounted income generation or businesses should start using digital
income in the informal sector, payment gateways, cards and banking
demonetisation would result in these system.
activities closing down and a
corresponding reduction in the incomes In what follows, an attempt is
and employment associated with these made to present a discussion of the likely
activities. The spillover effect would be effects classified into very short term as
felt by the organised sector as well since in the next two months, the short term as
the consumption from the incomes in a six months to a year and the rest as
www.ijar.org.in 78
medium term. Within these, an attempt Thus, while generally people seem to
is made to distinguish between the effects expect prices to fall, it is quite possible
if there is full remonetisation to the that prices would instead rise.
extent of deposits made in banks and a
scenario of partial remonetisation. Alternatively, to keep the flows
going, people might take recourse to
Very short-term impact credit - both the retailers and other
The demonetisation, by removing agents in the economy might make
86 per cent of the currency in circulation, supplies on credit in the hope that when
has resulted in a very severe contraction the liquidity status is corrected, the
in money supply in the economy. This payments can be realised. In these cases,
contraction, by wiping out cash balances the price of commodities might rise
in the economy, will eliminate a number instead of falling. In other words, the
of transactions for a while, since there is impact of an incremental reduction in
no or not enough of a medium of money supply where the demand and the
exchange available. Since income and supply chain remain unaffected would be
consumption are intrinsically related to different from a case where there is a
transactions in the economy, the above drastic reduction in money supply and
would mean a severe contraction in outputs might adjust rather than the
income and consumption in the economy. adjustment being in prices. In other
This effect would be more severe on words, the expectation that inflation
individuals who earn incomes in cash and would decline might be belied.
spend it in cash. To a lesser extent it A further impact would be a compression
would also affect individuals who earn of the demand for non-essentials by all
incomes in non-cash forms but need to the agents in the economy in the face of
withdraw in cash for consumption uncertainty in the availability of cash.
purposes, since a number of sectors in the The demand from segments which have
economy still work predominantly with access to digital medium of exchange
cash. would remain unaffected, but that from
the rest of the economy would get
In terms of the sectors in the compressed. This would transmit the
economy, the sectors to be adversely effect to the rest of the sectors in the
affected are all those sectors where economy as well.
demand is usually backed by cash, Another sector where one expects to see
especially those not within the organised effects in the very short run is the real
retailing. For instance, transport estate space. With contraction in demand
services, kirana, fruits and vegetables from one set of agents – say agents who
and all other perishables, would face have earned unaccounted incomes and
compression in demand which is backed placed them within the real estate space –
by purchasing power. This in turn can either prices within this segment would
have two effects: while it is expected that fall or transactions would cease to
supply exceeds demand, there would be a happen. While of itself, this would be
fall in prices, however, if supply too gets considered a positive development and
curtailed for want of a medium of evidence of a correction in the
exchange, prices might, in fact, rise. unaccounted incomes, it could lead to a
www.ijar.org.in 79
compression in investments in the affected. Thus, in spite of a good monsoon

construction sector which can have in large parts of the country, the farmer
adverse income and employment might not get the benefits.
consequences for the economy.
Short-term effect with incomplete
Short-term effect with complete replacement:
replacement: If, on the other hand, the
The short-term effect on the authorities choose to replace only a
economy would depend on the speed with fraction of the total cash that was
which and the extent to which the cash is surrendered by the people to the banking
replaced by the authorities. If the entire sector, then one would witness some
cash is replaced within a short duration other changes/effects in the economy. For
of time, the effects beyond the very short transactions to be restored to the pre-
term of 1-2 months might be little. But a change level, a number of agents who are
few sectors are likely to be seriously using cash as a medium of exchange have
affected. To give an example from two to move to using digital versions of
sectors which are supposed to have large money as the medium of exchange. While
employment effect on the economy, we this change is gradually happening in the
can talk about agriculture, automobiles economy, if it is forced by making cash
and construction. inaccessible, the compression in demand
This is the sowing season for the as well as in income generation in the
Rabi crop in some parts of the country economy would continue for a longer
and the harvesting season for the Kharif period until people get familiar with the
crop. Most of the purchases and sales in functioning and use of these media.
this segment of the economy are carried There are a number of transition issues
out through cash. With the elimination of that need to be managed for this
cash from the economy, sale of kharif transition to be effective:
crop would be difficult unless the crop is
sold on the promise of payment in future.
Given the limited bargaining power of the 1. Infrastructure Issues: There is need for
farmer, the price they can realise for the a significant upgrade of the banking
crop can be adversely affected. On the system as well as in the telecom
other hand, in the sowing activity, people infrastructure that would provide the
would not get access to the inputs backbone for digital transactions. For
required since most of the inputs are now people to be able to transact at any time
purchased from the market unless they and place as well as for them to consider
seek access to credit from the supplier. In it a reliable medium of exchange, it is
other words, with demonetisation, there important that not only the banking
would be a significant strengthening of system is upgraded to ensure that
the informal sector credit market in the transactions can be completed without a
rural economy. Further, if there are hitch, but the supporting infrastructure
agents who do not get access to credit too is up to the mark. For instance, in
from the informal sector agents, their many parts of the economy, there is
sowing activity and hence their incomes limited and intermittent supply of
in the next season would be adversely electricity as well as mobile connectivity.
www.ijar.org.in 80
In these areas, it would be difficult to safely lend without an excessive risk of

expect people to shift to electronic withdrawal of the amount. This is
medium of exchange. important since, while banks can borrow
money from the call money market, the
costs of such borrowings can be large.
2. Consumer behaviour Issues: Apart These models, however, might need to be
from the technological issues, there is a altered in the new regime since the
behavioural change that is being expected character of the new deposits that come
in people from using cash as a medium of into the bank would be different from the
exchange to using other cash substitutes pre-existing deposits. In the latter, while
both for making payments and receiving a fraction of the deposits would be for
payments. This transition requires transactional purposes – e.g. salary
individuals to make two changes in their
earners – another fraction would be
behaviour: one, agents need to move from depositing only savings into the account.
tangible means which can be seen and By eliminating high value currency notes,
felt to forms which are less tangible or these agents who were operating through
not tangible, and second, they have to
cash, would now have to move to non-
learn to rely on technologically advanced cash instruments and hence, the balances
tools to undertake regular day to day in their accounts would not be savings
operations. The latter requires agents to but transaction values which will be
be educated to the extent of
retained in the account for shorter
comprehending the content of durations of time. The banks therefore
transactions. If this transition is not would need to re-model their decisions on
suitably managed, agents might be how much of the deposits can be lent out
tempted to move to non-official cash and for what duration. It is, for instance
substitutes.
possible, that a larger proportion of the
deposits would be retained for short-term
3. Accessibility in language: In addition lending and can even be dedicated to the
to all of the above, most of the banks and call money market.
the mobile instruments for transaction
are currently adapted to a single to two Second, while 1/reserve ratio
languages. If the bulk of the population of defines the potential maximum amount
this country needs to come on board, it of credit that can be generated in the
might be important to make these economy, the actual credit generation
facilities available in a myriad of Indian would be defined both by the demand for
languages to ensure that the user can credit and the extent to which cash
comprehend the transaction that they are intervenes in the functioning of the
entering into. economy. For instance, if people who
receive credit from the bank make
payments through cheques alone and
4. Transition issues for banking sector: they in turn make payments through
There are multiple issues here. The cheques, then the potential credit
banks too might have a transition issue creation can be realised. However, if on
to deal with. Banks would have a model receipt of payment, the agent withdraws
of the fraction of deposits that they can
www.ijar.org.in 81
the money to cash and makes payments, the economy, it is important to

only a fraction of the credit/deposit will differentiate between the two changes
return to the banking system. Thus, that the demonetisation can bring about
larger is the extent to which cash is used in money supply. The first change, i.e.,
as a means of transacting, smaller is the cash being extinguished, to the extent it
total credit that can be generated. With a was being used as medium of exchange,
withdrawal of cash from circulation, the would result in a compression in incomes,
deposits will continue to remain in the employment and consumption in the
bank, it would merely shift from account economy. On the other hand, the effect of
to account or from bank to bank. Thus, the second change, i.e., cash being only
even on the earlier deposits, the amount partially replaced in the system would
of credit that can be generated would be have the opposite effects of expansion in
larger. This is another reason why the potential credit creation. The potential
banks would need to remodel their credit creation would translate into
investment decisions corresponding to a actual credit creation provided there is
given level of deposits. sufficient demand for credit. If the
demand for credit in the economy is large
A third issue that might arise as a enough, the potential credit can be
transition issue is because of the realised. Of the credit created, other
mismatch between people’s preferences things remaining the same, it can be
for cash and the availability of cash. In expected that at least a part of the credit,
the interim, until people adjust to the use will be for productive purposes. This
of non-cash instruments, there would be would mean expansion in investment in
an increased demand for the cash that is the economy and subsequently an
available and that might generate a increase in GDP and employment.
situation where the agents have to pay a If there is increase in investment in the
premium to access legal tender. In economy, the demand for capital goods
periods of scarcity of coins for instance, it rises. If output can expand in this sector,
is commonly known that people pay a there would be an expansion in the
premium to get the change. While this income generation and in demand for
can be considered a transition issue, goods and services. Sectors that are not
there are two different implications of operating with excess capacity cannot
such a development: meet the expanded demand with
If the premium on cash is high, it increased output, leading to increase in
would encourage both the shift to non- prices. This would hold for agriculture as
cash instruments on one hand, and to well as any industry with long gestation
informal substitutes of cash on the other. lags to investment. In other words, in the
short run there is a possibility of increase
in inflation.
This might undermine the
confidence that people have in the Effects on government finances:
currency and hence, encourage move to The effects of demonetisation on
other currencies. government finances can be divided into
Apart from the transition issues three categories: the impact through
faced by banks, in judging the impact on RBI’s finances, the impact through taxes
www.ijar.org.in 82
and the impact through credit available were hiding black money. Nor can they
to finance deficits. be interpreted as additional balances that
the banking sector can lend out on the
Conclusions same basis as earlier deposits, since the
The demonetisation undertaken by the deposits now would remain in accounts
government is a large shock to the for much shorter periods that deposits
economy. The impact of the shock in the based on savings would be.
medium term is a function of how much
of the currency will be replaced at the References :
end of the replacement process and the
extent to which currency in circulation is Internet desk. (2016, Nov. 12).
extinguished. While it has been argued Recalibration of ATMs will take up to
that the cash that would be extinguished three weeks, says Jaitley. The Hindu.
would be “black money” and hence, Retrieved from
should be rightfully extinguished to set http://www.thehindu.com/news/national/
right the perverse incentive structure in demonetisation-arun-jaitley-on-atms-
the economy, this argument is based on going-dry/article9338238.ece
impressions rather than on facts. While
the facts are not available to anybody, it Padmini Sivarajah. (2016, Nov. 11).
would be foolhardy to argue that this is Demonetisation: Madurai Corporation
the only possibility. As argued above, it is makes record tax collection on a single
possible that these cash balances were day. The Times of India. Retrieved from
used as a medium of exchange. In other http://timesofindia.indiatimes.com/city/ch
words, while the cash was mediating in ennai/Demonetisation-Madurai-
legitimate economic activity, if this Corporation-makes-record-tax-collection-
currency is extinguished there would be a on-a-single-
contraction of economic activity in the day/articleshow/55374378.cms
economy and that is a cost that needs to
be factored in while assessing the impact PTI. (2016, Nov. 9). Demonetisation will
of the demonetisation on the economy benefit economy in long run: Jaitley. The
and its agents. Hindu Business Line. Retrieved from
http://www.thehindubusinessline.com/eco
It is likely that there would be a nomy/demonetisation-to-increase-eco-
spurt in the banking deposits. While size-enhance-revenue-base-says-
interpreting the phenomenon, however, jaitley/article9324312.ece
one has to keep in mind that a large part
of their deposits were earlier used for PTI . (2016, Nov. 12). Hyderabad civic
transactional purposes. For example, if a body collects Rs 65 crore of property tax.
small trader deposits 2 lakh Rupees in The Indian Express. Retrieved from
the Jan Dhan account since the currency http://indianexpress.com/article/india/indi
in which he held these balances in for a-news-india/demonetisation-hyderabad-
transactional purposes has been civic-body-collects-rs-65-crore-of-
scrapped, it would be incorrect to property-tax-4372156/
interpret this as success of the
programme in bringing in people who
www.ijar.org.in 83
Impact of Demonetization on Various Sectors & the Economy

K.V. Sridhar Ch. Madhavi
Asst. Professor Asst. Professor
Sir C R R College of Engineering Sir C R R College of Engineering
Eluru Eluru
Abstract: PM Modi has announced a war against black money and corruption. In an
emboldened move, he declared that the 500 and 1000 Rupee notes will no longer be
legal tender from midnight, 8th November 2016. The RBI will issue new chip based Rs.
500 and Rs. 2,000 notes which will be placed in circulation from 10th November 2016.
Notes of 100, 50, 20, 10, 5, 2 and 1 Rupee will remain legal tender and will remain
unfazed by this decision.
Key words: circulation, sudden decline, denomination.
Introduction: The impact of this move will be felt

across sectors with differing intensities
This measure has been taken by the PM and across varied time zones.
in an attempt to address the resolve
against corruption, black money, Effect on parallel economy: Cash
terrorism and counterfeit notes. This Economy to Witness Contraction
move is expected to cleanse the formal
economic system and discard black The currency of the aforementioned
money at the same time. One of the denominations constitutes around 86% of
reasons that prompted the Government the total value of the currency in
to demonetize Rs. 500 and Rs. 1000 notes circulation. It is expected to remove black
is that their circulation was not in line money from the economy as they will be
with the Economic Growth. As per the blocked considering the holders will not
Finance Ministry, during 2011-2016 be in a position to deposit the same in the
periods, the circulation of all notes grew banks, temporarily halt the circulation of
40% but the circulation of Rs. 500 and Rs. large volumes of counterfeit currency and
1000 notes went up by 76% and 109% curb the funding for anti-social elements
respectively. Relatively speaking, the like smuggling, terrorism, espionage, etc.
economy has grown only by 30% which is
way below the money circulation. Effect on GDP: Downward Bias to GDP
Growth
At an aggregate level, this move will
significantly eliminate the existing stock The sudden decline in money supply and
of black money, fake currency and will simultaneous increase in bank deposits is
benefit the economy in the medium- to going to adversely impact consumption
long-run, but, the question as to how the demand in the economy in the short
creation of black money in the future will term. This, coupled with the adverse
be prevented still remains unanswered. impact on real estate and informal
sectors may lead to lowering of GDP
www.ijar.org.in 84
growth. The GDP formation could be from the banking system to keep the
impacted by this measure, with a short term rates aligned with the policy
reduction in the consumption demand. rate.
However, with the recent rise in festivals,
demand is expected to offset this fall in Credit Impact across Sectors: Impact of
an overall impact. Moreover, this this policy measure will flow to the
expected impact on GDP may not be economy mainly through the Real Estate
significant as some of this demand will sector, which has strong linkages with
only be deferred and will re-enter the sectors such as cement and steel and
stream once the cash situation becomes which will turn credit negative in the
normal. short-run. A significant impact in the
short-run will be on the daily/weekly
Lower Money Supply has a Deflationary wage employment in the informal sector.
Effect: With the older 500 and 1000 The construction sector has one of the
Rupees notes being scrapped, until the highest employment multipliers. The key
new 500 and 2000 Rupees notes get segments of the economy where cash
widely circulated in the market, money transactions play a vital role are real
supply is expected to be reduced in the estate, gold and the informal sectors,
short run. Reduction in money supply can which may face near term contraction.
also have a deflationary effect in the With more money coming into the
economy. However, whether the impact banking ambit, deposit growth is likely to
of the reduced money supply will lead to improve and positively impact the savings
deflation or contraction in demand or a rate. The medium- to long-term gains are
mix of both will vary from sector to sector likely to outweigh the short-term pains.
depending on the nature of goods &
services. To the extent that black money Effect on Banks
(which is not counterfeit) does not re-
enter the system, reserve money, and As directed by the Government, the 500
eventually, money supply will decrease and 1000 Rupee notes, which now cease
permanently. However, gradually as the to be legal tender are to be deposited or
new notes get circulated in the market exchanged in banks (subject to certain
and the mismatch gets corrected, money limits). This will automatically lead to
supply will pick up speed. more amounts being deposited in Savings
and Current Accounts of commercial
Impact on Bond Markets: Surge in banks. This, in turn, will enhance the
deposits will create more demand for liquidity position of the banks, which will
government bonds and other high rated be later utilized further for lending
bonds in a situation of tepid demands for purposes. However, to the extent that
credit, leading to lower bond yields households have held on to these funds
especially in the shorter end of the curve. for emergency purposes, there are
At the same time, a reduction in leakages expected to be withdrawals at the second
in systemic liquidity will reduce the scope stage.
for open market operation purchases in
the coming days. We believe that the RBI Effect on Online Transactions and
will continue to sterilize excess liquidity alternative modes of payment: With cash
www.ijar.org.in 85
transactions facing a reduction, could face a slowdown. This trickle-down

