“A study on Impact of Demonetization

On Indian Economy”.

A Project Submitted to

University of Mumbai for partial completion of the degree of

Bachelor in commerce (Banking & Insurance)

Under the Faculty of Commerce

By

PRATIK JAIN

Under the Guidance of

PROF. ALOK HARDIKAR

RSET’s

Ghanshyamdas Saraf College of Arts & Commerce

Affiliated to University of Mumbai

Reaccredited by NAAC with ‘A’ Grade

S.V. Road, Malad (West)

Mumbai- 400064

(April-2021)
 “A study on Impact of Demonetization

On Indian Economy”.

A Project Submitted to

University of Mumbai for partial completion of the degree of

Bachelor in commerce (Banking & Insurance)

Under the Faculty of Commerce

By

PRATIK JAIN

Under the Guidance of

PROF. ALOK HARDIKAR

RSET’s

Ghanshyamdas Saraf College of Arts & Commerce

Affiliated to University of Mumbai

Reaccredited by NAAC with ‘A’ Grade

S.V. Road, Malad (West)

Mumbai- 400064

(April-2021)
 RSET’s

Ghanshyamdas Saraf College

of Arts and Commerce

Affiliated to University of Mumbai

Reaccredited by NAAC with ‘A’ Grade

S.V. Road, Malad (W)

Mumbai – 400064

CERTIFICATE

This is to certify that Mr. Pratik Jain has worked and duly completed her Project
Work for the degree of Bachelor in Commerce (Banking and Insurance) under the
Faculty of Commerce in the subject of and his project is entitled, “A STUDY ON
IMPACT OF DEMONETIZATIOIN ON INDIAN ECONOMY” under my
supervision.

I further certify that the entire work has been done by the learner under my guidance
and that no part of it has been submitted previously for any Degree or Diploma of any
University.

It is her own work and facts reported by her personal findings and investigations.

Project Guide Principal

Date:

External Examiner

Date:
 DECLARATION BY LEARNER

I the undersigned MR. PRATIK JAIN here by, declare that the work embodied in
this project work titled “A study on impact of Demonetization on Indian
Economy.” forms my own contribution to the research work carried out under the
guidance of Prof. Alok Hardikar is a result of my own Research Work and has not
been previously submitted to any other University for any other Degree/Diploma to
his or any other University.

Wherever reference has been made to previous works of others, it has been clearly
indicated as such and included in the bibliography.

I, here by further declare that all information of this document has been obtained and
presented in accordance with academic rules and ethical conduct.

PRATIK JAIN

Name and Signature of the learner

Certified by:-

PROF.ALOK HARDIKAR

Name and signature of the Guiding teacher

 ACKNOWLEDGEMENT

To list who all have helped me is difficult because they are so numerous and the depth
is so enormous.

I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of the project.

I take this opportunity to thank the University of Mumbai for giving me chance to do
this project.

I would like to thank my Principal, DR. JAYANT APTE for providing the
necessary facilities required for completion of this project.

I take this opportunity to thank our Chief Coordinator, URVI JAIN

for her moral support and guidance.

I take this opportunity to thank our Coordinator, PROF. ALOK HARDIKAR for his
moral support and guidance.

I would also like to express my sincere gratitude towards my project guide Prof.
ALOK HARDIKAR whose guidance and care made the project successful.

I would like to thank my College Library, for having provided various reference
books and magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped
me in the completion of the project especially my Parents and peers who supported
me throughout my project.
 INDEX