alternative forms of payment will see a effect could encompass the entire real
surge in demand. Digital transaction estate sector putting pressure on the
systems, E wallets and apps, online demand itself. This could adversely
transactions using E banking, usage of impact NBFC’s & housing financers with
Plastic money (Debit and Credit Cards), a large proportion of exposure Mortgage
etc. will definitely see substantial built with a self-employed customer
increases in demand. This should profile. We believe that Micro Finance
eventually lead to strengthening of such Institutions and Small Finance Banks
systems and the infrastructures required. (SFB’s) may not be significantly impacted
in the long term, considering that the
Bank Deposit Rates to Soften: We can cash flows of the borrower segment are
expect a large amount of cash in usually in the smaller denomination.
circulation to be brought within the However, there could be near term
purview of the formal banking system by disruptions in the collection cycles along
way of deposits. This is structurally with a spike in over dues, which could put
positive for banks, as part of this cash their liquidity strengths and the
gets deposited as current account and disbursal cycles under pressure.
savings account (CASA) deposits,
reducing banks dependence on higher Payment Banks to Benefit: Payment
cost borrowing. Deposit deployment banks and others entities which are part
remains a challenge in the short to of the transaction ecosystem are likely to
medium term due to the current tepid be long term beneficiaries, as more and
demand for credit, subsequently pushing more cash finds its way into the formal
deposit rates lower. banking channels. We believe the
cumulative measures taken to reign in
NBFC’s Asset Quality Faces Pressure: black money will improve banking habits,
We believe in the asset quality of Retail create financial and transactional history
Asset Lenders, especially NBFC’s which of the informal & cash dependent
have developed expertise in the credit segments and could, over the long term,
assessment of the informal segment and make them ‘bankable’.
have built models around it to stay under
pressure in the short term. Within Investment in Financial Products:
NBFC’s, asset quality of lenders with a Investors in the short term will now
large dependence on cash collection believe that Cash is not the safest asset
remain vulnerable in the short term. In and there is little point in hoarding it.
the longer term the implications could be This will shift them from physical asset
a risk profile shift for the NBFCs, as the to financial assets where returns are also
stronger borrower profile could higher
potentially migrate to banks. Across the
medium term, the demand for real estate, Impact on Consumption Sectors
especially in the secondary market i.e.
Resale Transaction and Tier-II cities Agreement Cost of Real Estate May Rise:
where the cash component, as a We expect that the real estate demand
proportion of transaction is significant, from end users is unlikely to be impacted,
www.ijar.org.in 86
since a majority of them are backed by Demand for Gems and Jewellery to
funding from bank loans. Demand from Decline: We can expect the demand for
investors for real estate however may gems and jewellery to decline in the next
come down since in some cases, investors two to three quarters. This would result
prefer cash transactions. If the in a weakening in the credit profile of
proportion of earlier transactions in the industry players due to the high working
real estate sector, which were allegedly capital cycles and high operating
done through partial cash payment leverage. The unorganised segment will
reduces, the registered prices for real be hit particularly hard, given the large
estate will go up. We expect the supply of proportion of unaccounted inventory and
real estate in the secondary market, high proportion of cash sales. Over the
which is strongly rumoured to have a medium-term the organised industry
large cash component involved, to suffer players will benefit at the cost of the
in the short term, which may in turn unorganised players. Gold imports
improve demand for residential real through the unofficial channels are likely
estate in the primary market. to reduce. There will be no significant
impact on jewellery exporters because it
In the medium term, the prices in this is mostly an organised market and sales
sector could regain on many fronts as are against invoices.
developers rebalance their prices
(probably charging more on cheque High End Retail Demand to fall: We
payment). expect the impact on high end fashion
retail and luxury goods to be more
Used car Sales May Fall: Sales of pronounced as discretionary demand in
vehicles in the second hand market for this segment will be curtailed. In case of
original equipment manufacturers will Quick Service Restaurants, although
get impacted, which will cause a ripple 60%-70% of the transactions are
effect on New Car sales, as buyers will currently in cash, the impact is likely to
not be able to dispose of their old vehicles be moderate due to the low ticket size of
easily. purchases and high likelihood of patrons
adapting to plastic money. We expect a
Slowdown in Discretionary Spending to limited impact to be caused on the food
Hurt Consumer Durable Sales: Sales of and grocery retail sub-segment, given the
White Goods like TV, Refrigerator & non-discretionary nature of purchases in
Washing Machine could slump as much this segment, since the buying cycle for
as 70% as a good portion of the market is the current month would have been
driven by Cash. This may continue for largely influenced.
next Six Months till the dust settles down
and there is adequate circulation of the Private Educational Institutions: Since
new currencies. Private Educational Institutions take
huge amounts of donations in Cash which
Prices are expected to fall only is 40 % to 50%, we expect that this move
marginally, due to moderation in will impact the Private Education
demand, as use of cards and cheques Institutions receipts.
could compensate for some purchases.
www.ijar.org.in 87
Medical Institutions (Both Hospitals & the fruits and vegetables category
Medical Colleges): Again, as Medical typically require off-loading of their
Institutions like Hospitals and Colleges produce in the local Mandi in cash and
take huge amounts of donations in Cash could see an immediate impact. A sudden
which are more than 100 % of fees, we demonetization will adversely impact this
can keep on expecting that this move will segment of the economy and it will
impact not only the admissions but also witness immediate contraction, though
the receipts. this impact will diminish over time.
Political Parties: Elections & Political With cash transactions lowering in the
Parties are major sources of Black Money short run, until the new notes are
transactions. Most of the funding of naturalized widely into circulation,
National Political Parties is in Cash certain sections of the society could face
which is 40% to 50%, and when it comes short term disruptions in facilitation of
to Regional Parties it goes upto 50% to their transactions. These sections are:
60%. The sources of more than 90% of
such funds are never disclosed. Agriculture and related sectors
Candidates as well as their donors even
the Political Parties will feel cash Small traders
strapped. An assembly seat candidate
SME
spent on an average Rs. 4-5 Crores on
Campaigning that is likely to go down Services Sectors
drastically.
Households
This is going to cause huge craters on
their funding and will reduce their funds Professionals like doctors,
drastically. It is going to deal a major carpenters, utility service providers, etc.
blow to political parties fattening their
coffers with cash contributions in Retail outlets
anticipation of high stakes electoral
battles in UP, Punjab, Uttarakhand, Goa Conclusion
and Manipur. This stroke is bound to
leave big players hamstrung and The nature, frequency and amounts of
suddenly resource-poor. the commercial transactions involved
within these sections of the economy
Effect on Various Economic Entities necessitate cash transactions on a more
frequent basis. Thus, these segments are
The key segments of the economy where expected to have the most significant
cash transactions play a vital role are real impact post this demonetization process
estate / construction, gold and the and the introduction of new notes in
informal sectors as such. The role of cash circulation.
transactions in case of real estate and
gold is mostly dubious, however in case of Since most of the Rural Economy
the informal sectors it is the lifeline. For is based on Cash, it’s going to impact the
example, small and marginal farmers in Rural Economy
www.ijar.org.in 88
Sectors with a sizeable magnitude 6. "BJP policy". The Times of India.

of Cash transactions such as Real Estate, 10 November 2016.
Construction, Jewellery, high-end retail,
7. "India demonetisation: Chaos as
White Goods and travel & tourism are
ATMs run dry". Al Jazeera. Retrieved 9
expected to adversely affect.
November 2016.
It will push the economy because 8. "Demonetisation: Chaos grows,
of flow of more money into the banking queues get longer at banks, ATMs on
system. weekend". 12 November 2016.
In the long term, the economy 9. "India: Demonetisation takes its
will benefit from the reduction of the toll on the poor". Al Jazeera. 16
black money, which will lead to higher November 2016. Retrieved 17
tax collection, better business November 2016.
environment, less corruption & 10. "Demonetisation Death Toll Rises
transparency. It will improve the To 25 And It's Only Been 6
situation of Fiscal Deficit of the Country Days". huffingtonpost. Retrieved 15
and hence reduce the fiscal deficit.
November 2016.
Interest rates will decline further because
of decrease on Inflation as banks are
flushed with huge inflows.
References
1. Abhinav (8 November
2016). "Watch PM Modi's Entire Speech
on Discontinuing 500, 1000 Rupee
Notes". NDTV India. Retrieved 8
November 2016.
November 2016.
3. "Here is what PM Modi said
about the new Rs 500, Rs 2000 notes and
black money". India Today. 8 November
2016. Retrieved9 November 2016.
4. "Notes out of circulation". The
Times of India. 8 November 2016.
5. "Corruption fight". first post. 12
November 2016.
www.ijar.org.in 89
The Present Scenario of Demonetization in India

S. Sai Durga Prasad1, A.V.R. Gajapathi Raju2 and Dr. N. Vijaya Kumar3
1
E.C. Member of Adikavi Nannaya University, Rajamahendravaram & HOD, Botany,
KGRL (A) College, Bhimavaram-534201, INDIA.
2&3
Lecturers in Chemistry, DNR (A) College, Bhimavaram-534202, INDIA.
Abstract: The need of demonetisation as enunciated by the government, recent

demonetisations in some other countries, the ground situation in a few days and after
one month after declaration of demonetisation on 8th November’ 2016 presented. How
the influential people are not affected and common people are facing troubles daily,
pros & cons of demonetisation, loopholes in implementation, and remedies are
discussed.
Key words: Demonetisation, higher denominations of Rs. 500 and Rs. 1000, loopholes,
remedies, ATMs.
Introduction tender of the United States. The
Demonetisation is withdrawl of withdrawal of silver from the economy
units of money from circulation or to resulted in a contraction of the money
cease the status as legal tender. From supply, which subsequently led to a 5-
midnight of 8th November’ 2016 in our year economic depression in the country.
country the units of higher In response to the dire situation and
denominations Rs. 500 and Rs. 1000 pressure from silver miners and farmers,
banknotes of the Mahatma Gandhi the Bland-Allison Act remonetised silver
Series were demonetised. Demonetisation as legal tender in 1878. In 2015, the
is necessary whenever there is a change Zimbabwean government demonetised
of national currency. The old unit of the Zimbabwean dollar as a way to
currency must be retired and replaced combat the country’s hyperinflation that
with a new currency unit. The opposite of was recorded at 231,000,000%. The 3-
demonetisation is remonetisation where a month process involved expunging the
form of payment is restored as legal Zimbabwean dollar from the country’s
tender. There are many reasons why financial system and solidifying the US
nations demonetise their local units of dollar, Botswana pula, and South African
currency. Some reasons include rand as the country’s legal tender in a bid
combating inflation, corruption, and to to stabilize the economy. Another
discourage a cash system. The process of example of demonetisation occurred
demonetisation involves either when the nations of the European
introducing new notes or coins of the Monetary Union adopted the euro in
same currency or completely replacing 2002. In order to switch to the euro,
the old currency with new currency. authorities first fixed exchange rates for
the varied national currencies into euros.
Recent History of some When the euro was introduced, the old
Demonetisations: In US the Coinage Act national currencies were demonetised.
of 1873 demonetised silver in favor of However, the old currencies remained
adopting the gold standard as the legal convertible into euros for a while so that
www.ijar.org.in 90
a smooth transition through tax penalty of 200% of the tax owed was
demonetisation would be assured. imposed.
The present Demonetisation in India: However, in the days following

the demonetisation, banks and ATMs
The demonetisation of 500 and across the country faced severe cash
1,000 banknotes was a policy enacted shortages. The cash shortages had
by the Government of India on 8th detrimental effects on a number of small
November’ 2016. All 500 and 1,000 businesses, agriculture, and
banknotes of the Mahatma Gandhi transportation, while people seeking to
Series ceased to be legal tender in India exchange their notes had lengthy waits,
from 9 November 2016. The and several deaths were linked to the
announcement was made by the Prime rush to exchange cash. Also, following
Minister of India Narendra Modi in an Modi's announcement, the BSE
unscheduled live televised address at SENSEX and NIFTY 50 stock indices
20:15 Indian Standard Time (IST) on 8 crashed for the next two days.
November. In the announcement, Modi
declared that use of all 500 and 1,000 The demonetisation received
banknotes of the Mahatma Gandhi support from several bankers as well as
Series would be invalid from midnight of from some international commentators,
the same day and announced the issuance although it was criticised by members of
of new 500 and 2,000 banknotes of the opposition parties, which led to
the Mahatma Gandhi New Series in commotions in both houses
exchange for the old banknotes. However, of parliament and triggered organised
the banknote denominations of 100, 50, protests against the current
20, 10 and 5 of the Mahatma Gandhi government in front of the parliament
Series remained legal tender and were and elsewhere across India.
unaffected by the policy.
Pros & Cons: In its statement, the RBI
The government claimed that the
pointed out that currency in circulation
demonetisation was an effort to stop
plunged by "Rs. 7.4 trillion up to
counterfeiting of the current banknotes
December 2..." and this led to a fall in
allegedly used for funding terrorism, as
demand, supply and production. So,
well as a crackdown on black money in
clearly, there is a cash crunch. And there
the country. The move was described as
could be just one solution to ensure that
an effort to reduce corruption, the use of
the economy does not suffer for too long:
drugs, and smuggling. By making the
supply of more cash in the market. How
larger denomination notes worthless,
about this for a solution: since most of
individuals and entities with huge sums
the currency in circulation is already in
of black money gotten from parallel cash
the banks-and not lying buried under
systems were forced to convert the money
pillows or being thrown into the Ganges-
at a bank which is by law required to
why not introduce the old Rs. 500
acquire tax information from the entity.
currency notes back into the market,
If the entity could not provide proof of
make them legitimate tender again?
making any tax payments on the cash, a
www.ijar.org.in 91
One of the reasons behind the market were a bit exaggerated. Different
withdrawal of the notes of higher estimates put the value of counterfeit
denominations was that it was expected notes to just around Rs. 400 million,
that a large amount of cash would not which is just a fraction of the currency in
return to the system. But, as several circulation. So, reintroducing old Rs. 500
reports have pointed out, most of the notes, especially when they would now be
nearly Rs. 14.5 lakh crore of the filtered through banks, would not hurt
demonetised money that was in the Indian economy.
circulation will soon be deposited in Several banks, including the
banks. State Bank of India (SBI), have been
Experts would continue to debate complaining that the increase in deposits
the gains from demonetisation for a long would hurt them unless there is adequate
time. Some would argue that it has failed compensation. And since the RBI has
because people found a way to bring disallowed them from using the excess
money back into the system, denying the cash through a hike in Cash Reserve
RBI a windfall through extinguished Ratio (CRR)-a specified minimum
currency. Others would claim that since fraction of the total deposits of
the money has come back into the customers, which commercial banks have
system, it can be taxed and used by to hold as reserves either in cash or as
banks for cheaper loans. But the gains deposits with RBI-banks are complaining
through enforcement of tax laws, experts that they would have to pay interest on
contend could be slow and may not be these deposits without deploying them in
able to offset the disruptive cost of the market for returns. Obviously, if the
demonetisation, leading to a net loss to curbs on withdrawals are lifted, banks
the economy. too stand to gain.
But, what is clear by now is that the Though pragmatic, the reintroduction of
currency notes, especially the Rs. 500 the old Rs. 500 notes to address the cash
notes, can be easily used after withdrawal crunch would, of course, be seen as a
from banks once the full currency in rollback. And, in the context of the
circulation gets deposited; there is very heavily politicised debate around
little left in the market. It can be safely demonetisation, which is looking more
deployed to cover the shortfall in supply. and more like currency exchange now,
This will serve two purposes: one, the Narendra Modi government would
immediately improve liquidity; two, see it as acceptance of failure of the
minimise government cost on printing demonetisation policy.
and distribution of new notes. Loopholes and remedies: There
In fact, given that almost all the are some obvious loopholes before and
notes have now reached the banks, even after demonetisation. Some of the most
the Rs. 1,000 notes could have been put important of them are: 1. The usage of
back into circulation. But, since they debit/credit card is not enforced by the
have already been supplanted by Rs. government at least at the points of
2,000 notes, their absence won't hurt the travell i.e. airports, railways, state road
system much. Also, it is clear that fears of transports, and petrol bunks, govt. / semi
counterfeit currency flooding the Indian govt. bodies to receive money. If it would
www.ijar.org.in 92
have been implemented there would be resulting in despair as ATMs will be out
no pathetic situation for the people in of money in just a few hours.
travel in midnight of 8th November’ 2016. As the saying goes, ‘All is well if
2. In the pretext of IT/Commercial the end is well’, it would be well for the
Department all the jewellery shops could intended intentions if prudent and
have been sealed in the evening of the practical solutions to alleviate the
day of declaration of demonetisation; as it problems of common people are found
was not done, a large chunk of the black and implemented by the government.
money became white gold money in the References:
same fateful night, shameless to the The adress of the Nation by the
planners and advisors to the scheme of Prime Minister at 8:15 PM on 8th
the demonetisation. 3. The new currency November’ 2016.
of Rs. 2000 denomination was exchanged News clippings of electronic media.
with the old demonetised Rs. 500 and Rs. Debates in National and Local TV
1000 in the midnight and the day after Channels.
with the collusion of Bank managers and Articles in National and Local prinit
the officials of Post offices, Road media.
Transport Corporations of State
Governments, money receiving agencies
of State Governments which can officially
deposit all the demonetised notes,
received unduly for exchange from by
influential people like politicians and big
business people, tuning to
thousands/lakhs of crores of rupees
which is evidenced by the new currency
found in the recent raids conducted by IT
department which is just a tip of iceberg
of the whole fraudlence allowed by non-
planning/recklesness of the government.
4. Farmers are now getting the money for
the sale of their produce in their Bank
accounts only; as such they have money
but the Banks are not giving currency to
them as there is severe crunch of
currency. If the farmers can’t get
currency they cound not go ahead for the
next crop because they have to pay
money to the menial labour in currency
only, if not for fertilizers/pesticides. 5.
Only a small percent of ATMs are
functioning to make common people
stand in long queus for long hours
www.ijar.org.in 93
Demonetization Consequences – 2016

S Anil Dev, R B Somayajulu, V V Satyanarayana Raju and Dr N V V Simhadri
Lecturers In Chemistry, D.N.R(A) College, Bhimavaram, W.G.Dt
Abstract: The process of demonetisation involves either introducing new notes or coins
of the same currency or completely replacing the old currency with new currency. It is
an economic term which is used to mean the ‘scrapping of old currency notes and
stripping off their status of legal tender, usually when a new currency note or currency
is being introduced in the economy of the country.
Key Words: Demonetization, Scrapping, Dizzy, Card transaction.
Introduction immediate effect of the announcement

Indian rupee has been saw countrymen lining up at the ATM’s
demonetized various times as well. The to withdraw 100 rupee notes to tide over
rupees 10,000 notes were demonetized the impending cash crunch.
once in January 1946 and then again in
January 1978. Recently, the rupees 500 Advantages of Demonetization
and 1,000 notes were demonetized in a Demonetization is done in a proper way
surprise move on November 8, 2016. there are many advantages like
From midnight of 8th November’ 2016 in 1. It helps the government to track
our country the units of higher people who are having large sums of
denominations Rs. 500 and Rs. 1000 unaccounted cash or cash on which no
banknotes of the Mahatma Gandhi income tax has been paid because many
Series were demonetised. Demonetisation people who earn black money keep that
is necessary whenever there is a change money as cash in their houses or in some
of national currency. The recent secret place which is difficult to find and
scrapping of Indian 500 and 1,000 rupee when demonetization happens all that
currency notes has sent the entire cash is of no value.
country in a whirlpool of confusion. The 2. Black money is used for illegal
country may be happy about the activities like terrorism funding,
initiative or upset with the move. This gambling, money laundering and also
move sent the entire nation in a dizzy. inflating the price of major assets classes
The Hon’ble Prime minister stated the like real estate, gold and due to
decision as a step to counter terrorism demonetization all such activities will get
which was being funded by counterfeit reduced for some time.
money as well as decisive strike against 3. People disclosing their income by
the black being hoarded by the citizens of depositing money in their bank accounts
the country. The aftermath of government gets a good amount of tax
demonetization of Indian currency the revenue which can be used by the
move of the Government received both government towards betterment of
praises and severe criticisms from every society by providing good infrastructure,
section of the society. Because the hospitals, educational institutions, roads
www.ijar.org.in 94
and many facilities for poor and needy start running to bank to exchange Rs.
sections of society. Capital will be 500 and 1,000 notes.
available at cheap rates thereby making 1. By replacing all the 500 and 1,000
Indian goods cheaper. rupees denomination notes, as ordered by
4. The Hawala industry which the government, could cost the RBI at
adjusted the cash at place against cash at least Rs.12, 000 crore.
another place has collapsed. 2. It will be very difficult for half of
5. The Pakistan sponsored the population who are not well versed
machinery of printing of fake notes and with the card transactions.
it’s induction in Indian economy, will be 3. The major problem is that big
destroyed on its own. fishes will be left out whose black money
6. The political parties who believed is in the form of foreign currency, gold
on purchasing notes from voters will now and property and stashed in tax havens.
need to gain votes on merits and
performance. Let’s all join together in this mission to
7. The Educational mafias can not take India to the next level and dream of
ask heavy donation for admission in Digital India.
school and colleges. References:
8. The crime against the women in News clippings of electronic media.
domestic world will reduce. Articles in National and Local print
9. The foreign investment will media.
increase and the demonetization will be "Demonetisation of Rs. 500 and Rs. 1000
followed by tax simplification. notes: RBI explains".The Hindu. 8
10. The quality of public works in November 2016. Retrieved 10
government and municipal projects will November 2016.
increase by 30% as the bribes money will "Here is what PM Modi said about the
be absent thereby improving the new Rs 500, Rs 2000 notes and black
standard. money". India Today. 8 November 2016.
11. The decision on awarding Retrieved9 November 2016.
contracts will be faster as there would "Notes out of circulation". The Times of
not be need of giving donations to India. 8 November 2016.
political parties. "Corruption fight". first post. 12
12. The smugglers will find it November 2016.
difficult to sell in cash the goods. The "BJP policy". The Times of India. 10
contract killings will be reduced as the November 2016.
contract money will leave an evidence for "India demonetisation: Chaos as ATMs
cops. run dry". Al Jazeera. Retrieved 9
13. The environment mafias November 2016.
destroying man groves, illegal mining, "Demonetisation: Chaos grows, queues
sand exploration, tree cutting, hooch get longer at banks, ATMs on weekend".
making will stop as they would not have 12 November 2016.
money to bribe the officials.
Disadvantages: It will cause great
inconvenience to common man who will
www.ijar.org.in 95
Demonization - Cashless Payment System in India

Dr.D.R.K.Subba Raju, HOD, P.G.Social Work, D.N.R.College, Bhimavaram.
B.P.Naidu, Head of the Department of Social Work, D.N.R.College, Bhimavaram
Abstract: The costs of the debit and credit card system are passed on to the
merchants who accept card payments. In the present scenario, credit card is a mode of
payment that is an alternative to cash. Credit card offers free credit, bears risk, and
thus is an expensive payment mode. However, the product design and promotions are
such that the pricing is kept hidden and the users are oblivious of the fact that the cost
is ultimately borne by them. Debit card is another alternative to cash. Though this
mode of payment offers no credit, carries no or minimal risk it has still been priced at
par with the credit card by the banks- a price that is borne by the cardholder.
Key words: payment system, pin-based debit cards, circulation
Introduction The card based payment system

includes the card companies (switch
The government has provider), banks (acquirer and issuer),
implemented a major change in the merchants and cardholders, and cannot
economic environment by demonetising function in absence of any of these
the high value currency notes – of Rs 500 players. It is seen that though card based
and Rs 1000 denomination. These ceased payment systems have been in vogue for
to be legal tender from the midnight of several years, its use and popularity is
8th of November 2016. People have been still very limited. There are 190 lakh
given upto December 30, 2016 to credit and 1,900 lakh debit cards in the
exchange the notes held by them.1 The system, but there are just 11 transactions
proposal by the government involves the per credit card and one transaction per
elimination of these existing notes from debit card annually. To locate the reasons
circulation and a gradual replacement for the subdued transition to cashless
with a new set of notes. In the short payments, this study carries out a review
term, it is intended that the cash in of the roles performed by various players
circulation would be substantially of the system and then arrives at a
squeezed since there are limits placed on structured and implementable roadmap
the amount that individuals can to move towards a cashless retail
withdraw. In the months to come, this payment system in India. B. Present
squeeze may be relaxed somewhat. The scenario
reasons offered for demonetisation are
two-fold: one, to control counterfeit notes In the present scenario, credit
that could be contributing to terrorism, card is a mode of payment that is an
in other words a national security alternative to cash. Credit card offers free
concern and second, to undermine or credit, bears risk, and thus is an
eliminate the “black economy”. expensive payment mode. However, the
product design and promotions are such
www.ijar.org.in 96
that the pricing is kept hidden and the Lower acceptability of cards by
users are oblivious of the fact that the merchants: The unreasonable pricing of
cost is ultimately borne by them. debit cards is a disincentive for small and
medium merchants, who have less pricing
Debit card is another alternative power due to their low volumes, to transit
to cash. Though this mode of payment to card based payments.
offers no credit, carries no or minimal
risk it has still been priced at par with Increase in cost of currency
the credit card by the banks- a price that management: In India, card transactions
is borne by the cardholder. at POS have been only about 5% of retail
sales. This large cash dependence (95% of
The costs of the debit and credit retail sales) imposes huge pressures on
card system are passed on to the currency management.
merchants who accept card payments.
Such expenditures for the merchants can Lack of accountability:
be as high as 50% of their profits. There Predominance of cash in retail sales leads
are two options for the merchant- (i) if he to deterioration in business
is not allowed to surcharge; he passes this accountability as transaction tracking is
cost to his product price. The card user, not possible, it enables tax leakage,
who ultimately bears the cost, is not able diminishes financial inclusion and
to feel this hidden price adjustment enables existence of a parallel economy.
upfront. (ii) If on the other hand, the
merchant is allowed to surcharge or offer Potential of fraud: There is
discounts for cash, the card user prefers greater risk attached to debit cardholders
to use cash instead leading to a payment in case of fraud as cardholder is deprived
by an inefficient mode. C. Drawbacks of of the money. Currently banks offer
the present system either pin-based or signaturebased debit
cards. As a lost or stolen debit card is
The oblique pricing structure useless without its PIN, consumers
that treats and prices the credit and debit usually prefer pin-based debit cards. D.
card in a similar manner has several Proposed action There is a need for RBI
drawbacks that hinder its growth / to subsidize switch charges, to promote
popularity and some features of the cashless payments.
product even cause potential risk to the
users. We list few of the drawbacks. The pin-based debit cards are
more secure than signature-based debit
Under utilisation of debit cards: cards. Since all existing debit cards
Though the number of debit cards is (signature-based or pin-based) are
currently 10 times higher than the credit already associated to a PIN, in order to
cards, the average number of mitigate risk, appropriate regulatory
transactions per debit card is 10 times measures should be put in place to make
less. On an average, the debit and credit all debit card transactions at POS pin-
cards together account for only two card based. This will use the already existing
transactions per day per POS terminal. resources and technology.
www.ijar.org.in 97
Given the cost and risks involved The Government may also
in handling cash, banks need to consider promoting avenues where tax
favourably price electronic products and a benefits are provided to merchants for
situation where electronic products are accepting card based payments, e.g. an
costlier than paper products should not appropriate tax rebate can be extended to
arise. Thus, to glide through from cash a merchant if at least 50% value of his
based to card based products, our transactions are through cards. The
analysis suggests the MDR* on debit card government should minimize, if not
could be kept at 0.2% with a cap of ` 20. eliminate, the duties and taxes on
manufacture and sale of EDC machines
The credit card is a frilled to promote its acceptability.
product since it provides quick credit.
The interchange on credit cards should Mobile phones are expected to
therefore best be left to the issuer banks come up with embedded debit cards akin
and competition should dictate the to other utilities like camera, radio, alarm
pricing in consonance with RBI‘s general clock, etc. Similarly, normal and GPRS
policy on non-priority sector personal EDC machines will get replaced by
loans. The interchange, currently being mobile phones with EDC capabilities. The
borne by merchants, forms a part of the mobile phone debit cards and EDC
MDR. In order to provide a level playing enabled mobile phones could be linked to
field, it is recommended that the one’s bank account just like an ordinary
merchants should be given the freedom debit card / EDC machine and can be
to surcharge on credit cards. used for retail payments.
In order to ensure that the Prepaid debit card is a debit card

freedom provided to merchants to that is not linked to a regular bank
surcharge does not lead to a kill for card account, but where the consumer instead
based payment system (by pays a bank or merchant ` x (plus fees)
disincentivising card users), it is and is given a debit card that can draw on
recommended that the no-surcharge rule up to ` x. Banks should be encouraged to
be applied strictly to no-frill debit cards. issue prepaid and reloadable debit cards
to non-customers. If the retail stores
In order to provide convenience intend to issue their own prepaid debit
to both merchants and cardholders, cash cards to their customers for use in their
withdrawal at POS should be clubbed stores, such cards should have a bank
along with purchase so as to reduce costs guarantee. E. Benefits of the proposals
and increase efficiency in cash handling.
Benefit of no-frill debit cards: A
The usage of no-frill debit cards simple debit card, equivalent to an
should be encouraged. In order to educate electronic cheque, is a basic banking
people on the advantages of debit cards service for the customers and merchants
over cash, RBI should organise focused alike. Any frill attached to such cards by
financial education campaigns among the banks has a cost which is ultimately
merchants and cardholders. borne by merchants and consumers. The
incentives on no-frill debit card to end
www.ijar.org.in 98
users are (i) convenience of cashless of fraudulent use as the cardholder is

settlements for merchants and customers deprived of the money.
alike, (ii) reduction in the demand for
cash, (iii) quicker and secured transfer of Benefit of electronic information:
sale proceeds to merchant‘s account, and The information generated through card
(iv) cardholders earning interest on a payments would help track transactions,
daily basis by deferring withdrawal till check tax avoidance / fraud etc., enhance
the money is actually required at the financial inclusion and integrate the
POS. parallel economy with main stream. As
the card usage gains popularity into the
Benefit of reduced price to hinterland, the system will generate huge
consumers: With the proposed pricing volumes of data on the spending behavior
structure of having an MDR of 0.2% with of persons in these areas. This
cap of ` 20 , it is expected that most information will help the Government in
merchants would pass on the reduced designing products that meet the
costs directly to their shoppers in the spending behavior of individuals. Over
form of lower prices and the consumers time when card payments grow and
will directly benefit from the reductions represent a significant part of retail sales,
on debit interchange fees. the card payments data could also be
used as a quick estimate of private
Benefit to currency consumption.
management: Card transactions at POS
account for about 5% of retail sales in Conclusion
India. Thus, with costs for printing
banknotes being of the order of ` 2,800 Benefit of mobile and prepaid
crore annually, card usage at POS leads debit cards: The easy to obtain prepaid
to about ` 140 crore of savings in debit cards have immense potential in a
currency management. Every additional cashless payment system e.g. it is a
1% increase in the use of cards in retail method of ‗banking‘ the unbanked, a
sales, will lead to a ` 28 crore savings in means of giving electronic cash, as a
note printing cost (excluding the huge method of giving cash gifts, etc. The
costs incurred for secured transportation, prepaid cards can be used at any
counterfeit detection / prevention, etc.). merchant establishment which accepts
debit cards. Similarly, the mobile phone
Benefit of pin-based debit cards: embedded debit cards and EDC enabled
With a view to reduce instances of misuse mobile phones can be used for cashless
of lost / stolen cards, one can consider (i) retail payments. F. Concluding remark
cards having photograph of the
cardholder and (ii) debit cards which are The report‘s recommendations
only pin-based. Usually, consumers will lead to a transition from the
prefer pin-based (over signature-based) expensive and thrusted credit card
debit cards since it is perceived to offer system to a need based debit card system
greater security. Also, there is greater which is optimal for the economy and
risk attached to debit cardholders in case beneficial to the end users (merchants
and consumers). It is time that the
www.ijar.org.in 99
artificial tilt that has been in existence

for the benefit of the providers (banks
and switch providers) at the cost of the
users gives way to a rationalized system.
References:
Padmini Sivarajah. (2016, Nov. 11).

Demonetisation: Madurai Corporation
makes record tax collection on a single
day. The Times of India. Retrieved from
http://timesofindia.indiatimes.com/city/ch
ennai/Demonetisation-Madurai-
Corporation-makes-record-tax-collection-
on-a-single-
day/articleshow/55374378.cms
PTI. (2016, Nov. 9). Demonetisation will

benefit economy in long run: Jaitley. The
Hindu Business Line. Retrieved from
http://www.thehindubusinessline.com/eco
nomy/demonetisation-to-increase-eco-
size-enhance-revenue-base-says-
jaitley/article9324312.ece
PTI . (2016, Nov. 12). Hyderabad civic

body collects Rs 65 crore of property tax.
The Indian Express. Retrieved from
http://indianexpress.com/article/india/indi
a-news-india/demonetisation-hyderabad-
civic-body-collects-rs-65-crore-of-
property-tax-4372156/
www.ijar.org.in 100
Demonetisation and Cashless Economy

Dr. D. Venkatapathi Raju, Principal, DNRSBM
V.S.K. Chaturya, Asst. Prof, DNRSBM
Abstract: Cash is definitive in nature and cash exchange carries with it the writ of the
country to even the most remote locations. Informal sector is the largest employer in
India and runs on cash primarily. It also means that cash transactions on their own
are not the generators of black wealth. It is a highly advanced and dynamic manner of
doing business refined over centuries. Already there are reports that in the slow
demonetisation process, there are people like farmers and traders that are forced to
transact with old currency. Massive amount of currency has been sucked out of the
system and lack of assured transaction systems for rural pockets and informal sector
will likely add to the woes.
Key words: rural pockets, denomination currency, cashless economy
Introduction: overhaul of its cash-driven economy. RBI

Demonetisation of high figures for July 2016 show that banks
denomination currency notes of Rs 500 had issued 697.2 million debit cards and
and Rs 1,000 has proved to be an 25.9 million credit cards to customers
experiment too risky for the government after deducting withdrawn or cancelled
and too testing for the general public. cards.
The Centre is making a big push for The number is huge. However,
online and card-based transactions in the cards on own can’t turn the economy into
country to achieve its target of becoming a cashless one. It is important note that
a largely cashless economy. However, it the number of cards is does not equal
seems the country is not ready for such number of individuals holding the cards.
an immediate shakeup. Usually urban residents have multiple
cards and the trend is seen now in rural
Government encourage cash less areas as well. Further, cards are used 3
transactions: primary purposes–withdrawing money
from ATMs, making online payments and
DEA secretary Shaktikanta Das swiping for purchases or payments at
on Wednesday announced incentives like point of sale (POS) terminals at merchant
cutting down on service charge and other outlets like shops, restaurants, fuel
levies on debit/credit card transactions. pumps etc.
The government’s initiatives over the A report by Google India and
past year or so have been focused on Boston Consulting Group showed that
promoting e-payments, plastic last year around 75 per cent of
transactions, cashless payments. It is, transactions in India were cash-based
indeed, the future for the Indian while in developed countries like the US,
economy. Japan, France, Germany etc it was
The question, however, remains around 20-25 per cent. Due to
whether India is ready for such an demonetisation business for mobile or e-
www.ijar.org.in 101
wallet companies has boosted by up to 4 Informal sector is the largest employer in

times and the figures are keeping up. India and runs on cash primarily. It also
Much of the cash transactions in means that cash transactions on their
the country are small exchanges for goods own are not the generators of black
or services and the penetration of PoS wealth. It is a highly advanced and
terminals is not enough. Millions of dynamic manner of doing business
people still don’t have a bank account, refined over centuries.
access to PoS sale points, internet or Already there are reports that in the slow
infrastructure to understand and use demonetisation process, there are people
online payment methods etc. So we need like farmers and traders that are forced
a large scale penetration of digital to transact with old currency. Massive
services and PoS terminals to facilitate amount of currency has been sucked out
digital transactions in small towns, rural of the system and lack of assured
areas, and untapped markets in urban transaction systems for rural pockets and
India. informal sector will likely add to the
There are at least 1.45 million woes. On realistic estimates, it seems the
PoS terminals installed by banks across government will take at least 2-3
the country with over 2 lakh ATMs. But, quarters to restore favourable liquidity in
the retail locations for PoS transactions the system. Meanwhile, the informal
is nowhere near to the over the counter sector remains under threat of moving to
cash transactions. a parallel black economy for coming
Spending habits also say a lot. In weeks.
July this year, 881 million transactions People in urban areas are largely
were made using debit cards at ATMs troubled as apart from the cash crunch,
and PoS terminals. Out of these, 92 per the budgets and finances of households
cent were cash withdrawals from ATMs. are hit. Merchants insist on minimum
The principal purpose for cards in Indian amount transactions for PoS sale or
setup is thus a means to withdraw cash. online payments. Further, they add
Another big hurdle is unachieved various taxes and levies, delivery charges
targets for digital India. Mobile internet etc. Articles bought online may be sold
penetration is crucial into deeper pockets expensive with low quality but as there is
since PoS works over mobile internet a cash crunch people are forced to buy
connections. Earlier banks used to charge them. Small transactions and daily
money on card-based transactions which expenses are massively hit and plastic is
has now been pointed out as a hurdle. no substitute for planned expenditure
Also, the low literacy rates in rural areas using cash.
along with lack of internet access or even Conclusion:
basic utilities in many places, it becomes Till the time this penetration for
very difficult for people to adopt the habit online payments doesn’t reach local
for digital transactions. stores, the transition will never be truly
Cash is definitive in nature and effective. For now it seems, the country is
cash exchange carries with it the writ of on the track to development but is rather
the country to even the most remote hurriedly pushed into the reform.
locations.
www.ijar.org.in 102
Finally, financial security over the digital

payment channels is imperative for
pushing the cashless economy idea. When
recently, data of lakhs of debit cards was
rather easily stolen by attackers, the
ability of Indian financial institutions to
safeguard electronic currency and
exchanges came into question. Also a big
reason why people prefer cash as
financial fraud has become too common
and complicated for the common person
References
1. "Watch PM Modi's Entire Speech

on Discontinuing 500, 1000 Rupee
Notes". NDTV India. Retrieved 8
November 2016.
November 2016.
3. "Here is what PM Modi said
about the new Rs 500, Rs 2000 notes and
black money". India Today. 8 November
2016. Retrieved9 November 2016.
www.ijar.org.in 103
Cashless Payment System in India
BH.L.Mohanraju, Asst. Prof, DNRSBM
K.Neelima, Asst. Prof, SRKR Engineering College
Abstract: The card based payment system includes the card companies (switch
provider), banks (acquirer and issuer), merchants and cardholders, and cannot
function in absence of any of these players. It is seen that though card based payment
systems have been in vogue for several years, its use and popularity is still very
limited. There are 190 lakh credit and 1,900 lakh debit cards in the system, but there
are just 11 transactions per credit card and one transaction per debit card annually. To
locate the reasons for the subdued transition to cashless payments, this study carries
out a review of the roles performed by various players of the system and then arrives
at a structured and implementable roadmap to move towards a cashless retail payment
system in India.
Key words: currency management, surcharge, alternative to cash
Introduction ultimately bears the cost, is not able to

feel this hidden price adjustment upfront.
In the present scenario, credit card is a (ii) If on the other hand, the merchant is
mode of payment that is an alternative to allowed to surcharge or offer discounts
cash. Credit card offers free credit, bears for cash, the card user prefers to use cash
risk, and thus is an expensive payment instead leading to a payment by an
mode. However, the product design and inefficient mode.
promotions are such that the pricing is
kept hidden and the users are oblivious of Drawbacks of the present system
the fact that the cost is ultimately borne The oblique pricing structure that treats
by them Debit card is another alternative and prices the credit and debit card in a
to cash. Though this mode of payment similar manner has several drawbacks
offers no credit, carries no or minimal that hinder its growth / popularity and
risk it has still been priced at par with some features of the product even cause
the credit card by the banks- a price that potential risk to the users. We list few of
is borne by the cardholder. The costs of the drawbacks.
the debit and credit card system are
passed on to the merchants who accept Under utilisation of debit cards: Though
card payments. Such expenditures for the the number of debit cards is currently 10
merchants can be as high as 50% of their times higher than the credit cards, the
profits. There are two options for the average number of transactions per debit
merchant- (i) if he is not allowed to card is 10 times less. On an average, the
surcharge; he passes this cost to his debit and credit cards together account
product price. The card user, who
www.ijar.org.in 104
for only two card transactions per day per measures should be put in place to make
POS terminal. all debit card transactions at POS pin-
based. This will use the already existing
Lower acceptability of cards by resources and technology.
merchants: The unreasonable pricing of
debit cards is a disincentive for small and
medium merchants, who have less pricing Given the cost and risks involved in
power due to their low volumes, to transit handling cash, banks need to favourably
to card based payments. price electronic products and a situation
where electronic products are costlier
than paper products should not arise.
Increase in cost of currency management: Thus, to glide through from cash based to
In India, card transactions at POS have card based products, our analysis
been only about 5% of retail sales. This suggests the MDR* on debit card could be
large cash dependence (95% of retail kept at 0.2% with a cap of ` 20.
sales) imposes huge pressures on
currency management. The credit card is a frilled product since
it provides quick credit. The interchange
Lack of accountability: Predominance of on credit cards should therefore best be
cash in retail sales leads to deterioration left to the issuer banks and competition
in business accountability as transaction should dictate the pricing in consonance
tracking is not possible, it enables tax with RBI‘s general policy on non-priority
leakage, diminishes financial inclusion sector personal loans. The interchange,
and enables existence of a parallel currently being borne by merchants,
economy. forms a part of the MDR. In order
toprovide a level playing field, it is
Potential of fraud: There is greater risk recommended that the merchants should
attached to debit cardholders in case of be given the freedom to surcharge on
fraud as cardholder is deprived of the credit cards.
money. Currently banks offer either pin-
based or signaturebased debit cards. As a In order to ensure that the freedom
lost or stolen debit card is useless without provided to merchants to surcharge does
its PIN, consumers usually prefer pin- not lead to a kill for card based payment
based debit cards. system (by disincentivising card users), it
is recommended that the no-surcharge
Proposed action rule be applied strictly to no-frill debit
cards
There is a need for RBI to subsidize
switch charges, to promote cashless In order to provide convenience to both
payments. The pin-based debit cards are merchants and cardholders, cash
more secure than signature-based debit withdrawal at POS should be clubbed
cards. Since all existing debit cards along with purchase so as to reduce costs
(signature-based or pin-based) are and increase efficiency in cash handling.
already associated to a PIN, in order to
mitigate risk, appropriate regulatory
www.ijar.org.in 105
The usage of no-frill debit cards should