CHAPTER PAGE
TITLE OF THE CHAPTER
NO. NO.
1. INTRODUCTION: 1
1.1 DEFINITION 1
1.2 HISTORY 3
1.3 HISTORICAL BACKGROUNDS OF 4
DEMONETIZATION IN INDIA
1.4 NEED AND IMPORTANCE OF 7
DEMONETIZATION IN INDIA
1.5 EFFECT OF 2016 DEMONETISATION 7
1.6 HISTORY OF DEMONETIZATION 9
AROUND THE WORLD
1.7 MERITS 12
1.8 DEMERITS 13
1.9 IMPACT ON DIFFERENT SECTOR 15
1.10 DEMONETIZATION ON DIFFERENT 29
DISTRICT
1.11 IMPACT ON BUSINESSES 33
1.12 OPERATION CLEAN MONEY AND 35
ENFORCEMENT BY INCOME TAX
DEPARTMENT
2. RESEARCH METHODOLOGY: 38
2.1 TITLE OF THE RESEARCH STUDY 38
2.2 DURATION OF THE RESEARCH 40
STUDY
2.3 OBJECTIVES 40
 2.4 SCOPE OF THE RESEARCH STUDY 40
2.5 LIMITATIONS OF THE STUDY 41
2.6 METHODS OF DATA COLLECTION 41
2.7 IMPORTANCE OF THE STUDY 43
3. REVIEW OF LITERATURE 45
4. DATA ANALYSIS & INTERPRETATION 60
5. FINDINGS, SUGGESTIONS & 81-87
CONCLUSION
APPENDIX
BIBLIOGRAPHY & REFERENCE
 CHAPTER 1: INTRODUCTION

1.1 DEFINITTION:

Demonetization is the process of withdrawal of a particular form of currency from

circulation. Demonetization becomes necessary whenever there is a change in the
national currency. The old unit of currency must be retrieved and replaced with a
new currency unit. It involves either introducing new notes or coins of the same
denomination or completely replacing the old denominations with the new
denomination which is usually carried out as an ambush on the black market. In
India demonetization has occurred thrice. The first was on 12 January 1946
(Saturday), second on 16 January 1978(Monday) and the third was on 8 November
2016 (Tuesday). The purpose of this study is to compare and analyse the impact of
demonetizations and their significance in the economic development of India by
comparing with other countries. Considering the importance and the influence of
Indian economy in the global financial markets and the growth rate of India’s GDP,
this article attempts to document the historical importance of the demonetizations and
their impact on the export and import. This article also covers the various other
countries who tried demonetization, they are, Nigeria, Ghana, Pakistan, Zimbabwe,
North Korea, Soviet Union, Myanmar and Australia. The results of this study provide
an insight into the demonetization process and about its impact on the growth and
development in these countries. Thus, the findings of this study reveal that, India will
achieve a significant growth by adapting the demonetization strategy and it will create
a huge positive impact on the entire economy in a long run.

INTRODUCTION

Demonetization is the stripping a currency unit of its status as legal tender.

Demonetization becomes a necessary when there is a change of national currency.
The old unit of currency
The Southern Regional Conference on Management Education – A Global
Perspective, Organized by PSG Institute

1
Of Management, Coimbatore – 06.01.2017 has be retired and replaced with a new
unit of currency. It include either introducing new notes or coins of the same
denomination or completely replacing the old denomination with the new
denomination which is often carried out as an ambush on the black money and
market. The opposite of demonetization is called as demonetization in which a form
of payment is restored as legal tender. Currency is a commonly accepted form of
money, including coins and paper notes, which is issued by a government and
circulated within the economy. As used a medium of exchange for goods and
services, currency forms the basis for any trade. The currency or legal tender is
issued by a country’s central bank or a monetary authority. The national currency of a
country is usually the principal currency used for most of the financial transactions in
that country. Basically each country has its own currency as Switzerland's official
currency is the Swiss franc, and Japan’s official currency is called the yen. An
exception would be the euro, which is used as the currency for a group of European
countries called European Union. In India the currency is called the Indian Rupees
(INR). In most of the cases, the central bank of a country has the absolute right to
issue money or the currency for circulation.

On the evening of 8th November 2016, Indian Prime Minister Mr. Narendra Modi
announced a sudden denomination of ₹500 and ₹1000 rupee notes. Instead of RBI
Governor Urjit Patel, surprisingly Prime Minister announced the news of
demonetization that these banknotes would not be legal tender after midnight of the
8th November. Means the high value notes will not be legal for transaction. Although
the old notes can be exchanged till 31st December 2016. There were set an upper limit
of cash withdrawals from bank is ₹10,000 per day (up to ₹20,000 per week) per
account and from ATM ₹2000 per day per account from 10 to 13 November which is
changed from 14 Nov. to ₹24,000 per week from bank and ₹2,500 per day from ATM
per account till 31st Dec., although a needy person can withdraw with valid reason.
According to RBI report on 31st march 2016, ₹500 and ₹1000 banknotes consist
around 86% of total cash circulation having value of ₹15.44 lakh crore. In this process
97% of old notes around ₹14.97 lakh crore were deposited in bank before 31st
December. • Motivation In last year, Demonetization was a major economic incident
and a bold move by the government. As soon as the PM announced about
demonetization, a debate started in the whole country. On the news channel, at the

2
offices, everywhere everyone wanted to understand the effects of demonetization as it
was not so obvious. I was also one of them who were interested, curious and excited
about the recent event. I thought that I should understand the economic point of view
of such a big event as economics student. All these things inspired me to dig into this
topic.