be encouraged. In order to educate people Benefits of the proposals
on the advantages of debit cards over
cash, RBI should organise focused Benefit of no-frill debit cards: A simple
financial education campaigns among debit card, equivalent to an electronic
merchants and cardholders. cheque, is a basic banking service for the
customers and merchants alike. Any frill
The Government may also consider attached to such cards by the banks has a
promoting avenues where tax benefits are cost which is ultimately borne by
provided to merchants for accepting card merchants and consumers. The
based payments, e.g. an appropriate tax incentives on no-frill debit card to end
rebate can be extended to a merchant if users are (i) convenience of cashless
at least 50% value of his transactions are settlements for merchants and customers
through cards. The government should alike, (ii) reduction in the demand for
minimize, if not eliminate, the duties and cash, (iii) quicker and secured transfer of
taxes on manufacture and sale of EDC sale proceeds to merchant‘s account, and
machines to promote its acceptability. (iv) cardholders earning interest on a
daily basis by deferring withdrawal till
the money is actually required at the
Mobile phones are expected to come up POS.
with embedded debit cards akin to other
utilities like camera, radio, alarm clock, Benefit of reduced price to consumers:
etc. Similarly, normal and GPRS EDC With the proposed pricing structure of
machines will get replaced by mobile having an MDR of 0.2% with cap of ` 20 ,
phones with EDC capabilities. The mobile it is expected that most merchants would
phone debit cards and EDC enabled pass on the reduced costs directly to their
mobile phones could be linked to one’s shoppers in the form of lower prices and
bank account just like an ordinary debit the consumers will directly benefit from
card / EDC machine and can be used for the reductions on debit interchange fees.
retail payments.
Benefit to currency management: Card
transactions at POS account for about 5%
Prepaid debit card is a debit card that is of retail sales in India. Thus, with costs
not linked to a regular bank account, but for printing banknotes being of the order
where the consumer instead pays a bank of ` 2,800 crore annually, card usage at
or merchant ` x (plus fees) and is given a POS leads to about ` 140 crore of savings
debit card that can draw on up to ` x. in currency management. Every
Banks should be encouraged to issue additional 1% increase in the use of cards
prepaid and reloadable debit cards to in retail sales, will lead to a ` 28 crore
non-customers. If the retail stores intend savings in note printing cost (excluding
to issue their own prepaid debit cards to the huge costs incurred for secured
their customers for use in their stores, transportation, counterfeit detection /
such cards should have a bank guarantee. prevention, etc.).
www.ijar.org.in 106
Benefit of pin-based debit cards: With a mobile phones can be used for cashless
view to reduce instances of misuse of lost retail payments.
/ stolen cards, one can consider (i) cards
having photograph of the cardholder and
(ii) debit cards which are only pin-based. Concluding remark
Usually, consumers prefer pin-based
(over signature-based) debit cards since it The report‘s recommendations will lead
is perceived to offer greater security. to a transition from the expensive and
Also, there is greater risk attached to thrusted credit card system to a need
debit cardholders in case of fraudulent based debit card system which is optimal
use as the cardholder is deprived of the for the economy and beneficial to the end
money users (merchants and consumers). It is
time that the artificial tilt that has been
Benefit of electronic information: The in existence for the benefit of the
information generated through card providers (banks and switch providers) at
payments would help track transactions, the cost of the users gives way to a
check tax avoidance / fraud etc., enhance rationalized system
financial inclusion and integrate the
parallel economy with main stream. As References:
the card usage gains popularity into the
hinterland, the system will generate huge
volumes of data on the spending behavior [1] Courier / Postal Charges Levied by
of persons in these areas. This Commercial Banks in India. RBI. June
information will help the Government in 09, 2008.
designing products that meet the
spending behavior of individuals. Over
time when card payments grow and http://rbi.org.in/scripts/BS_PressRelease
represent a significant part of retail sales, Display.aspx?prid=18416
the card payments data could also be
used as a quick estimate of private [2] Approach Paper for Rationalisation of
consumption. Service Charges levied by banks on
Electronic Payment Products (RTGS /
NEFT / ECS) and Outstation Cheque
Benefit of mobile and prepaid debit Collection. RBI. September 11, 2008.
cards: The easy to obtain prepaid debit
cards have immense potential in a
cashless payment system e.g. it is a http://rbidocs.rbi.org.in/rdocs/Content/PD
method of ‗banking‘ the unbanked, a Fs/86901.pdf
means of giving electronic cash, as a
method of giving cash gifts, etc. The [3] ATMs of Banks: Fair Pricing and
prepaid cards can be used at any Enhanced Access – Draft Approach Paper
merchant establishment which accepts dated December 24, 2007.
debit cards. Similarly, the mobile phone
embedded debit cards and EDC enabled http://www.rbi.org.in/Scripts/bs_viewcont
ent.aspx?Id=1102
www.ijar.org.in 107
[4] Levy of Service Charges for Electronic [10] Trend and Progress of Banking in
Payment Products and Outstation India. RBI Publication, October 2009.
Cheque Collection. RBI/2008-09/207
DPSS.CO.No. 611/03.01.03(P)/2008-09 http://rbidocs.rbi.org.in/rdocs/Publication
dated October 08, 2008. s/PDFs/RTP0809PRD_Full.pdf
http://rbidocs.rbi.org.in/rdocs/notification/
PDFs/87656.pdf
[5] Customer charges for use of ATMs for

cash withdrawal and balance enquiry.
RBI/2007- 2008/260 DPSS No.1405 /
02.10.02 / 2007-2008 dated March 10,
2008.
http://www.rbi.org.in/scripts/Notification
User.aspx?Id=4076&Mode=0
[6] Payment and Settlement Systems Act,

2007.
http://www.rbi.org.in/Scripts/OccasionalP
ublications.aspx?head=Payment%20and
%20Settle
ment%20Systems%20Act,%202007
[7] Report of the Working Group to

formulate a scheme for ensuring
reasonableness of bank charges.
RBI/2006-2007/245 DBOD.No.Dir.BC.56
/13.03.00/2006-2007 dated February 02,
2007.
http://www.rbi.org.in/scripts/Notification
User.aspx?Id=3268&Mode=0
[8] Annual Report of the RBI for the Year

2008-09. Aug 27, 2009.
http://rbi.org.in/scripts/AnnualReportPub
lications.aspx?year=2009
[9] Reserve Bank of India Bulletin, June

2010.
http://rbidocs.rbi.org.in/rdocs/Bulletin/PD
Fs/0JUNE112010_F.pdf
www.ijar.org.in 108
Demonetization on Indian Currency Note Effect Indian

Economy
A.Lavanya , Lecturer in Commerce, SIR C R Reddy Autonomous College , Eluru
Abstract: Despite possessing legal earnings, Indians (Mostly in rural areas) accumulate
their makings either at their home or lend them to the nearby surroundings. Even in
the 21st century, when the banking network has spread more or less in every small
area, money lending, the oldest form of business, is still effective in many areas, which
is not only affecting the registered bank’s business but also unaware to the bank.
Absence of intermediate denominations like Rs 500 and Rs 1000 will reduce the utility
of Rs 2000. Effectively, this will make Rs 2000 less useful as a transaction currency
though it can be a store value denomination.
Key words: demonetization, quilt trader, unemployment,
Introduction unprecedented growth in retail

transactions following demonetization.
The demonetization of INR 500 and INR
1000 Indian Currency Note has come as a
surprise to everybody. Whatever change Absence of intermediate denominations
is going to happen, but, this is the first like Rs 500 and Rs 1000 will reduce the
time in my life when I have sensed that a utility of Rs 2000. Effectively, this will
person who is living on his liabilities, make Rs 2000 less useful as a transaction
honesty and morality is feeling safe in currency though it can be a store value
this country. “Honesty is the best policy”, denomination.
the saying, in fact, is now making much
sense for the Indians. Now, talking about black money
basically found in large digits i.e. crore or
A similar situation prevails with the more than it undoubtedly carry INR 500
world-renowned. “Our trade has seen a and INR 1000 currency notes, acquired
sharp decline of almost 60-70 per cent as through unrecognized or illegal ways, has
our quilts were bought mainly by tourists no option other than to be destroyed or to
— and now they do not have cash,” said a be deposited. But, for considering the
quilt trader in the city. Common people second option, they have to disclose it as
are ready to stand in long queues for the legal income and have to pay heavy tax
growth of our country and to curb the on it. No matter, if they found a way to
black money. When we run out of cash, make their income legal or they just get
forcibly it drives us to pay through our frightened, they have to pull out all the
credit/debit cards. When usage of cards money that is not under the account of
increases; cash exchanges reduces Indian government. Later on, it will help
further. It founds to be true, When a to minimise the total currency circulation
reputed E-Commerce giant records in the Indian economy. As the currency
circulation will be reduced, the inflation
www.ijar.org.in 109
rate will also become negative, it is the Mahatma Gandhi New

known as deflation. Although, deflation Series and 100 banknotes of the
leads to unemployment problem, it preceding Mahatma Gandhi Series.
increases the internal value of money as Citizens will have until 30 December
well. However, it always circulates with 2016 to tender their old banknotes at any
time and demand, so how much demand office of the RBI or any bank branch and
will be increased, the chances of credit the value into their respective bank
employment and inflation will also be accounts. Cash withdrawals from bank
enhanced proportionally. accounts were restricted to 10,000 per
day and 20,000 per week per account
from 10 to 13 November 2016. This limit
Effects of demonetization of Indian
was increased to 24,000 per week from 14
Currency Note
November.
Despite possessing legal earnings, Indians
(Mostly in rural areas) accumulate their
makings either at their home or lend For immediate cash needs, the
them to the nearby surroundings. Even old banknotes can be exchanged for the
in the 21st century, when the banking new 500 and 2000 banknotes as well as
network has spread more or less in every ₹100 banknotes over the counter of bank
small area, money lending, the oldest branches by filling up a requisition form
form of business, is still effective in many along with a valid ID proof. This
areas, which is not only affecting the exchange is restricted to once per person.
registered bank’s business but also Initially, All ATMS Were Dispensing
unaware to the bank. Banknotes Of Only 50 And 100
Denominations And Cash Withdrawals
From ATMS Were Restricted To 2000
With these changes, people who have a
Per Day. From 14 November Onwards,
lot of legally earned cash in their pocket
ATMS Recalibrated To Dispense New 500
or at home, will have to deposit it in the
And 2000 Notes Will Allow A Maximum
bank before the date proclaimed by the
government .As it is legally earned Withdrawal Of 2,500 Per Day, While
money, it will surely be deposited in the Other ATMS Dispensing Banknotes Of
Only 50 And 100 Denominations Will
banks and this will let the banks house
Allow A Maximum Withdrawal Of 2000
surplus amount and margin as well. The
demonetization of INR 500 and INR 1000 Per Day.
currency notes is such a positive move for Objectives
the Indian economy as well a good lesson
The idea of demonetization is good but it
to those who are playing with Indian
has to be taken into consideration that
taxation policy.
most of the black money is kept in the
form of land, buildings or gold or kept
Exchanging old notes abroad. What is in cash constitutes only
4% of the total amount of black money on
The Reserve Bank of India laid down a
which taxes are not being paid. Out of
detailed procedure for the exchange of
this, a lot of money is in circulation in
the demonetised banknotes with
everyday transaction like if someone is
new 500and 2000 banknotes of
www.ijar.org.in 110
building a house; the bill is not paid Middle Class: The middle class of India is
through banks for sand, bricks etc. This used to use credit/debit cards and other
money goes into the other systems online methods to transact their
though it has been drawn from bank. business. They too have to stand on the
big queue for short time because they still
Small Farmers, Sellers, Merchants, Daily need the 100 rupee note for making petty
Wage Labourers And Traders Are payments. Yet they can buy most of
Suffering Because Of Lack Of Proper things using their credit cards.
Planning, Intelligence And Foresight
Such As Recalibration Of ATM Upper Class: The dishonest upper class
Machines. There Was Need To Pile Up is the worst hit due to this move of
Enough 100 Rupee Notes And Other government because most of their black
Smaller Denomination Notes In The money is stored in 500/1000 notes which
Market Before Taking This Step. would go waste. They have to either burn
Inflation And Bringing The Black Money their notes or give them to a large
From Abroad. Demonetization is an number of poor people (on commission)
established practice in monetary policy to for converting that to white. The
tackle black money. The Prime Minister currency would become valid once
has explained why this is a financial replaced by new notes, but the black
surgical strike. It was meant to be money would remain black.
suddenly implemented. In the past,
demonetization has taken place twice but
Short-Term Effects:
it fails because the idea is to tackle the
black money existing in circulation. This The real estate sector is likely to see a
is not tackle corruption per se or the significant negative impact in the
Government is not saying that 100%
medium- to long-term, particularly in the
corruption will be tackled.
repurchase market. There are
expectations of a revaluation of current
Long- Term Effects real estate transactions across the board
Poor Class representing possible losses to players in
the sector. The luxury goods market is
This class is affected adversely also likely to get affected as this move
immediately. This class hardly use debit represents an erosion of real wealth to a
or credit card. They also keep hardly any large number of people. Areas impact will
money in banks. They keep most of their be felt in luxury cars, SUVs, gems,
money in cash in their home in the jewellery, gold and high-end branded
higher denominations. They have to, products .On the positive side, there is
therefore, rush to the ATM and stand in likely to a reset of spending patterns as
the queue to withdraw their money to this move represents indirectly a
run their day-to-day affair. However, this significant push towards a cashless
problem is temporary and within a economy. Businesses in the fin-tech
month, things are likely to return to sector, including payment banks, mobile
normal. wallets, electronic transfer providers,
etc., are expected to see gains. .
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Liquidity crunch (short term effect): Black Money tracking

liquidity shock means people are not able
to get sufficient volume of popular
denomination especially Rs 500. This This move will help the government to
currency unit is the favourable track unaccounted black money or cash
denomination in daily life. It constituted on which income tax has not been paid.
to nearly 49% of the previous currency Individuals who are sitting on a pile of
supply in terms of value. Higher the time cash usually do not deposit the amount in
required to resupply Rs 500 notes, higher the bank or invest anywhere as they
will be the duration of the liquidity would be required to show income or
crunch. Current reports indicate that all submit PAN for any valid financial
security printing press can print only transactions. They would hide it
2000 million units of RS 500 notes by the somewhere and use it as and when
end of this year. Nearly 16000 MN Rs 500 necessary.
notes were in circulation as on end March
2016. Some portion of this were filled by
the new Rs 2000 notes. Tax payment
Effect on Banks Most of the businessmen who have been

hiding some income are ready to pay
As directed by the Government, the 500 advance tax as current year's income. Tax
and 1000 Rupee notes which now cease to payers who have been hiding some
be legal tender are to be deposited or income can come forward to declare
exchanged in banks (subject to certain income and pay tax on the same.
limits). This will automatically lead to Individuals are required to submit PAN
more amounts being deposited in Savings for any deposit above Rs 50,000 in cash,
and Current Account of commercial which will help tax department to track
banks. This in turn will enhance the individuals with high denominations.
liquidity position of the banks, which can Also, deposit up to Rs 2.5 LAKH will not
be utilized further for lending purposes. come under Income tax scrutiny.
However, to the extent that households
have held on to these funds for Disadvantages of Demonetization Indian
emergency purposes, there would be Currency
withdrawals at the second stage.
Advantages of Demonetization Indian It may cause inconvenience for initial few

Currency days for those who have to start running
to the banks to exchange notes, deposit
It is no doubt a bold step taken by amount or withdraw the same. The
the government which will definitely help situation can turn chaotic if there is a
India to become corruption-free. delay in the circulation of new currency.
Here are some advantages and Individuals who have an upcoming
disadvantages of de-monetization: wedding are the ones who have to make
alternative arrangements to make
payments. However, the government has
www.ijar.org.in 112
given higher withdrawal limit in such 2. "Demonetisation of Rs. 500 and Rs.
cases. 1000 notes: RBI explains".The Hindu. 8
November 2016. Retrieved 10
November 2016.
Cost of currency destruction
3. "Here is what PM Modi said about
the new Rs 500, Rs 2000 notes and black
After the news, we have seen that many
money". India Today. 8 November 2016.
individuals have burnt their cash and
Retrieved9 November 2016.
discarded the same, which is a loss to the
4. Demonetization
economy. The government has to bear
http://www.investopedia.com/terms/d/dem
the cost of printing of new currency and
onetization.asp#ixzz4QRacCuLL
its circulation. It makes sense when
benefits of demonetization are higher. 5. 5. How Demonetisation Has Impacted the
November 17,2016 (Source: NSE,Personal
Conclusion: Only a small portion of black FN Research)
money is actually stored in the form of
cash. Usually, black income is kept in the
form of physical assets like gold, land,
buildings etc. Hence the amount of black
money countered by demonetization
depend upon the amount of black money
held in the form of cash and it will be
smaller than expected. But more than
anything else, demonetization has a big
propaganda effect. People are now much
convinced about the need to fight black
income. such a nationwide awareness
and urge will encourage government to
come out with even strong measures.
There are only advantages of
demonetization in the long term. The
government is taking all the necessary
steps and actions to meet the currency
demand and ensure the smooth flow of
new currency.
References:
1. "Watch PM Modi's Entire Speech on

Discontinuing 500, 1000 Rupee Notes".
NDTV India. Retrieved 8
November 2016.
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Impact of recent demonetization in India

Dr R.Sivarama Prasad, Dept. of Commerce & Business Admn, Acharya Nagarjuna
University, Guntur AP
R.S.N.Sharma,
Lecturer, Department of Commerce. St Theresa Degree College for Women, Eluru
Abstract : On 8th November 2016, night at 8.15 pm Indian Prime Minister, Sri
Narendra Modi declared that Currency notes 500 and 1000 would be invalid from
midnight on the same day and he also declared that in exchange of these old notes new
notes of 500 and 2000 Mahathma Gandhi Series would be issued and other bank notes
100,50,20,10 would remain as legal tender. This paper is an attempt to focus attention
on the practicability of decision by Government of India and its impact on Indian
economy and general ongoing life of common man. The incidents that have happened
so far are discussed with the help of material facts collected from RBI reports.
Key words: demonetization, smuggling, deposit inflows
Introduction Objectives of the study

 To study the concept of
On 8th November 2016, night at 8.15 pm demonetization
Indian Prime Minister, Sri Narendra  To examine the impact of decision
Modi declared that Currency notes 500 of demonetization on Indian
and 1000 would be invalid from midnight Economy
on the same day and he also declared that  To Analyze the disturbances to
in exchange of these old notes new notes general public with the effect of
of 500 and 2000 Mahathma Gandhi demonetization
Series would be issued and other bank  To understand the performance of
notes 100,50,20,10 would remain as legal electronic payment system during
tender. the period post implementation of
the decision of demonetization
As per the central government,  To make necessary suggestions to
the main reasons behind the present go for further actions to set right
demonetization are to crack down black the present complicated scenario
money, stop funding to terrorism, and
reduce corruption and smuggling and Data Sources: The required information
control the increasing use of drugs and so for the study is collected mostly
on. With whatever intention the secondary data from Reserve Bank of
government of India enacted the above, India reports and presented in tables and
even if assumption of consistent benefit charts. Researcher collected primary
in long run is considered, a few following information by an interaction with some
incidental changes have been being business people, daily laborers and
activating public to revolt against the employees and got a record of their
decision. opinions regarding demonetization.
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Need for study: As per the announced  2016, November 8 th night at

statement, the decision of demonetization 8.15 pm Indian Prime Minister Mr.
aims at curbing black money, funding to Narendra Modi announced
terrorism, smuggling activities. But in demonetization of 500 and 1000 rupee
practice it appears to be non fulfillment notes.
of the above aims and it is creating
unhealthy economic atmosphere in the Impact of demonetization
economy and a complete disturbance to
move on in day to day life of a common RBI launched new 500 and 2000 notes
man. It is felt necessary that it is from Thursday. On Thursday before
important to study and analyze the reopening of banks, allover India, huge
present economic situations that are crowds gathered in very long queued up
prevailing in the country with the effect outside the various banks buildings in
of sudden decision of demonetization. almost all places to deposit old notes and
to withdraw new notes.
Historical back ground
 In a tweet , Shakthi Kantha Das,
As per the history, Demonetization is not Economic Affairs Secretary said- “ Banks
first time initiative in India. will remain open this Saturday and
Sunday and bank staff will do overtime
 1946, January, bank notes of till 9 pm
1000 and 10000 rupee notes were  RBI Issued an order instructing
withdrawn by Government of India. all the banks to be open on the coming
 1954 New notes of 1,000, 5,000 weekend including Sunday.
and 10,000 note were introduced.  IT department has identified very
 1978, 16 th January, notes of huge deposit inflows into Jandhan
1,000; 5,000 and 10,000 notes were Accounts
demonetized by Jantha Government.  Amounts deposited in Jandhan
 1912 Central Board of direct Accounts in between the dates 8-15 in
Taxes(CBDT) recommended that November 2016, Rs 20206 Crore; People
demonetization of higher value deposited 11,347 Crore between 16-22
denomination notes is not a correct dates of November in these Accounts.
action to curb black money as black This decelerated to 4,867 Crore during
money holders maintain only 6% or less the period in between dates 23-30 of
than that in cash form and the remaining November ,2016 as the Government
in bullion, jewelry and benami warned people not to allow their accounts
prosperities to be misused for converting black money
 2016,28th October The money in into white.
circulation in India was Rs 17.77 trillion  Total daily deposit in Jandhan
 2016,31st March, as per RBI Accounts was Rs 410 Crore on 1st
report total bank notes in circulation December and Rs 389 Crore on 2 nd
were Rs 16.42 trillion of which nearly December 2016
86% were 500 and 1000 notes.24% of the  During the period from
total 90226 million bank notes were in November 8th to December 2nd The
circulation.
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average per Account deposit in Jandhan Data Analysis