1.2 HISTORY

• History of Demonetization in India:

The Indian rupee (INR) is the official currency of the Republic of India. The rupee is
subdivided into 100 paisa (singular paisa), though as of 2011 only 50 paisa coins are
tender. The issuance of the currency is controlled by the 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. The rupee is named after the silver coin, rufiyaa,
first issued by Sultan Sher Shah Suri in the 16th century and later continued by the
Mughal Empire.

In 2010, new symbol’, was officially adopted. It was derived from the combination of
the
Devanagari consonant “र” (ra) and the Latin capital letter “R” without its vertical bar
(similar to the Rotunda). The parallel lines at the top (with white space between them)
are said to make an allusion to the tricolour Indian flag, [6] and also depict an equality
sign that symbolizes the nation’s desire to reduce economic disparity. The first series
of coins with the new rupee symbol started in circulation on8 July 2011.

In a major step to check undeclared black money, the Government of India on the 8
November2016 announced demonetization of Rs 500 and Rs1000 banknotes with
effect from the same day’s midnight, making these notes invalid. Apart from
combating black money, the stated purpose is also to check fake currency (used to
finance terrorism) and corruption.

3
In India demonetization has happened thrice. The first was on the 12 of January
1946 (Saturday), second on 16 of January 1978 (Monday) and the third was on 8of
November 2016 (Tuesday). In the January of 1946, notes of denominations
1,000 and 10,000 rupees were withdrawn from circulation and new notes of
denominations 1,000, 5,000 and 10,000 rupees were introduced in 1954. Then Janata
Party coalition government again demonetised bank notes of denominations 1,000,
5,000 and 10,000 rupees on 16 of January 1978 with the notion of curbing counterfeit
currency and black money. The highest of all denominations ever printed by the
Reserve Bank of India was the Rs 10,000 note in 1938 and was again in 1954. But
these notes were demonetized in the January of 1946 and again in the January of
1978, based on the RBI data. The first occurrence was in 1946 and the second in 1978
during which an ordinance was issued to phase out various notes with denominations
of Rs 1,000, Rs 5,000 and Rs 10,000 respectively.

The demonetization of denominations Rs. 500 and Rs. 1,000 banknotes was a policy
decision carried out by the Government of India on 8 of November 2016. In the
declaration, the use of denominations of all Rs. 500 and Rs. 1,000 banknotes of the
Mahatma Gandhi Series would be invalid after the midnight of the same day, and was
also announced that the new Rs. 500 and Rs. 2,000 banknotes of the Mahatma Gandhi
New Series will be issued in exchange for the above mentioned old currency notes.
The move by the government is defended as an attempt to eliminate a
reasonable volume of currency notes which is in the circulation because of inflation.

1.3 HISTORICAL BACKGROUNDS OF DEMONETIZATION IN INDIA:

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

• The highest denomination note ever printed by the Reserve Bank of India was the
Rs 10,000 note in 1938 and again in 1954. But these notes were demonetized in
January 1946 and again in January 1978, according to RBI data. Rs 1,000 and Rs
10,000 bank notes were in circulation prior to January 1946.

4
• Higher denomination banknotes of Rs 1,000, Rs 5,000 and Rs 10,000 were
reintroduced in 1954 and all of them were demonetized in January 1978. The Rs
1,000 note made a comeback in November 2000. Rs 500 note came into circulation in
October 1987.

• The move was then justified as attempt to contain the volume of banknotes in
circulation due to inflation .However, this is the first time that Rs 2,000 currency note
is being introduced.