Accounts is Rs 13,113
 As per estimation, Since Source- Reserve Bank of India Reports
November 10th Rs 11.85 lakh Crore 500
and 1000 currency notes have been  RTGS- Real time Gross
returned into banks in India. All these Settlement
old currency notes constituted 86% of Rs  NEFT-National Electronic Fund
14.5 lakh Crore in Circulation. Transfer
 After note ban ,more than 220  Cheque - truncation System
Crores including Rs 2000 notes were  IMPS-Immediate payment
seized in raids service
 A decline in spending habits of  NACH-National Automated
Indian people is resulting in a big toll on Clearing House
the country’s growth and output because  UPI-Unified Payment Iinterface
consumption makes up 56 % of GDP. The  USSD-Unstructured
reason behind this is Indian people are Supplementary Service data
highly dependent on cash and less than  PPI- Pre paid payment
half of total population only are dealing instrument.
card dealings
 Real-estate, FMCG and Electronic Payment Systems (Volume
Construction fields got heavily affected as in millions)
consumers are deferring purchases. It is
appearing to be in short term. .( YES
Bank Report)
 There are some benefits also like

increased financial inclusion, boost in
growth due to movement of household
savings from physical to financial, decline
in inflation due to spending slow down,
fiscal discipline from the part of
government as there is increased fiscal
headroom.( YES Bank Report)
 During the period November 10
th 2016 and December 7th 2016 banks
reported that they had issued bank notes Source: RBI Reports
worth Rs 4,27,684 Crore to public either
over bank counters or through ATMs
 By following the demonetization
announcement the BSE Sensex and
Nifty 50 Stock Indices Crashed for the
next two d
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Electronic Payment Systems (Volume in millions)
Source: RBI Reports
Electronic Payment Systems (Value in Rs billion)
Source: RBI Reports
Electronic Payment Systems (Value in Rs billion)
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Electronic Payment Systems ( Volume in Million;Value in Rs Billion)

November Dec Dec Dec Dec Dec Dec Dec Dec Dec
2016 1st- 2nd- 3rd- 4th 5th- 6th- 7th-2016 8th -2016 9th-2016
2016 2016 2016 2016 2016 2016
RTGS 7.9 .3 .3 .3 H .3 .3 .3 .3 .3
78479.2 3781.0 3784.7 706.0 H 3552.4 3630.4 3300.7 3151.8 4329.5
NEFT 123.0 10.4 7.7 6.4 H 7.0 6.0 7.2 6.9 7.1
8807.8 564.6 466.6 272.9 H 459.2 350.1 399.0 417.1 473.6
CTS 87.1 4.6 4.4 4.7 H 4.9 4.6 5.2 5.1 4.8
5419.2 288.8 265.9 231.4 H 247.2 222.7 256.8 256.6 277.5
IMPS 36.2 1.8 1.7 1.7 1.2 1.9 1.7 1.8 1.8 1.8
324.8 18.2 16.4 15.0 9.0 16.5 14.0 15.5 15.4 15.3
MACH 152.5 11.6 9.4 6.2 H 15.0 18.2 13.5 6.0 6.0
606.6 55.7 14.5 15.3 H 64.0 21.1 32.0 29.9 17.3
UPI .287 .029 .035 .035 .027 .035 .042 .048 .053 .053
.905 .103 .107 .104 .071 .113 .129 .154 .141 .168
USSD 7.0 1.0 1.2 1.4 1.1 .9 .8 1.3 1.8 2.5
7302.6 943.4 1349.9 1413.9 1198.2 1076.3 943.3 1358.0 1740.3 2220.7
Debit & 205.5 8.6 8.9 10.0 9.9 10.5 9.2 9.8 5.5 --
Credit cards 352.4 14.6 15.3 17.4 15.3 17.5 16.0 17.2 10.6 --
PPI 59.0 2.5 2.6 2.7 2.5 2.7 2.6 2.7 2.5 2.5
13.2 .6 .6 .6 .6 .6 .6 .6 .6 .6
Mobile 72.3 2.8 2.6 2.6 2.0 2.5 2.5 2.6 2.5 --
Banking 1244.9 49.3 89.1 26.3 11.5 43.8 72.4 44.9 40.8 --
Total 671.5 39.9 35.1 32.0 13.6 42.4 42.6 40.5 28.2 22.7
94004.2 4723.5 4564.1 1258.5 24.9 4357.4 4254.9 4021.8 3882.2 5114.0
Source: RBI Reports
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Analysis and Interpretation  Cashless transactions are possible

to less than fifty per cent population as
The above table and Charts are the remaining people don’t have card
indicating Level of Cashless transactions related transactions and particularly
done in the full month of November and people in rural areas are not updated to
a few days in December, 2016. These are this
the material facts during the period after  As per an estimate nearly 100
the implementation of demonetization. people died in queues while trying to take
Out of the all means payments through cash from ATMs
RTGS were the highest in value though
the volume appeared to be lower. NEFT
was in the next place and UPI in last Suggestions
position with least volume and value.
 The government should have
Findings examined the past history to understand
the success rate of curbing black money
 As per the statement of Prime by initiation of demonetization before
minister, Demonetization decision aimed announcing demonetization.
at controlling of black money, funding to  Though demonetization is to be
terrorism, and smuggling. confidential decision, the pros and cons of
 With the effect of implementation should have been
demonetization day to day life of common analyzed with the help of economists and
people is badly effected experts in the fields concerned.
 So far black money only Rs220  The supply of currency in 100, 50,
crores came into picture. 20 and 10 denominations should have
 The government might have been gradually supplied during the period
neglected the suggestion of CBDT (1912) earlier to the announcement of
which implies ‘Black Money or wealth demonetization.
holders maintain 6% or less than 6% of  Necessary steps are to be
their total wealth in the form of currency initiated by the government on war
and remaining in bullion and benami footing basis to set right the present
properties, Demonetization may not be adverse and very painful economic
the remedy to control black money’. conditions to common man particularly.
 The spending slow down may
ultimately result in decline of inflation Conclusion
 As far as the information till date
is concerned, Black money came into As per an estimate, in India less than
light so far is very less and negligible as half of total population is only using
the black money holders are becoming cards and other means of cashless
successful in exchanging their old transactions. At this present scenario it is
demonetized currency into new currency very difficult to follow 100 % cashless
in various ways. They are not getting transactions allover India. To achieve
affected but the common man is severely this drastic decisions and steps are to be
suffering even to pass a day to get his taken and it takes much more time. The
livelihood. government is to take initiative to set
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right the adverse situations that are References

prevailing in the country after
declaration of the decision of  Annual reports of RBI
demonetization. According to present  Annual reports of Ministry of
scenario it appears that with what hope Finance
and expectations demonetization decision  Economic Times
is implemented, have not yet been  Business Standard
fulfilled. The government is to have a  Money Control.com
second thought regarding
demonetization.
www.ijar.org.in 120
The Socio, Economic and Political Impacts of Demonetization

in India
G. Durga, MBA (1st Year), Dr. A. Uttama Durga Devi,
Eluru College of Engineering, Reader in Commerce & Management,
Eluru, W.G. Dist., Ch. S. D. St. Theresa’s College for Women,
Andhra Pradesh, Eluru, W. G. Dist., Andhra Pradesh,
Abstract: Demonetization means to withdraw money or the like from use. This means
it is the act of stripping a currency unit of its status as legal tender. Demonetization is
necessary whenever there is change of national currency. The old unit of currency
must be retired and replaced with a new currency unit. The goal of the demonetization
move in India is to make the economy stronger and eliminate the parallel cash
economy which is unaccounted and untaxed. While this can impact the GDP
negatively in the short-term, it should have positive long term consequences. There
are multiple reasons why nations demonetize their local units of currency. Some
reasons include combating inflation, to combat corruption, and to discourage a cash
system. The process of demonetization involves either introducing new notes or coins
of the same currency or completely replacing the old currency with new currency.
However the demonetization that happened in India will have impact on economic,
social and political ramifications, both from immediate and long-term perspectives.
The objective of this paper is to analyse the socio, economic and political impacts of
Demonetization in India.
Keywords: Demonetization, Currency, GDP, Social, economic and political impacts and
Corruption.
Introduction: crore or $45 billion will flow into India’s

white economy, which is equivalent to
Prime Minister Narendra Modi has GDP of more than 100 countries.
announced demonetization of high
denomination currency keeping in view Moreover as per recent estimation only
the manifesto of the party to fight 6% of the black money is kept in the form
corruption and respecting the sentiments of cash and therefore much more can be
of voters. converted and the said objective of the
Government may not be achieved. Earlier
India’s GDP is $2,000 billion (Rs 125 lakh also demonetization was implemented in
crore) and estimated parallel economy is nine countries and failed to achieve the
23 percent, which makes it about Rs. 28 desired objectives of curbing the black
lakh crore. Around 68 percent of that money in majority of cases.
cash is kept in denominations of Rs 500
and Rs 1,000 notes. A back-of-the- Objective of Demonetization: The
envelope calculation shows that Rs 3 lakh objective behind demonetization is to
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force those who have hoards of black It will abridge the gap between the haves
money to deposit it in banks. The and the have nots. However, there may
objective is laudable because black money be some difficulties for a couple of
is used to fund terrorism of various forms months. But this inconvenience shall be
to weaken economy. temporary and for short-term.
Only 5 percent of Indian Workers The demonetization that happened in

pay income tax, just 15 percent of the India will have impact on economic, social
economy is inside the tax net and India’s and political ramifications, both from
tax to GDP ratio at 17 percent is 5 points immediate and long-term perspectives.
lower than comparable countries. The impact of this move includes:
The Socio, Economic and Political  Financial/business impact:

Impacts of Demonetization in India:  Banks will be having a tough
time. They will be flooded with cash.
India is the fastest growing  Real estate prices will fall and the
economy of the world a small Current transactions volume will drop.
Account Deficit, sufficient fiscal space,  People with large amount of
low inflation, and rising foreign exchange black money are using unscrupulous
reserves. We shall see a great impact of means to convert it into legitimate
this move of the Central Government on currency.
Indian Society and Economy. The first  A taxpayer has to stand in queues
impact shall be that people will have to withdraw his hard-earned money.
lower expenditure power. With that they  Second hand car market will cash
will not be able to purchase luxurious badly.
things.  Online companies are having the
last laugh as most of the white income
There shall be no ostentatious class is resorting to online.
expenditures on marriages and other  CAs will be having a time of their
ceremonies. So the society will grow lives.
lesser materialistic and people more  Small/medium sized businesses
prudent. With the fake money destroyed, relying on cash transaction are seeing a
Indian economy will see a big boom and total demand collapse.
the so far booming real estate sector shall  Gem and jewelry business will be
fall on the ground. hard hit.
Political Impact:
The things shall be cheaper. Indian  No cash doles out in elections.
Currency shall get respect at the Whole electioneering will change
international market. There shall be a forever.
great check on the terror-related funding  Normal life may be impacted
and therefore on terrorist activities. because of demonstrations.
Corruption shall be down to a great  All parties will join hands to paint
extent as people will stop the tendency of the demonetization scheme as a big
accumulating money using wrong means. scam.
 Social Impact:
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 The society will become more unchallenged for next half a century.
equitable with lesser class Hence, despite pain, the country is
distinction. unified in this rare opportunity, to
 Politics may change forever. cleanse the economy from cancer of
 Cashiers and bankers will get due corruption, on its way to become a
respect in society. superpower.
 People now know moral status of
their peers and neighbors better. References:
 Low-income people have been
impacted as their payments are  Rakesh Bhalla, Demonetization,
delayed. November 24, 2016.
 Some people may commit suicide.  Sumit Agrawal, The impact of
 Big blow to gambling. demonetization to the common man, 15
 Impact on Indian economy: November 2016.
 GDP will be impacted as  Charan Singh, Demonetization of
consumption will fall – Indirect tax High Denomination Notes in India,
collection may be lower. November 30, 2016.
 Disorganized work to move to  Andreas Exner, Degrowth and
organized sector. Demonetization: On the Limits of a Non-
 Demonetization may benefit India Capitalist Market Economy, 6 August
in long term: 2014.
o Income taxes rates may come down
o Loans will become cheaper
o Housing will become affordable
Conclusion:
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
transaction 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.
In fact, India with nearly 60% of

population below 35 years will be
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Impact of Demonetization of 1000 & 500 notes on Indian

Economy
K. Hymavathi , Research Scholar, K L University, Guntur.
Santosh Jawahar, Research Scholar, Andhra University, Vishakhapatnam

Abstract: Indian Government has attacked on people with black money through the
surgical strike by demonetizing the old currency notes but this also causes
inconvenience to common people across the nation. In this scenario, businessmen and
industrialists need to be very careful. India is a country with cash economy. Most of
the people have savings of Rs.500 in home to cope up with daily needs and to tackle
some emergency situations. On November 8th 2016, the Prime Minister Narendra
Modi declared the invalidation of Rs.500 and Rs.1000 notes as a measure to curb fake
currency circulation, black money and corruption. People were asked to deposit their
old notes in banks and get new Rs.500 and Rs.2000 notes. People are struggling to get
money in smaller denomination, as none of the shopkeepers neither have change nor
give change.
Keywords- cash economy, demonetization, black money, corruption, fake currency
Introduction: However this won’t last longer as banks

Quashing of currency status of the would be offering extended working
country through a profound monetary hours in addition to working on Saturday
step as a legal tender is referred as and Sunday to ease common man’s pain.
demonetization. The demonetization of Almost every local grocery vendor in
the year 2016 in India is an attempt to India accepts cash currencies. So
curb fake notes and black money by naturally they won’t be accepting these
reducing the flow of cash in the system. two currency notes. And this has been
The year 1946 was the first time when noticed right from day 1. No one is ready
demonetization was introduced by to accept the currencies except Rs. 100
Reserve Bank of India to demonetize and lower denominations. So anyone
Rs.1000 and Rs.10,000 notes. Then new buying grocery will have to either buy
notes of denomination Rs.1000, Rs.5000 them on credit or give small
and Rs.10,000 were introduced in the denominations.
year 1954. Then the Moraji Desai
government in 1978 demonetized these Transportation: We all use some form of
notes. transportation everyday mainly – auto
rickshaw, taxi, buses, cycle rickshaw. All
Any person/business accepting this business will be hit for a day or two
cash currencies will directly suffer especially those who commute longer
especially poor. In fact those who use distances and payment amount is above
their service i.e. common man will suffer Rs. 500. So either commuter has to
the most for few days due to non- provide smaller denominations or else do
availability of lower denominations. not travel or look for some other
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alternative; because no one will accept normal scenarios, trading amount is

these two most used currency notes. always bigger in quantity and there is no
alternative other than paying
Truck transport: Almost every business through lower denominations.
is some way or the other dependent on Fruits and vegetables vendors or other
transportation especially trucks. All doing similar businesses: They all accept
drivers and middleman have preferred only cash, provided you are not buying
only cash. No credit card/online transfer from shopping mall and other places
etc. They will be impacted badly unless where multiple payment modes are
and until they are paid in lower accepted.
denominations.
Medical shops: Medicines are lifelines for
Travellers in India: The decision must the patients. Non-availability of lower
have been severely impacted foreigners denominations or non-acceptance of Rs.
who might have done foreign exchange 500 & 1000 currency notes will result in
and converted their local currency into either medicines bought on credit/lower
Indian rupee before coming to India or denominations or not bought at all due to
after landing. Since their exchange the ban. Not everyone has Rs. 100 and
amount is high typically above Rs. 10000, Rs. 50 or lower currency notes in
they might have been directly given Rs. sufficient quantity.
500 notes for sure which won’t be
accepted anywhere. This applies to NRIs Hospitals: This certainly apart from
as well who have returned to India medical shops will be badly impacted.
yesterday and have done forex. Patients who are already hospitalized or
are under process of getting hospitalized
Daily wage workers: Almost every must have done some form of
industry has to deal with daily wage arrangements for money before 08 Nov
workers every day who are paid on a per 2016. They would be badly suffer.
day basis. So these workers earnings will
be impacted as contractor or whoever Real estate: This market will be the most
pays them may not have lower badly impacted obviously due to black
denominations available with them. and white money which have been
Either workers will have to accept these functional since years. Buyer normally
notes or get paid in lower currencies or pays certain % of money (black money) in
get paid at a later date. cash to the builder/agents and remaining
portion is paid via loan. So any deal of the
Hotels/Restaurants: These businesses house which was supposed to happen on
will also suffer especially those who 09 Nov, 2016 or even after this date will
accept only cash currencies. No lower suffer. Because the black money or
currencies means no visit to hotel by the brokerage paid to agents involve large
customers. sum and all paid in cash. So buyer will
either have to re-decide on buying the
Stock market: Anyone buying/selling house or home builder or agent will have
physical shares typically pays via cash. In to accept these banned notes at their own
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risk. Or buyer will have to arrange lower The impact of this move on the common
denominations and then pay. man includes:
Financial/business impact
Remote places: India’s remotest places People with large amount of black money
still have no access to banking and it’s are using unscrupulous means to convert
various services. For e.g. northeast it into legitimate currency.
regions. People from such regions will
suffer. To ensure smooth functioning, A taxpayer has to stand in queues to
SBI has announced cash being airlifted withdraw his hard-earned money.
from Calcutta to NE regions so that there
is no shortage of Rs. 100 notes. Online companies are having the last
laugh as most of the white income class is
Entertainment industry: Anyone used to resorting to online.
buying movie tickets at the
counter won’t be able to buy tickets if Small/medium sized business relying on
they do not have lower denominations cash transactions are seeing a total
especially multiplexes where ticket prices demand collapse.
are high. Gem and Jewellery business will be hard
. hit.
Ecommerce industry: Although
ecommerce is growing at phenomenal Real estate prices will fall and the
rate in India, mode of payments used by transactions volume will drop.
Indians is largely cash on delivery.
Because of this decision, their sales will Banks will be having a tough time. They
slow down. So this will directly impact will be flooded with cash\
businesses of mobile phone companies, Political impact
clothing’s, and jewellery especially as
they contribute to bigger chunk of online BJP will gain tremendously. Modi’s
ecommerce market places. portrait could replace Gandhi’s portrait
in coming time on the walls of
Insurance industry: Online transactions government offices.
for buying insurance is on rise but still
higher number of policies are sold offline. All parties will join hands to paint the
Since normal policy premiums are higher demonetisation scheme as a big scam.
in amount, policies won’t be sold offline Normal life may be impacted because of
by most of the companies. So those who demonstrations.
are not ready to buy online will buy
either at a later date or purchase using BJP may do reasonably well in Punjab
lower denominations. and UP elections.
There are numerous businesses such as
travel agents, ticket booking agents & No cash doles out in elections. Whole
many others will take a hit. electioneering will change forever
Social impact
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Low-income people have been impacted Impact on economy

as their payments are delayed. Fiscal deficit will come down
Currency to become stronger
Some people may commit suicide. Industry will become more productive
Cashiers and bankers will get due respect Inflation will come down as housing
in society. prices will drop and food inflation will
come down.
Marriages to become cheap. Death of Tax rates will come down as more people
dowry. will be in tax net
Business will be able to borrow at
All medicines in white money. cheaper rates
FDI to sky rocket
Big blow to gambling. Social impact
The society will become more equitable
Death of drug mafia and terror networks. with lesser class distinction.
Prosecution for people who are engaging
People now know moral status of their in black money.
peers and neighbours better. Some slum dwellers may actually have to
pay taxes and lose their BPL status
Impact on Indian economy Politics may change forever.
GDP will be impacted as consumption
will fall -Indirect tax collection may be
lower. As with all good things, there is a bitter
truth here as well. The black money may
Disorganised work to move to organised remerge as now there is Rs 2,000 notes so
sector paying bribes will be much easier. In fact,
if the same government does not come to
Demonetisation may benefit India in long power again, then there is risk of reversal
term: of some of these policies. Bribes may be
paid in gold, foreign currency or smaller
Income taxes rates may come down. denomination notes, or through
consumer durables. The whole plan may
Loans will become cheaper. boomerang as there is a complete demand
Housing will become affordable. collapse and people lose their jobs in the
unorganised sector in the near term. So
Asset classes there is need for strong administration
Bonds prices to increase in the near and effective policy framework to make
future sure these initiatives are implemented in
the same nerve as they were intentioned.
Real estates to fall
Conclusion: The government should have
Gold rates to fall. actually performed demonetization in
Equity markets to gain in next six to 12 phased manner. That is first the banks
months can get back notes printed before 2010
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and then should have demonetized notes

printed between 2010-2016. This may
result to curb black money is a
disciplined manner and indeed it will not
affect the lives of common man. The
current situation can be tackled only if
the government pumps in the new notes
at a faster pace. Because the reduction in
new notes in banks is creating a
tremendous situation among the people
as they are finding it difficult to meet
their daily needs. The incidence,
structure and level of corruption which is
occurring in India will not be impacted by
demonetization. The money of hoarders
and politicians are handled in offshore, so
the chance of the money arriving to India
is nil. Having Rs.2000 notes at their
disposal will make them happy only. Any
measure will have its merits as well as
demerits. It should be to an extent that
merits should outweigh demerits.
References:
Demonetization
How Demonetisation Has Impacted the