• While announcing currently circulated Rs 500 and Rs 1,000 notes as invalid from
midnight 8Nov, Prime Minister NarendraModi said new Rs 500 note and a Rs. 2,000
denomination banknote will be introduced from November 10.

• Bank notes in Ashoka Pillar watermark series in Rs 10 denomination were issued

between 1967and 1992, Rs 20 in 1972 and 1975, Rs 50 in 1975 and 1981 and Rs 100
between 1967-1979.

• The banknotes issued during this period contained the symbols representing science
and technology, progress and orientation to Indian art forms.

• In the year 1980, the legend Satyameva Jayate — ‘truth alone shall prevail’ — was
incorporated under the national emblem for the first time.

• In October 1987, Rs 500 banknote was introduced with the portrait of Mahatma
Gandhi and

Ashoka Pillar watermark. Mahatma Gandhi (MG) series banknotes – 1996 were
issued in the denominations of Rs 5, (introduced in November 2001), Rs 10 (June
1996), Rs 20 (August 2001), Rs 50 (March 1997), Rs 100 (June 1996), Rs 500
(October 1997) and Rs 1,000 (November 2000).

•The Mahatma Gandhi Series – 2005 bank notes were issued in the denomination of
Rs 10, Rs 20, Rs 50, Rs 100, Rs 500 and Rs 1,000 and contained some additional/new
security features as compared to the 1996 MG series.

•The Rs 50 and Rs 100 banknotes were issued in August 2005, followed by Rs 500
and Rs 1,000 denominations in October 2005 and Rs 10 and Rs 20 in April 2006 and
August 2006, respectively.

5
6
1.4 NEED AND IMPORTANCE OF DEMONETIZATION IN INDIA

The Indian government claims that the demonetization effort is to stop the
counterfeiting of the current currency notes allegedly used for funding terrorism
across the border by the neighbouring countries, and as an attack on the black
money in the country. The move was claimed as an initiative to curb corruption,
trafficking of drugs, and smuggling across borders. The supply of currency notes of
all denominations has seen an increase by about 40% during the period between 2011
and 2016, the Rs. 500 and Rs. 1,000 denomination notes has increased by 76% and
109% respectively during this period due to forgery. This forged cash is usually used
to fund various terrorist activities against India. The outcome of the decision is to
eliminate the currency notes of selected denominations has been taken (Governor of
the Reserve Bank of India, Urjit Patel, and Economic Affairs secretary, Shaktikanta
Das). Nations demonetize their local units of currency for various reasons. Some
include combating inflation or corruption, and to discourage a dominative cash
system.

Chart 1 Rs 500 and Rs 1000 Notes: From 25% to 85% of Cash Economy in India
The government’s aim was to wipe out the counterfeit currency, scrap tax evasion,
abolish black money generated out of money laundering and terrorist funding
activities, and to promote a cashless e-economy. By announcing the larger
denomination notes to be useless, the individuals and various black money launderers
with huge collection of black money generated from the parallel black cash systems
were affected and made to convert the cash money through a banking system which
requires tax information from the entity. In case, if the entity is not providing any
proof of paying any tax on the cash, a 200% penalty of the tax owed was imposed.
Besides combating black money, the purpose mentioned is also to curb fake
currency (financing terrorism) and also corruption.

1.5 EFFECT OF 2016 DEMONETISATION

Soon after the announcement of demonetization, all banks and ATMs across the
country were paralysed because of cash shortages. The cash shortages had many
disadvantageous effects on every small business, agriculture, and also on
transportation, with people wanting to exchange their old banned notes having lengthy