November 17,2016
Dr. Rangarajan, The writer was

governor of RBI.
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The Impact of Demonetization in India

R. Radha Rani, leturer in commerce, D.N.R. College, Bhimavaram
D.Naga Lakshmi, leturer in commerce, D.N.R. College, Bhimavaram
M.L.V.A.Priya, leturer in commerce, D.N.R. College, Bhimavaram
Abstract: Demonetization is an established practice in monetary policy to tackle black

money. The Prime Minister has explained why this is a financial surgical strike. It was
meant to be suddenly implemented. In the past, demonetization has taken place twice
but it fails because the idea is to tackle the black money existing in circulation. The
Government is not saying that 100% corruption will be tackled. So far, it can be said
that this is a historical step and should be supported by all. One should look at the
bigger picture which will definitely fetch results in the long term. This is what the
people have been asking for a long time which has finally happened.
Key wards: master stroke, corruption, counterfeit currency
Introduction : The official announcement Impact of Demonetization:

of our Prime Minister Mr. Narendra Tracks unaccounted cash:
Modi on 8-11-2016 address to the The biggest advantage of
Nation. Finance Minister Sri Arunkumar demonetization is that it helps the
Jaitly said that the demonetization would government to track people who are
clean the complete economic system, having large sums of unaccounted cash or
increase the size of economy and revenue cash on which no income tax has been
base. Prime Minister Narendra Modi paid because many people who earn black
came out with his master stroke on money keep that money as cash in their
corruption, counterfeit currency, houses or in some secret place which is
terrorism and black money by very difficult to find and when
announcing demonetization and ceasing demonetization happens all that cash is
Rs 500 and Rs. 1000notes as a part of of no value and such people have two
legal tender in India. options one is to deposit the money in
bank accounts and pay taxes on such
amount and second option is to let the
Demonetization : Demonetization refers value of that cash reduced to zero.
to discontinuing of current currency Putting an end to black money:
units and replacing those currency units Since black money is used for
with new currency units. It is a major illegal activities like terrorism funding,
decision and it impacts all the citizens of gambling, money laundering and also
the country because overnight all the inflating the price of major assets classes
money you have become a piece of paper like real estate, gold and due to
which has no value if you do not demonetization all such activities will get
exchange it with new currency units or reduced for some time and also it will
deposit it in the banks. take years for people to generate that
amount of black money again and hence
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in a way it helps in putting an end this Addressing the nation, Prime Minister of
circle of people doing illegal activities to India provided assurance to the citizens,
earn black money and using that black he quoted, “I want to tell the people
money to do more illegal activities. again and again that the government will
Good amount of tax revenue: do everything to protect the honest” .
Another benefit is that due to The government efforts:
people disclosing their income by The introduction of Rs 2000 note
depositing money in their bank accounts has been controversial in consideration of
government gets a good amount of tax government’s efforts to suppress black
revenue which can be used by the money by eliminating bigger
government towards the betterment of denomination currency, what might be
society by providing good infrastructure, the strategy? It still seems to be a missing
hospitals, educational institutions, roads part in a puzzle. The present
and many facilities for poor and needy demonetization process has laid trap for
sections of society. smaller rats; it has potential to break all
Benefit from demonetization: illegal transactions in real estate, gold,
Every honest taxpayer should and a few other sectors where circulation
hail this decision. In the present of unaccounted money has reached
economical situation, black money has saturation point.
inflated prices in real estate, gold and a
few other sectors, making it a challenge Views and Counterviews:
for a common Indian citizen to invest. The idea of demonetization is good:
However the government’s attempt to The idea of demonetization is
curb black money will significantly lower good but it has to be taken into
the prices in such sectors. consideration that most of the black
Tackles funding to terrorism: money is kept in the form of land,
Demonetization would not only buildings or gold or kept abroad. What is
repair internal economic issues, but also in cash constitutes only 4% of the total
tackles funding to terrorism. Counterfeit amount of black money on which taxes
money is one of the main sources of are not being paid. Out of this, a lot of
funding for activities related to terrorism money is in circulation in everyday
Also, corrupted government officials and transaction like if someone is building a
politicians who have earned in illegal house; the bill is not paid through banks
ways will have no other option to put that for sand, bricks etc. This money goes into
money into usage. the other systems though it has been
drawn from bank. These things will come
“No pain no gain”: under control with this step.
As the saying goes “no pain no Small farmers, sellers, merchants, daily
gain’”. In the same way short-term wage labourers and traders are suffering:
constraints will be associated with long- Small farmers, sellers,
term benefits in this process, such as all merchants, daily wage labourers and
of sudden endeavor to convert currency, traders are suffering because of lack of
limitation of new tenders throughout the proper planning, intelligence and
network for a certain period of time. foresight such as recalibration of ATM
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machines. There was need to pile up investment and stagnant industrial

enough 100 Rupee notes and other growth. If we look at the farm sector, this
smaller denomination notes in the is the harvest time. Farmers generally
market before taking this step. It is being deal in cash and India is also largely a
said by critics that this step was taken cash economy. The cash transactions in
only to bolster the image of the Prime this economy are far more than the total
Minister as he has been unable to deliver number of electronic transactions done
on GDP growth, inflation and bringing on a daily basis.
the black money from abroad. Banking System will get a boost:
Further Banking System will get a boost,
Financial surgical strike: as more than Rs 7-8 lakh crore base
Demonetization is an established money (new legal money) will enter the
practice in monetary policy to tackle system. However, it needs to be seen how
black money. The Prime Minister has much money actually remains in the
explained why this is a financial surgical system, once the cash withdrawal limits
strike. It was meant to be suddenly are eased.
implemented. In the past, demonetization On the Way to Cashless Economy:
has taken place twice but it fails because As we know cash withdrawals limit from
the idea is to tackle the black money ATM and Banks is being restricted, this
existing in circulation. The Government will lead to payment mechanism through
is not saying that 100% corruption will be online/card payment (in simple words
tackled. If announcement and time card transactions will slowly replace the
would have been given, this step might cash transaction in daily activities).
not have been successful in controlling Conclusion:
black money and counterfeit currency in So far, it can be said that this is a
circulation coming from Pakistan, Nepal historical step and should be supported
or other countries. by all. One should look at the bigger
Withdrawal has not been kept at a higher picture which will definitely fetch results
level. in the long term. This is what the people
People are facing problems have been asking for a long time which
because the limit of withdrawal has not has finally happened.
been kept at a higher level. If this would
have been kept at a higher level, there The Impact of Demonetization:
were chances that the recycling of black Demonetization refers to
money might begin. The ideal money in discontinuing of current currency units
circulation has to come to the banking and replacing those currency units with
channels. new currency units. It is a major decision
Economy is struggling with slowdown. and it impacts all the citizens of the
This is a terrible setback for the country because overnight all the money
international standing of the Indian you have become a piece of paper which
economy. At this time, the economy is has no value if you do not exchange it
struggling with slowdown. There is with new currency units or deposit it in
demand sluggishness in the economy the banks.
leading to practically no private sector
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Impact:
Tracks unaccounted cash, putting an end
to black money, good amount of tax
revenue, tackles funding to terrorism,
“No pain no gain”, the government
efforts.
Views and Counterviews:

The idea of demonetization is good, Small
farmers, sellers, merchants, daily wage
labourers and traders are suffering,
financial surgical strike, withdrawal has
not been kept at a higher level. economy
is struggling with slowdown, banking
System will get a boost, on the Way to
Cashless Economy.
Conclusion:
So far, it can be said that this is a

historical step and should be supported
by all. One should look at the bigger
picture which will definitely fetch results
in the long term. This is what the people
have been asking for a long time which
has finally happened.
References:
4. Demonetization
Indian Equity Market Data as on
governor of RBI.
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Demonetization Practices – An overview

Mr.V.Vijay Kumar, Lecturer, Dept.of Commerce, Sir C.R.Reddy (A) College,Eluru,
W.G.Dt., AP.
Dr. Thera Rajesh, Associate Professor, Department of P.G Management Studies,

MBA Programme, Sir.C.R.Reddy College, P.G Courses, Eluru, W.G.Dt., A.P.
Abstract: The Indian rupee (INR) is the official currency of the Republic of India. The
Reserve Bank manages currency in India and derives its role in currency management
on the basis of the Reserve Bank of India Act, 1934. Demonetization is the act of
stripping a currency unit status as legal tender. Demonetization is necessary whenever
there is a change of national currency. The old unit of currency must be retired and
replaced with a new currency unit. There are multiple reasons why nations
demonetize their local units of currency. Some reasons include to battle inflation, war
corruption, and to discourage a cash system. The process of demonetization involves
either introducing new notes or coins of the same currency or completely replacing the
old currency with new currency. The government’s goal was to eradicate counterfeit
currency, fight tax evasion, eliminate black money gotten from money laundering and
terrorist financing activities, and promote a cashless economy. By making the larger
denomination notes worthless, individuals and entities with huge sums of black money
gotten from parallel cash systems were forced to convert the money at a bank which is
by law required to acquire tax information from the entity. In this context, this paper
highlights the Demonetization Practices – An over view it involves History of
Demonetization, views and counterviews, Problems in Implementation, Problems of
Common man and the need of the hour etc.,
Key words: battle inflation, war corruption, striking results

demonetize their local units of currency.
Some reasons include combating
Introduction inflation, to combat corruption, and to
discourage a cash system. The process of
Demonetization is the act of stripping a demonetization involves either
currency unit of its status as legal tender. introducing new notes or coins of the
Demonetization is necessary whenever same currency or completely replacing
there is a change of national currency. the old currency with new currency.
The old unit of currency must be retired History of Demonetization in India
and replaced with a new currency unit.
In economics demonetization is one of the The first time demonetization was done
tools to control counterfeit and lack in Pre Independence era in year 1946.
money. Demonetization is an excellent Post Independence the HDN currency of
tool to curb counterfeit money. There Rs.1000, 5,000 and 10,000 was
are multiple reasons why nations demonetized in 1978 to curb counterfeit
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and black money. On 14 January, Raghuram Rajan that “steps like these
R.Janaki Raman, a senior official from rarely have striking results”.
chief accountant’s office in RBI, was
informed about the government’s Not in entirety, say economists,
decision to demonetize high – because high denomination notes
denomination notes and told to draft the returned eventually. And, such notes, as
ordinance. After the ordinance was we know are the basis of corruption and
drafted, it was sent to President N. illicit deals related to unaccounted
Sanjiva Reddy for assent. It was through money. The Rs 500 note was introduced
the All India Radio’s (AIR) 9 am news in October 1987 and Rs 1,000 note was
bulletin that people were informed about introduced in November 2000. The move
the policy decision. The difference was then justified as attempt to contain
between today and past is that the the volume of banknotes in circulation
current decision is dictatorial without the due to inflation. But in current scenario
assent of President of India. This jeo- Rs 2000 notes has been introduced even
pardize the constitutional nature of our before Rs. 500 and 1000 notes have been
democracy where the head of the country drained out completely.
is side lined in the name of secrecy. IG
Patel, the then RBI governor, was not in Abhiroop Sarkar, Professor at Indian
favour of the step. He felt that many in Statistical Institute, says the 1978 move
the government perceived the step as a had no effect on the circulation of black
measure targeted at the “corrupt money. “That’s because people don’t
predecessor government or government stack black money in cash. Rather, they
leaders”. In his book, Glimpses of Indian stash it in undisclosed accounts in Swiss
Economic Policy: an Insider’s View, Pate Banks. So demonetization won’t affect
writes that when the then finance the big fish,” he explained to IANS. Here,
minister HM Patel told him about the it’s pertinent to mention that touts made
step, he asserted that steps like these most of the move in initial days. As
rarely have striking results. He added people didn’t want to deposit their money
that most people in possession of black in banks fearing tax problems, they fell
money rarely keep their ill-gotten for the touts instead. Anil Harish, a
earnings in the form of currency for long. senior advocate told TOI, “At places like
Thinking that black money is stashed Crawford Market and Zaveri Bazar,
away under mattresses or suitcases is people were selling Rs 1,000 notes for as
naïve, he said. Black money stashed as little as Rs 300.” The same is happening
high-value currency is much less than today where at 20 per cent to 30 per cent
black money as untaxed income, part of discount the money is getting exchanged.
which might be splurged in conspicuous
consumption or used for investment in In 2016, the Indian government decided
real estate, commodities, stocks, benami to demonetize the 500- and 1000- rupee
lending or plain graft to secure political notes, the two biggest denomination
or administrative goodwill,” the same is notes. These notes accounted for 86 per
the view of our former RBI Governor cent of the country’s cash supply. The
government’s goal was to eradicate
counterfeit currency, fight tax evasion,
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eliminate black money gotten from on GDP growth, inflation and bringing
money laundering and terrorist financing the black money from abroad.
activities, and promote a cashless
economy. By making the larger Demonetization is an established practice
denomination notes worthless, in monetary policy to tackle black money.
individuals and entities with huge sums The Prime Minister has explained why
of black money gotten from parallel cash this is a financial surgical strike. It was
systems were forced to convert the money meant to be suddenly implemented. In
at a bank which is by law required to the past, demonetization has taken place
acquire tax information from the entity. twice but it fails because the idea is to
If the entity could not provide proof of tackle the black money existing in
making any tax payments on the cash, a circulation. This is not tackle corruption
tax penalty of 200 per cent of the tax per se or the Government is not saying
owed was imposed. that 100 per cent corruption will be
tackled. If announcement and time
would have been given, this step might
not have been successful in controlling
Views and Counterviews black money and counterfeit currency in
circulation coming from Pakistan, Nepal
The idea of demonetization is good but it or other countries.
has to be taken into consideration that People are facing problems because the
most of the black money is kept in the limit of withdrawal has not been kept at a
form of land, buildings or gold or kept higher level. If this would have been kept
abroad. What is in cash constitutes only 4 at a higher level, there were chances
per cent of the total amount of black that the recycling of black money might
money on which taxes are not being paid. begin. The ideal money in circulation has
Out of this, a lot of money is in to come to the banking channels.
circulation in everyday transaction like if It is also being said that what is being
someone is building a house; the bill is attempted is replacement of currency and
not paid through banks for sand, bricks not demonetization itself which was
etc. This money goes into the other unnecessary. This is a terrible setback for
systems though it has been drawn from the international standing of the Indian
bank. These things will come under economy. At this time, the economy is
control with this step. Small farmers, struggling with slowdown. There is
sellers, merchants, daily wage labourers demand sluggishness in the economy
and traders are suffering because of lack leading to practically no private sector
of proper planning, intelligence and investment and stagnant industrial
foresight such as recalibration of ATM growth. If we look at the farm sector, this
machines. There was need to pile up is the harvest time. Farmers generally
enough 100 Rupee notes and other deal in cash and India is also largely a
smaller denomination notes in the cash economy. The cash transactions in
market before taking this step. It is being this economy are far more than the total
said by critics that this step was taken number of electronic transactions done
only to bolster the image of the Prime on a daily basis. In the tribal heartland of
Minister as he has been unable to deliver the country, the poor people through
www.ijar.org.in 135
middlemen are getting their currencies one week. All the construction sites are
exchanged for Rs.300 or Rs.400 because either closed or working with half labour.
of lack of proper information which is  All small shopkeepers like cloth
hitting them. The stock of the black merchant, moblie shop, accessories
economy constitutes a major part of the vendor cannot procure goods. The cost of
GDP is significant. Even if 50 per cent of purchasing is somewhere between fifty
this amount is withdrawn, the kind of thousand to one lakh Rs. The daily
relief that RBI will get on its liabilities revenue which used to Rs. 2000 average a
and the sort of deposits commercial day has dropped to Rs. 300 per day.
banks will get will lead to a rise in the  Who is responsible for the
deposit and later on there will be number of death of the innocent citizen
decrease in lending rates plus fiscal who was deprived of medical facility due
deficit. The black money in circulation is to lack of legal currency.
like a steroid in the economy which keeps  The marriages which are getting
the demand going gives a feeling that affected contrast to the BJP minister
everything is working well. The problem spending Rs. 500 crore on his daughters’
is that investment is not taking place in marriage.
the economy and the rate of growth of  Small vegetable farmers sitting
capital formation is down. The only way road side cannot sell vegetables because
to bring this up is to divert more funds people are now going to big balls to
into investments which will happen when purchase vegetable by cards.
the cost of capital comes down.  Similarly small business shops
sell has dropped to 10 per cent in absence
of legal currency.
Problems in Implementation and  Products of non-essential
Problems of Common Public commodities have fallen and essential
commodities are increasing. In two days
 The common man, who are the price of wheat has increased by 18 per
illiterate and have no access to banking cent.
facilities, will be the ones to be hit by  The price of agro products for
such steps. next cycle will increase because farmers
 Most of the country’s ATMs are in absence of legal cash have missed the
not built to accommodate the new harvest season. Instead of using seeds
Rs.2,000 and Rs. 500 notes. Thousands of they are using grains which will also
engineers are working as fast as possible result in poor yield.
to retrofit the country’s 2.18 lakh ATMs.  Till today around Rs.5 lakh crore
This enormous undertaking is expected rupees have been deposited in bank on
to take a few more weeks. 21st November 2016. This has only sucked
 Two lakh labour’s working for the liquidity from the market affecting
construction and other labour intensive the spending capacity of common man. It
business. Out of this more than 50000 are has nothing to do with black money.
jobless because the contractor does not  The head of All India Bank
have cash to pay them daily wages. No Officer’s Confederation, D Thomas
one can withdraw more than Rs. 24000 in Franco, called for the resignation of
www.ijar.org.in 136
Reserve Bank of India (RBI) governor demonetization as step to fight

Urjit Patel, on moral grounds because counterfeit and black money has failed
nearly 11 bank officials who died due to miserably. The government has
stress. attempted to tackle all the three issues
The Need of the hour for Demonetization affecting the economy i.e. a parallel
economy, counterfeit currency in
Since only 6 per cent of the total cash is circulation and terror financing. So far,
in form of black money, and counterfeit it can be said that this is a historical step
currency is .025 per cent of our total GDP and should be supported by all. One
demonetization does not help. Instead the should look at the bigger picture which
following steps would have will definitely fetch results in the long
run. This is what the people have been
 Like Australia released the asking for a long time which has finally
world’s first long lasting and counterfeit- happened. There is no doubt that Prime
resistant polymer (plastic) banknotes the Minister has pulled out a major coop and
government should have waited for some substantially enhanced his reputation as
time and adopted the same technique. a strong leader.
 To remove counterfeit currency
the old currency can be drained out of References
main economy slowly without affecting
1. Reserve Bank of India :
common man.
Functions and Working (July, 2015)
 We for sure know which
2. RBI : Review of the Working of
administrative post is the seat of
the Monetary System, RBI : Report on
corruption. Raid all the officers of such
Currency and Finance, 2012-13 and 2014-
post. Maximum black money in form cash
15.
lies with them. Don’t we know which all
3. RBI : Report on the Trend and
departments are centers of corruption.
Progress of Banking, 2014-15 Financial
Start from India’s Top 50 Cities
Institutions.
 Approve RTI on campaign funds
4. Government of India, Economic
for elections.
Survey, 2015.
 Don’t we know how many
5. Ruddar Datt, K.P.M.Sundharam,
politicians are corrupted more than 50
Indian Economy, S.Chand New Delhi.
per cent of the lok sabha members have
6. http://www.oneindia.com/feature/
criminal cases filed against them. IT
what-is-cuttency-demonetization-
raids on all political leaders having
2261350.html
disproportionate wealth. Need to close as
fast as possible.
 Implement Lok pal bill that
house passed.
Conclusion
History is taught to learn from

the mistakes of the past. All the
countries in the past who have taken
www.ijar.org.in 137
Socio-Economic dimensions of Demonetization in India.
S.Sita Rama Murty, Lecturer in Economics

Government Degree College, Narsipatnam, Visakhapatnam District
Abstract
India is the second largest populous country in the world with 130 crores of
population. 27 crores of people in India are suffering absolute poverty Literacy rate is
only 75 percent. 70 percent of population live in rural areas. 52 percent of working
population depend on agriculture for their livelihood. 90 percent of industrial workers
are engaged in unorganized sector. Indian economy is cash based economy. Therefore,
demonetization is the cause for the difficulties in the circulation of money and the
shortage of money in the short run. However, it will help our country in the long run.
It would increase the deposits in the banks and revenue base of the government that
can be used in the development our country.
Key words: populous, absolute poverty, literacy rate, unorganized sector,

demonetization deposits in the bank, revenue base, development.
Introduction: The demonetization aimed at eradicating

After independence, we have been black money, corruption, illegal activities
marching towards the goal of a developed like smuggling and counteracting
nation. We achieved high growth rate in terrorism.
the recent years but the socio-economic
problems of poverty and unemployment (1) Socio-Economic Characteristics of
are not solved. India.
Today the physical production of India is the world’s second most
goods and services increased with populous country, the world’s most
advancement of science and technology. populous democracy and one of the
Wealth of the country increased with fastest growing major economies of the
economic development. Along with world. With world’s eighth largest
positive aspects of development, some military expenditure, third largest armed
negative aspects are also grown. Lust for force, tenth largest economy by nominal
wealth, power and passion have rates and third largest economy in terms
increased. There is tax evasion on a large of purchasing power party, India is a
scale and black money increased. We major power in the world. However,
have economic problems of poverty, Human development is low in India. It
unemployment, economic inequalities ranks 135 in Human Development Index.
and inflation. Problems of corruption, 60 percent of people lack access to
crime, regionalism, terrorism, violence sanitation facilities. 36 percent of people
have assumed serious proportions. lack access to safe and protected drinking
In the light of the problems water. 18 percent people have no
mentioned above, currency notes of 500 permanent housing facilities. 42 percent
and 1000 rupees were withdrawn from of children below five years of age suffer
circulation from the midnight of 8-11-16. from under weight and under nutrition.
www.ijar.org.in 138
50 percent of women suffer severe government has taken and is determined

Anemia due to deficiency of iron. to take in future.
India is the second largest
populous country in the world with 130 Views on demonetization of currency in
crores of the population. The rate of India.
growth of population is 1.7 percent. 27(1) The idea of demonetization is good but it
crores of people in India are suffering has to be taken into considerations that
absolute poverty. Literacy rate is only 75 most of the black money is kept in the
percent 4 crores of educated youth and 11 form of land, buildings, gold or kept
crores of unskilled labour are abroad.
unemployed. We also have the problems In 2012, the Central Board of
of seasonal unemployment, disguised Direct Taxes had recommended against
unemployment and under employment. demonetization saying in a report that ‘’
70 percent of population lives in rural Demonization may not be a solution for
areas. 52 percent of working population tackling black money or economy, which
depend on agriculture for their livelihood. is largely held in the form of Benemi
90 percent of industrial workers are properties, bullion and Jewelry.
engaged in un organized sector. (2) Small farmers, sellers, merchants, daily
Demonetization of currency in India wage labourers and traders are suffering
because of lack of proper planning,
Demonetization of currency is not new intelligence and fore sight such as
to India. It was taken up in the past also. recalibration of ATM machines. There
In January 1946, currency notes of 1000 was need to pile up enough 100 rupee
and 10,000 rupees were with drawn to notes and other smaller denomination
curb black money and black marketing notes in the market before taking this
and new notes of 1,000, 5,000 and 10,000 step.
rupees were introduced in 1954. The (3) People are facing problems because the
Janata Party coalition government has limit of withdrawal has not been kept at
again demonetized currency notes of higher level.
1,000, 5,000 and 10,000 rupees on 16th
January 1978 as a means to curb (2) Evaluation of Money
counterfeit money and black money. According to crowther, money is
anything that is generally acceptable as a
Demonetization is an established means of exchange and that at the same
practice in our country to tackle black time acts as a measure of value. In the
money. India has demonetized currency olden days, when there was no standard
for the third time on 8th November 2016. money like today, Barter system was in
Our beloved Prime Minister, Mr. practice. Goods are exchanged for goods.
Narendra Modi has explained this is a Due to the inconvenience in the Barter
financial surgical strike as it was meant system, money was invented. In the
to be suddenly implemented. It aimed at beginning, gold, silver and other metallic
eradicating black money, corruption, coins are used as money. The difficulties
illegal activities like smuggling and in the carrying of metallic money led to
counter acting terrorism. It is a part of the invention of paper money. Later,
the series of measures which the Bank money in the form of drafts and
www.ijar.org.in 139
cheques came in to usage. Now it is time Demonetization along with other suitable
for digital money and online transactions. measures of monetary and fiscal policies
According to Reserve Bank of India, play an important role in our economic
the four measures of money stocks are development.
M1,M2,M3,M4.
M1 = Currency + Demand deposits Conclusion:
of commercial banks. Some people have been asking for
M2 = M1 + Saving deposits with post demonetization since a long time which
offices. has finally been taken up. We can say
M3 = M1 + Time deposits in that demonetization of currency is a
commercial banks. historical and daring step and it should
M4 = M3 + Total deposits with post be supported by all. One should look
offices. broad and it will fetch results in the long
time. It would increase the deposits in the
(3) Policies of Economic development. banks and revenue base of the
Economic development plays an governments that can be used for
important role in the solution of our development of our country The
socio-economic problems. Institutional problems of demonetization can be
and Technological changes are crucial in overcome by encouraging small and
the development of developing countries medium scale traders towards online
in India. Monetary and fiscal policies are transactions and by orienting people
the two important policies of economic towards online transactions.
development. Monetary policy refers to
the regulation of money supply by the References
central bank. The policies of the 1. M.C.Vaish: Monetary Theory.
Government with regard to tax, public 2. M.C.Vaish: Macro Economic
expenditure, public debt and deficit Theory.
financing are called fiscal policies. 3. K.P.M. Sundaram: Money,
Banking, Trade and Exchange.
For sustained development of the 4. Gaurav Datt and Aswin Mahajan:
economy, inflationary and deflationary Datt and Sundaram Indian
conditions must not prevail in the Economy
economy. The central bank fallows dear 5. Eenadu Telugu daily
money policy during inflation and cheap Newspapers.
money policy during deflation. The
government increases taxes, public debt,
reduces public expenditure and deficit
finance during inflation and reduces
taxes, public debt, increase public
expenditure and deficit finance during
deflation. Today we need sufficient funds
available at low rates of interest for the
development of private and public sectors
and inflation must also be checked.
www.ijar.org.in 140
India as a Cashless Economy

T. Radha Krishna, Lecturer in Economics, Govt. Degree College, V.Madugula,
Visakhapatnam District, Andhra Pradesh.
Abstract:
The potential of electronic payments for providing meaningful inclusion as well as to
reduce cash in the economic system was not in doubt anymore and even sceptical
banks were aggressively contemplating launching or acquiring wallets. Merchants
prefer not to keep records to avoid tax payments and the buyers find cash payments
more convenient. Cash less transactions will depend on several things such as
awareness, technological developments and government interventions. A material
transaction to cash less economy will depend on several factors like availability and
high quality telecom network.
Key words: Financial Inclusion, electronic payments, normal money transactions
and told through its milestones, including
Introduction loan waivers, schemes to lend to priority
On 8th November,2016, Pradhana sectors with or without interest sub
Manthri Sri Narendra Modi announced ventures, no frills accounts, micro
that the Rs.500 and 1000 currency notes insurance, rural branches and recently
will not treated as legal tender money in large scale enrolment under the
business transactions and in other uses. Pradhana Mantri Jan Dhan Yojana
With this statement for the last 30 days (PMJDY), post- liberalisation bankers in
many business transactions come down India dealt with the bipolarity of large
to 20 to 30%. In earlier times there is opportunities offered by or growth
very few electronic money transactions economy and meeting targets and sub
made in our economy. Due to our PMs targets under the ever-changing norms of
Statement the Central Government, Financial Inclusion. This paper attempts
State Governments, the RBI, all the to give detailed scenario of Cashless
Nationalised Public Sector Banks and Transactions in the Indian Economy, and
Private Banks, Non-Banking Financial it also give the details of the diversified
Institutions (NBFIs) moved to practice a products of the Cash Less Transactions
variety of products in the Electronic such as Banking Traditional Products
Payments System in all the like Cheques, Demand Drafts and the
administrative, business and normal Modern products like RTGS, NEFT,
money transactions instead of exchange IMPS, Mobile Banking, SMS Banking,
cash in physical form. Internet Banking, Debit Card, Credit
The potential of electronic payments for Card and Prepaid Cards etc.
providing meaningful inclusion as well as Objectives of the Seminar:
to reduce cash in the economic system  To focus on the compulsion of
was not in doubt anymore and even Demonetization along with the pros and
sceptical banks were aggressively cons.
contemplating launching or acquiring  To orient the public towards
wallets. Financial Inclusion in India can online money transactions.
be treated back to bank nationalisation
www.ijar.org.in 141
 To encourage small and medium people in our country but it adversely

scale traders towards online money influences the remaining 97% of the
transactions. population. Economic Action Group
 To identify and prescribe states that due to high valued currency
corrections for the loopholes in notes the Havala, human trafficking and
implementation of demonitization. the drugs business expanded and troubles
 To identify the minimization of the Economy. Even in General Elections
spending habit and lifestyle. many political parties and its
What is meant by Cash Less Economy? A representatives using high valued black
Cash Less Economy is a society in which money to success. The institution Artha
consumers pay using Credit and Debit Kranthi stated that Rupees 50/- valued
cards, Electronic Fund Transfers (EFTs), currency notes are sufficient to meet
Online Shopping, payments through daily life transactions for the people. It
Demand Drafts and Cheques. On 8th also told that to eradicate black money
November,2016, Pradhana Manthri Sri the Government should introduce
Narendra Modi announced that the Banking Transaction Tax (BTT) in the
Rs.500 and 1000 currency notes will not place of all the existing variety of taxes.
treated as legal tender money in business Under the PMJDY (Pradhana Mantri Jan
transactions and in other uses to reduce Dhan Yojana) scheme 25.45 crores new
corruption, black money and fake bank accounts were opened. Still now
currency notes in the economy. According many people in rural and remote areas
to Reserve Bank of India upto 31st March, are far away from the banking
2016 there is 16,63,482 crores rupees services.Many people still not access to
currency notes is circulated in our the banking services. Even large number
economy. Out of these 7,95,375 crores of people got bank accounts under the
rupees is in the form of 500 notes PMJDY scheme they are not in a position
(47.2%) and 6,32,568 crores rupees is in to operate their accounts frequently. 90%
the form of 1000 notes (38%). These two of the work force in India is under
high valued currency notes occupies 85% unorganised sector. In this condition it
of the total circulated currency. Cash – requires long time to this informal sector
GDP ratio in India is 12.42% which is to come in the way of Cash less Economy.
very high the world average i.e. only 4%. There is a general preference for cash
In India 95% transactions made in the transactions in India. Merchants prefer
form of physical cash. not to keep records to avoid tax payments
According to International Monetary and the buyers find cash payments more
Fund’s World Economic Outlook Report convenient. Cash less transactions will
(2016) India is the 9th rapid developing depend on several things such as
economy in the world. India places 76 out awareness, technological developments
of 168 countries in the World Corruption and government interventions. A
Index. To improve its rank in this index material transaction to cash less economy
India has to reduce the physical cash will depend on several factors like
transactions and it should transformed to availability and high quality telecom
cash less transactions society. The black network. People face difficulties in
money concentrated with only 3% of the making e-payments, the machinery of e-
www.ijar.org.in 142
payments like Point of Sale (POS) and 3. Cancellation of Fixed Deposit

ATMs etc. accounts.
Benefits of the Cash less Economy: 4. Consumer Bill Payments like
 Digital payments indirectly Electricity bills, Gas, Mobile and
reduces expenditure in manufacturing Landline post paid bills, DTH recharge,
currency notes and its transportation. Income taxes and other tax payments,
 Going cash less economy, there Credit Card Bill Payments.
will be possible to reduce terrorism and 5. Insurance premium payments,
anti-social activities like naxalism. purchase of Gift Cards.
 The Cash less economy ensure 6. Purchase of Mutual Fund
targeted delivery of schemes to the products and other Financial products.
eligible people and it reduces leakages. Mobile Banking: to get mobile banking
 In the Cash less economy there is service through our smart phones first we
no chance to tax evasion and it minimizes should download concerned “banks app”
hiding money. in our smart phones. Then we should fill
Diversified modes of Electronic up all the required details and we can
Payments: manage our loan account, loan payments,
Credit Cards & Debit Cards: The Credit purchase of gift vouchers, balance
Cards issued by all the nationalised enquiry and mini statement.
banks to employees, businessmen, NEFT and RTGS money transfer facility:
industrialists, middle class people on the We can transfer huge amounts of money
basis of their income levels. These Cards to other individual and institutions
issued in addition to their Basic Debit instantly with the help of these two
Cards. The Card holders utilise these services. There is no minimum and
money with 0% interest with the span of maximum limit for NEFT money
50 days. We should paid the money which transfers. Under the RTGS money
we utilise in EMI form. We utilise our transfer system we can transfer more
Debit Cards to withdrawing money from than 200000 and there is no maximum
ATMs and online shopping and at Point limit. We can access these facilities
of Sale terminals (POS). between 8:00 am to 7:00 pm. These
Internet Banking: All the nationalised money transfers done on the basis of
Banks provides 24 hours 365 days batch wise per hour. i.e 12 batches 12
working services to their customers. In times.
this facility the customers need not go *99# services: These facilities come
physically to their home branches or any under the USSD (unstructured
other branches and they save their time supplementary service data) form. We
and money. can get offline banking services through
The following services available in the *99# scheme. It is maintained by
internet banking: National Payment Corporation. This
1. Instant money transfer to service jointly provided by Banks and
different banks beneficiaries. Telecom operators. If we dial *99# with
2. Opening up of Fixed and the registered mobile number we can get
Recurring deposit accounts. 7 types of financial and non-financial
services. We can transfer money to other
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benefiaries with this scheme. These payments using Immediate Payment

services available to its users 24 hours Service (IMPS).
even in bank holidays. Pre-paid Payment Instruments (PPIs):
For accessing these services feature Earlier, it enables to purchase Railway
phone holders should dial *99# and the tickets by using Electronic Payment
smart phone holders should download System, Bill Payments, recharges and
*99#app. There are no user charges small remittances. In a span of less than
collected by banks but the telecom 18 months, PPI contributed to more than
operators charges Rs.1.50 per sms. 40% of all IMPS transactions between
Unified Payment Interface (UPI): This banks and non-banks connected to IMPS
services recently introduced. We can switch.
transfer funds and get funds instantly E-Commerce: Amazon, Flipcart and the
with the help of beneficiaries Virtual Snapdeal are the e-commerce firms which
Payment Address (VPA) which we call as sell variety of products like Electronic
virtual id. Under This scheme goods, toys, books, clothes and even food
beneficiaries account number and MMID items. The firms sell all their products
(mobile money identifier), IFSC need not not only at and below MRP but they also
require. Even an individual get different give 5 to 25 % discount. The online
bank accounts we can operate this commerce firms deliver the items at our
services with the help of UPI app. door steps. Some online shopping firms
Gift Cards: many institutions reward attract the customers with refund
their employees with pre-paid gift cards. facilities.
These are very comfort and it validate Precautions to be observed in online
with a period of one year. These cards money transactions:
issue with the range of Rs.100 to 100000.  The account holder create email
We can utilise these gift cards in id, mobile number in concerned home
shopping malls, online purchases. branch.
E-Wallet: it is very comfort and simple to  Under any circumstances do not
make transactions electronically. These share our user id, password with others.
e-wallet facilities available in smart  We should access our net banking
phones, personal computers, tabs and account only through banks official
laptops. We can download a wallet from website address.
any of the firms. Once we opt a wallet  We do not disclose our Debit and
then we connect it with our bank account Credit card numbers, PIN and CVC
with our details like name, account numbers.
number, debit, credit card number etc.  We should thoroughly check our
after connecting the wallet to our bank bank statement in the internet banking.
account we can access e-commerce  Unfortunately lost our debit card
services, telephone recharge, and booking immediately we go to our home branch
transport tickets. and block it to avoid using unauthorized
National Payments Corporation of India persons.
(NPCI): it is a nodal infrastructure  After completing transactions in
agency for small payments and real time online banking we should log out our
account and then only close the browser.
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Regulation of Cyber Crimes: India stood Review of Payment settlement systems of

at 11th place in Cyber Security. To make India.
safe and fair cash less money transactions
the following issues may be implemented.
 Banks and related service
providers must constantly invest in
technology to improve security and ease
of transaction.
 People access only when it is
easier, certain and safe to make Cash less
Transactions.
 The government must find ways
to incentivize Cash less Transactions and
discourage Cash Payments.
 The Government will have to
create conditions not necessarily by
creating cash shortages to push cash
transactions to a threshold level after
which the net work effect will take over.
 To avoid cyber crimes in cash less
transactions finger print based
transactions must be introduced.
 Iris based technology should be
introduced in Electronic Money
Transfers.
 Investing in cyber security
technology to invent and develop new
methods of Electronic Fund Transfers.
 One Time Password (OTP) based
fund transfers should be encouraged.
 Grid should be connected to
online base and Debit card based cash
transactions to avoid misuse in Electronic
Fund Transfers and Online bill
payments.
 Compulsorily using the virtual
key boards while accessing online
banking services.
References:
Annual Report of Reserve Bank of India
India 2016.
Economic Survey of India 2016
www.ijar.org.in 145
Demonetization - An Analytical Insight