7
waits in long queues, and several deaths were reported to be linked to the difficulty in
exchanging cash. The shortage of cash due to demonetisation process resulted in
disorder and chaos, and mostly the people holding old currency notes faced
difficulties in having them exchanged because of the endless queues outside banks
and ATM a few hours of being also ran out of cash only after machines across India.
They operational, and about half of the ATMs in the country were not functional.
Several deaths were reported standing in queues for long hours at the banks and
ATMs to exchange their old banknotes. Deaths were also accounted for the lack of
medical facilities or preparations due to denial of old currency notes by the hospitals.
In turn as a collective effect because of the demonetisation and US presidential
election, the Indian stock exchange indices fell to a six-month low in the week
which followed the pronouncement. On the very next day after the demonetisation
announcement, BSE SENSEX lost nearly 1,689 points and NIFTY by over 541
points. At the close of the intraday trading as on 15 November 2016, the BSE
SENSEX index was low by over 565 points and the NIFTY 50 index was below
8100 on intraday. The first four days after the demonetisation witnessed about Rs. 3
trillion (US$45 billion) in the form of old currency notes of Rs. 500 and Rs. 1,000
being deposited in the banking system and an amount of Rs. 500 billion (US$7.4
billion) had been distributed through withdrawals from the deposited bank accounts,
ATMs and exchanges over the bank counters. In just four days, the Indian banking
system handled almost 180 million transactions. The State Bank of India reported to
have received about Rs. 300 billion (US$4.5 billion) as deposits after just two days
of demonetisation. A sudden hike in the online and credit cards was transactions
with the usage of debit also reported. Evading techniques like Gold purchases,
Donations, Multiple bank transactions, depositing in the Jan Dhan Scheme bank
Accounts, Railway bookings, Municipal and local tax payments, Backdated
accounting were also reported to have happened. According to an information by the
Union Minister of State for Finance Arjun Ram Meghwal, as stated in Rajya Sabha
pieces of Rs 500 1,716.5 crore denomination notes and 685.8 crore pieces of Rs 1,000
notes were in circulation as on the November 8 2016, the date on which
demonetisation was pronounced. It actually sums up in a value which comes close to
Rs 15.44 lakh crore.

8
1.6 HISTORY OF DEMONETIZATION AROUND THE WORLD:

Ghana carried out their demonetisation decision with 50 cedi currency notes
for monitoring money laundering and to curb corruption. This change was not
supported overwhelmingly, but has created chaos which ended in a move back to
physical assets and foreign currency. In the same way Nigeria’s economy also
collapsed after the demonetisation transitioned to the new decimal currency
structure from January 13, 1969 and due to limited importance for the smaller value
currency. move in 1984 as it doesn’t have the way it was actually planned.
The military President Muhammadu Buhari launched various coloured notes to
invalidate their old currency notes to fight black money. But the debt-ridden
economy and high inflation hit Nigerian economy collapsed. Nigerian
Government gave just few days for exchanging the old notes, this move In
Myanmar, demonetization was carried out with larger denomination bank notes for
many times in 1964, 1985, 1987, and 2015. In 2015, the argument for introducing a
new 10,000 KYAT bill is fighting against Counterfeiting. In 1987, to curb the black
market it has got around 80 percent of the currency in circulation invalid which
resulted in students protest and a tough handed government crackdown which
killed hundreds of the protestors. In 90s, in Zaire, currency note reforms resulted
in inflation surges and exchange rate against the dollar had collapsed.

President Mikhail Gorbachev the then Soviet Union president in 1991 demonetised
the higher denomination rubble bills, of 50s and 100s. This move didn’t pay off much
but has ended in the loss of Mikhail’s leadership within a year’s time. Australia
being the first country in 1996 had a full series of polymer currency notes to replace
paper-based notes to stop Counterfeiting .This currency made out of a durable
material changed all the currency in the currency to a new Type of currency note.
Plastic currency was also released in 1992 and 1996 all the currency notes produced
were polymer in nature. Australia decided to replace its paper based currency notes
in 1996. Reserve bank of Australia Released Worlds first long lasting currency notes
with the Additional benefit of the polymer base as it is counterfeit resistant

In 2002 demonetization occurred when the euro was adapted by the member nations
of the European Monetary Union to switch to the new currency euro, in which the

9
authorities fixed various exchange rates for the national currencies of all its
members into Euros. National currencies were demonetized before the Euro was
introduced. However, the exchange of the old currencies to Euro continued to be
convertible for a considerable period to enable a smooth transition after
demonetization. Government of North Korea In 2010, under Kim Jong-II took two
zeros off the face value of the country’s currency in an attempt to constrict a control
over the currency Zimbabwean government demonetized the Zimbabwean dollar
in 2015 to battle the process involving wipe out of the Zimbabwean dollar from the
country’s financial system and to an attempt to stabilize the ruining economy.
Zimbabwe used to have hundred trillion dollar note, which was later demonetised and
was exchanged in a shocking way dropping trillion dollars to just $0.5 dollar.
Zimbabwe is a typical example, going through a phase of hyper-inflation in the year
2008 resulting in the value loss of its currency. The Reserve Bank of Zimbabwe
announced having “adopted the multiple currency system or dollarization in the
year 2009 and it became necessary to demonetise the Zimbabwe $ unit to change
that with the proposed multiple currency notes which prevailed valid for over 30 years
with new currency being in circulation since 2010 to fight Counterfeiting.