Dr. K. Bhanu Prakash,
Associate Professor & Senior Consultant, Vestal Institutions, Eluru
Dr. J. Chandhra Prasad,

Director, SD College of Information Technology, Tanuku &
Former Principal, DNR College, Bhimavaram
Abstract
‘Thou hath made me Endless; such is for theirs’ Pleasure’ is the noblest move
of Hon’ble Prime Minister Sri. Narendra Damodardas Modi. A positive, progressive
and prospective announcement towards ‘Demonetisation of Currency’ on 08th
November, 2016, could place certainly Indian Economy as one of the Top-1o
Digitalized Economies in the world. More productivity, greater accountability and
stronger compliance, lesser wastage, more evolution are parameters of ‘Digitalization’.
Networked Readiness Index (NRI) is an indicator to measure the competencies, and
competitiveness and well-being. No economy in the world is a cashless economy. All
economies even advanced economies, which have a lot of transactions online, etc.,
Demonetisation is a right move towards the right reasons with a stated vision. The
move from informal economy to formal economy, from black to white, cash based to
cashless certainly boost GDP growth, will transform Indian Economy into Digital
Economy and improves international rank profile of India amongst 168 countries
during Modi’s regime. Beginning is Noble but the path to heaven is full of sinners and
believers. The act may be a democratic or despotic the ripening fruits have to reach the
common minimum man at length and breadth. An attempt has been made in the paper
to present historical antecedents of demonetization in India, Value of INR prior and
post demonetization, the structural benefits and despotic actions and also suggest the
right maladies for turning around Indian Economy towards Digital and Cashless
Economies. The long-run gains of demonetization depend on execution and
implementation not intentions, not aspirations, but whether the government can
deliver on its promises. Undoubtedly, Indian Economy will emerge as one of the
Utopian Economies in the world in the regime of Sri. Narendra Modi.
Key words: Digitalized Economies, demonetization, structural benefits
Printing, Nano-Technology, Bio-

Introduction Technology, Materials Science, Energy
At the dawn of Fourth Industrial Storage and Quantum Computing play
Revolution, the ‘Digital Divide’ emerged vital and powerful indicators in the world
as one of the new and powerful indicators economies. Networked Readiness Index
in the world. Artificial Intelligence (AI), (NRI) is a key indicator which measures
Analytics, Robotics, the Internet of how well an economy is using ‘Digital
Things, Autonomous Vehicles, 3-D Information and Communication
www.ijar.org.in 146
Technologies’ to boost competitiveness Demonetization - The Historical

and well-being. Singapore, Finland, Antecedents
Sweden, Norway, US, Netherlands,
Switzerland, UK, Luxembourgh, and The term ‘Demonetization’ refers
Japan harnessed information technology the act of stripping a currency unit of its
at par with excellence and ranked Top-10 status as legal tender. In January, 1946,
Countries in the World.1 the Government Of India, demonetized
A decisive move by Indian Rs. 1000 and Rs. 10000 Currency Notes
Economy towards ‘Digital Economy’ with the value of Rs. 143.97 crores as
where there will be more productivity, against the total notes issued of the value
greater accountability and stronger of Rs. 123593 crores3 and New Currency
compliance, lesser wastage, more Notes with the denominations of Rs.
evolution and also weed out evils in the 1000, Rs. 5000 and Rs. 10000 were
country’s shadow economy, on 08th Nov, introduced in 1954. On 16th January,
2016, the Hon’ble Prime Minister, Sri 1978, the Janata Party Coalition had
Narendra Modi, has announced that all again demonetized Rs. 1000, Rs. 5000 and
Rs. 500 and Rs. 1,000 Currency Notes Rs. 10000 Currency Notes as a means of
would cease to be legal tender by the end curbing counterfeit money and black
of the year. They must be redeemed or money. 4 Amount of these notes at the
will be rendered null with the with the time of demonetization was equal to Rs.
objective of unearthing and controlling 145.42 crore.5 The ‘Demonetisation’ move
black money (about US$250 billion), could also impact the money supply,
combatting the financing of terrorism interest rates, financial inclusion and
and curbing the circulation of counterfeit government finances.
currency (ranging from 4 to 0.004 per
cent) in the economy which has leveraged
these larger currency notes (with values
equivalent to about US$7.50 and
$15.00).2 The Currency denominations of
Rs. 500 and Rs. 1000 make up about 86
per cent of the total currency in
circulation by value in India and 3
. K. Ratnesh J.K. Singh P.N. Singh (2008).,
represent the maximum and most Encyclopaedia of Indian Economy, Deep and
popular currency denominations. Deep Publications,
New Delhi, p.831.
1 4
. World Economic Forum, 2016. . Gopika Gopakumar, Vishwanath Nair
(2016)., Rs 500, Rs 1000 notes may be back, if
2
. Centre for Financial Inclusion, What Does history is a guide,
India’s Demonetization Experiment Mean for Live Mint, 09th Nov.
Financial
5
Inclusion? https://cfi- . B.L. Mathur (2001)., Monetary
blog.org/2016/11/16/whatdoesindias- Management, Discovery Publishing House,
demonetizationexperimentmeanforfinancial New Delhi, p. 99.
inclusion
www.ijar.org.in 147
Table-1: Value of Indian Rupee - Prior and Post Demonetization

Period Stronger Weaker Same
After 26 Days of Demonetization
47 110 4
(From 08th Nov, 2016 To 04th Dec, 2016)
From 19th To 26th Days of Demonetization

130 25 6
(From 27th Nov, 2016 To 04th Dec, 2016)
From 12th To 19th Days of Demonetization
19 136 6
(From 20th Dec, 2016 To 27th Nov, 2016)
For the First 12 Days of Demonetization
44 112 5
(08th Nov, 2016 To 20th Nov, 2016)
Prior 6 Months of Demonetization
125 32 4
(08th May, 2016 To 08th Nov, 2016)
Source:www.xe.com
After Denomination on 08th Nov, Demonetization - The Structural Benefits

2016, the Indian Rupee became weaker To Indian Economy
than Currency of 110 Economies. Out of
the Currency of 161 Nations, Indian Demonetisation move certainly
Rupee gets stronger than 47 Currencies change the face of the Indian Economy, it
and is at same exchange rate with 4 will have a transitory impact on GDP
Currencies. Prior 6 months of Growth in short-term, but it will spell
Demonetization i.e., from 08th May, 2016 significant structural benefits over the
To 08th Nov, 2016, the Indian Rupee long-term. The size of the Cash Economy
weighed more with compare to 125 will shrink, as will black money generates
Currencies. avenues because of better-cash flow
Soon after 26 days of trails. Cash-dependent, Consumption-led
Demonetisation of Rs.500 and Rs. 1000 sectors of the economy will also feel the
Currency Notes, INR weighed stronger pinch, while Investment demand will be
only to 47 Currencies. Moreover, INR tempered in the short-term. The
became weak by 2.43 per cent against US maintenance of neutral liquidity in
Dollar ($). Rupee has become weaker Banking System increases liquidity lead
against some popular currencies like to higher deposits which will help to
British Pound, Canadian Dollar and mitigate any short-term liquidity
Singapore Dollar too. Yet, stronger to concerns on account of FCNR
Euro, Australian Dollar, Swiss Franc, and Redemption. There is a downward
Japanese Yen. INR became weak than pressure in case of inflation in short-term
South Asian Currencies of Pakistani because cash transactions will reduce. In
Rupee, Sri Lankan Rupee, Bangladeshi the long-run though, as Government
Taka and Nepalese Rupee. spending rises pushing up employment
and incomes, demand will revive. A
www.ijar.org.in 148
sharper fall in Rural Versus Urban India has the highest ratio of
Inflation is possible due to downward Cash / GDP in the world.6 The average
pressure on Prices lead to lower demand number of cashless transactions per
especially in Housing, Transport and person per year in the country stood at
Food where share of cash transactions is just 11 where as in USA this is around
high. However, the impact on inflation is 400. The value of cash transaction in
to be neutral in the medium-to-long term. India, as a percentage of Total Consumer
Over the long-term, Tuesday’s Payments was approximately 86 per cent
move buoyantly improves Government’s in 2012.7 This number might have come
Fiscal Position and Revenues in the form down by picking up in Electronic
of Taxes. Direct Tax collections are just Transactions. The unaccounted $479
about 5.5 per cent of GDP and about 50 billion money should get mainstreamed,
per cent of Total Tax Collections and this inflation would tread down as demand
contribution is expected to rise in future. slows in the short-term but the impact
This will also help the Government stick over the long-term would be neutral. But
to its fiscal restraint path. millions of MSMEs in unorganized sector
Income-Tax collections are that use cash to transact will be
expected to kick-up as funds earlier inconvenience for a while.
unaccounted are get eventually taxed and
this One Time Tax collections in long-run Demonetisation - A Despotic Action
pave the way for better Tax Compliance Demonetisation, a positive,
and push up Direct Tax Collections in the progressive and prospective move
medium-term. Higher Income-Tax towards transition to the Digitalised and
collections arising from better Tax Cashless; it undermines notes, it
Compliance would also offer scope to undermines bank accounts, it
reduce Income-Tax Rates over the long- undermines the entire economy of trust.
term which would increase Disposable That is the sense in which it is despotic.8
Incomes. This can have a positive impact It is nothing but sucking 85 per cent of
on Consumption Demand in the long- the blood from the body in one go and
term. injecting new blood drop by drop.
In a country where 97 per cent of all
Public Investments to rise and
will also have positive spillover effects on 6
employment and income. The Investment . Ajay Shah (2016)., A Monetary Economics
View of the Demonetisation, Business
scenario drive up the supply capacity of
Standard, 13th Nov, 2016.
the Indian Economy, overall GDP 7
. N. Joseph, R. Korenke, B.D. Mazzotta and
Growth is expected to benefit in long- B. Chakravorti (2016)., Cash Outlook : India,
term. However, in short-term, the GDP IBGC Working
Growth may get impacted negatively as Paper, Vol.13, No.1, The Institute For
the Cash-Based Economy feels a crunch Business in the Global Context, The Fletcher
and consumption and investment School, Tufts University.
moderates. 8
. The Hindu, Amartya Sen terms
Demonetisation a Despotic Action, 30th Nov,
2016, p.1.
www.ijar.org.in 149
transactions (by volume) are done in 86.40 per cent of its currency value was
cash, the summary demonetisation of bound to create chaos.
Table-2: Indian Population (Aged 15 Years and Above) - Status of Education
(in percentage)
Primary Upper Secondary Graduates
Population Illiteracy
Education Primary Education and Above
Rural 36.76 22.96 16.66 19.92 3.71
Urban 15.89 16.76 16.31 32.95 18.08
Total 29.83 20.90 16.55 24.25 8.48
Source: National Sample Survey (2011-12), Govt. Of India, New Delhi.
According to a survey conducted by S&P 9, it is found that 3/4th of Indians are

not financially literate i.e.,. approximately 76 per cent of adults lack basic financial
literacy and they don't understand the most basic and key financial concepts.
Table-3: Financial Literacy in India - A Survey

(percentage of Adults Answering Correctly)
South Asia
Topic India BRICS World
(Excluding India)
Risk 14 28 18 35
Diversification
Inflation 56 46 46 50
Interest 48 48 46 49
Financial Literacy 24 28 23 33
Compound Interest 44 44 39 45
Source: S&P Survey (2016)
The devastating impact the decision has economy as a whole. The entire informal
had and is likely to have, both in the economy that accounts for 94 per cent of
short and the long run, on people and the India’s workforce
and 46 per cent of its Gross Domestic
Product (GDP) has almost halted. The
Liquidity Squeeze caused by
Demonetisation will be negative across
many sectors.
9
. Standard & Poor’s Survey (S&P), 25th May, 2016.
www.ijar.org.in 150
With 86 per cent currency in circulation facilities are limited in number and
suddenly becoming non-usable for created chaos.
commercial transactions, there will be
immediate impact on Overall Economic The Way Forward
Activity. It leads to economic
slowdown and acute shortage of currency Beginning is Noble but the path to
for industrial as well as agricultural heaven is full of sinners and believers.
operations. The impact on agriculture The act may be a democratic or despotic
and those dependent on agriculture has the ripening fruits have to reach the
been gradually unfolding. In the first common minimum man at length and
week after Demonetisation, market breadth of the nation. India’s ambitious
arrivals in select major States fell by 87 exchange of currency notes is novel.
per cent for soybean, 55 per cent for Very few countries have repudiated the
paddy, 61 per cent for guar, 51 per cent value of over 85 per cent of outstanding
for maize and 23 per cent for cotton. To currency. Rather than a ‘Monumental
sum up, Demonetisation is likely to affect Mismanagement’ and a case of
agricultural growth adversely and shrink ‘Organised Loot and Legalised Plunder’,
rural incomes and consumer demand. It the strategies to adopt for its success
has already created a serious credibility inter alia include: (i) the continuous
crisis for rural cooperatives.10 political will of the Govt., Of India with
rigor; (ii) Cost-Benefit Analysis (CBA)
The total credit demand for MSME with which the scheme is implemented at
Sector over the medium-term would be par with excellence as per stated
Rs. 45 lakh crore, about Rs 5.15 lakh objectives; (iii) usage of plastic and digital
crore needs to be mobilised to address the money at large; (iv) perform extensive
near-term requirement. 11 Short-term analytics for cash deposit; (v) bring legal
turbulence observed in Real Estate, transparency in cash as well as credit
Jewelley, Retailing, Restaurants, transactions; (vi) strengthen national
Logistic, Consumer Durables, Luxury cooperation and coordination through
Brands, Cement and Retail Segments in different agencies; (vii) roll out customer
terms of slowdown in demand. This move due diligence, record keeping and report
along with GST will have a negative requirements; (viii) bring the segment of
impact on Small Businesses across DNFBP under the purview of enhanced
sectors and drive consolidation or gaining due diligence measure of regulated
market share for organized players. authorities; (ix) the exchange plan will
India’s current episode of also be aggressive and (x) providing
Demonetization has revealed the stark sufficient amount of cash in the market.
digital financial divide between urban
and rural populace and also info and infra No economy in the world is a cashless
economy. All economies even advanced
economies, which have a lot of
10 transactions online, etc., Demonetisation
. R. Rama Kumar (2016)., Brakes on the
is a right move towards the right reasons
Rural Economy, Frontline, 07th Dec, 2016.
with a stated vision. The move from
11
. ASSOCHAM - Crisil Study (2016). informal economy to formal economy,
www.ijar.org.in 151
from black to white, cash-based to Green, Russell A. (2016)., Will India’s

cashless certainly boost GDP growth, Currency Exchange Work as
will transform into digital economy and Hoped? Issue Brief, No. 11.16.16
improves international rank profile of http://www.bakerinstitute.org/research/w
India amongst 168 countries ill-indias-currency-exchange-work-hoped
during Modi’s regime. The long-run gains
of demonetization depend on execution Liza Jain (2016)., Black Money - A
and implementation not intentions, not Darker Side of Economy, Indian
aspirations, but whether the government Journal of Applied ResearchVol 6,
can deliver on its promises. Undoubtedly, No.3, p.p.
Indian Economy will emerge as one of the
Top-10 Utopian Economies in the world. Patrick, Martin (2016)., Black Money,
Corruption and Demonetisation. Harvard
References University Press. Harvard.
B.L. Mathur (2001)., Monetary www.crisil.com

Management, Discovery Publishing www.economictimes.com
House, New Delhi, p. 99. www.frontline.in
www.ft.com
Kenneth S. Rogoff (2016)., The Curse of www.ifmr.org
Cash, Princeton University Press www.kpmg.com
Publication, New Jersey. www.thehindu.com
K. Ratnesh J.K. Singh P.N. Singh (2008).,

Encyclopaedia of Indian Economy, Deep
and Deep Publications, New Delhi, p.831.
Saw Myat Yin (2016)., Culture Shock!

Myanmar, Marshall Cavendish
International Asia Pte Ltd., New York.
Shaikh Saleem (2016)., Business

Environment, Pearson India Education
Services Pvt., Ltd., 3rd Edition, New
Delhi, p.423.
Deodhar, Rahul Prakash, Black Money

and Demonetisation (November 14,
2016).
University of Mumbai, Mumbai.

https://ssrn.com/abstract=2869172
www.ijar.org.in 152
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Sundara Rao M., (1996), "Tribal Development." Tata McGraw, Hill, New Delhi, page. 250
Contributions to books:
Ramana T.V (2008) ,” Education- A multi-Dimensional weapon for all-round Development:
Edited by D.Pulla Rao, Development of Education-Emerging Dimensions in 21st Century,
Chapter 13, pp.190-202.
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Volume 3, Issue-12(4), December, 2016

International Journal of Academic

Published by Office Address

EDITORIAL COUNCIL FROM ABROAD

EDITORIAL COUNCIL FROM INDIA

Dr.K. Radha Pushpavathi, Dept. of Economics, Dr.V.V.S.Rama Krishna, Dept. of Economics,

Santanu Kumar Das,Department of Business Dr. BipashaSinha, S. S. Jalan Girls’ College

Editor-in-Chief, IJAR – December, vol.3, issue 12(4), 2016

Volume 3 Issue 12(4) December, 2016

Sl. Paper Title Pg.No

Demonetization - Online Transactions

Key words: payment difficulties, demonetization, terrorist

Introduction: current currency notes allegedly used for

1978 as means to curb counterfeit money consumption are intrinsically related to

Conclusion: The demonetization

Demonetization affects India

J.Suresh, Lecturer, Department of Commerce, D.N.R.College(Autonomous),

The demonetization exercise was a

Economic consequences of and counterfeit notes. This move is

 Gold and luxury goods  Households

8) Effect on Online Transactions fund transfer. On 9th November and in

Conclusion: Black money hoarders will

India’s Demonetization “Shock Therapy” – Financial

Dr.A.V.Nagavarma, Head, P.G. Dept. of economics, D.N.R. College (A),

circles to keep a window for round counterfeiting instead of firebombing the

imploding unless there is fresh induction or under the proverbial mattresses. On

people would invest their capital without maximising, cost-minimising, customer-

in so plucking the goose as to obtain the 8. Who’s powering the War on

1 Corruption Will Continue, Says

Introduction medium business enterprises across India

Nobody knows the exact figure but it has

Make the corrupt lose their money: Well

Objectives: Counterfeit Currency: 500

Effect on parallel economy: The removal Effect on Prices

As directed by the Government, the 500 Disadvantages of Demonetization

 Another disadvantage is that

higher than benefits then there is no use References:

Making India a cashless economy

D.Srinivasa Raju, Lecturer, Department of Commerce, D.N.R College(A), BVRM

P.Naga Veni, Lecturer, Department of Commerce, D.N.R College (A), BVRM

Abstract: The government is working at various levels to reduce the dependence on

revamp the tax administration, as more

The government will have to

Anil Bokil, Chanakya for the proposed new monetary policy

came up with the ArthaKranti strategy in Expected outcome of the mission’s

Bokil’s views on demonetisation : “We

Honourable Prime Minister

‘Demonetisation man’ by Michael

Present Status of Black Money in India and the Future

V. Venkatarao, Dept. of English, C.R. Reddy college (A), Eluru

Dr. K.Ammaji, HOD of commerce, B.G.B.S. Women’s College, Narsapur

Key words: Indian money, White Money, Black Money

Introduction developed country very soon, but sadly it

We know that in the present To evade compliance with the

which exists such as the Industrial

extra money other than fees in the form

Another aspect of Black Money is CHINA $ 96 billion

It leads to decrease in working India to bring back money from abroad

thereafter, making lame excuses rather To Strengthen the Social Values:

Agriculture income should be taxed for Economictimes.indiatimes.com/opinion/bl

The Government should not give

SukantaSarkar (2010). “The parallel

Vijay Kumar Singh, (January 2009)