Pakistan has also announced to move all its old designed currency notes out of the
economy. Pakistan had demonetised its 5 Rs and 500 Rs denomination notes earlier
too. In European Union, creating the single currency (Euro) over the period 1998-
2000 is considered to be the largest demonetisation ever happened in thehistory.

10
NAME OF COUNTRIES WHICH IMPLEMENTED DEMONETIZATION

11
1.7 Merits-Demonetization Favoured India’s Economic Growth

• Demonetization policy of the Government has been termed as the greatest

financial reform that aimed to curb the black money, corruption and
counterfeit currency notes.
• All the people who are not involved in malpractices welcomed the
demonetization as the right move.
• Demonetization was done to help India to become corruption-free as it will be
difficult now to keep the unaccounted cash.
• Demonetization will help the government to track the black money and the
unaccounted cash will now flow no more and the amount collected by means
of tax can be better utilized for the public welfare and development schemes.
• One of the biggest achievements of demonetization has been seen in the
drastic curb of terrorist activities as it has stopped the funding the terrorism
which used to get a boost due to inflow of unaccounted cash and fake currency
in large volume.
• Money laundering will eventually come to halt as the activity can easily be
tracked and the money can be seized by the authorities.

12
 • Demonetization aimed to stop the running of parallel economy due to
circulation of fake currency as the banning of Rs.500 and Rs. 1000 notes will
eliminate their circulation.
• The unaccounted cash could be deposited in the Pradhan Mantri Garib Kalyan
Yojana after paying 50% tax. The money will remain deposited for 4 years
with the bank without incurring any interest. However, after 4 years the
amount will be returned. This amount can be utilized for social welfare
schemes and making the life of low income groups better.
• The Public Sector Banks which were reeling under deposit crunch and were
running short of funds have suddenly swelled with lot of money which can be
used for future finances and loans after keeping a certain amount of reserve as
per RBI guidelines.
• The people who opened the Jan Dhan accounts will now use their accounts
and become familiar with banking activity. The money deposited in these
accounts can be used for the developmental activity of the country.
• The tax collected due to launch of demonetization policy will be put to
developmental activities in the country.
• Demonetization has driven the country towards a cashless society. Lakhs of
the people even in remote rural areas have started resorting to use the cashless
transactions. The move has promoted banking activities. Now even the small
transactions have started going through banking channels and the small
savings have turned into a huge national asset.
• The high rising price pattern and inflationary trends which the Indian economy
was facing are taking a down turn making the living possible within low
income group reach.

1.8 Demerits-Blow to economic growth and inconvenience all around

The very next day of announcing the demonetization, the BSE Sensex and NIFTY
50 stock indices fell over 6%. The severe cash shortages brought detrimental impact
on the economy. People trying to exchange their bank notes had to stand in lengthy
queues causing many deaths due to inconvenience and rush.

13
• The sudden announcement has made adverse impact on business and economy.
Instead of a growing economy India has become a standstill and no growth
economy. It is feared that a fall of 2-3% in the GDP growth will be recorded
coming year.
• India is an agriculture based economy. Due to the cash crunch, the farmers
especially small and marginal who largely depend on cash to buy seeds,
fertilizers and to pay for sowing, borrowing water for irrigation and for other
related agriculture equipments remained worst affected and could not complete
the crop related activity.
• Since small branches of the banks were also not supplied with adequate cash
within time of sowing season of the crop, farmers could not get their crop loans
disbursed. This added to the woes of the farmers leading to a weak agriculture
production the coming year.
• Real Estate sector came to a stand still and is still gasping for buyers of the
constructed and half constructed inventory without buyers. This has resulted in
poor cash flow leading to a poor demand.
• Demonetization has made the situation become chaotic. Tempers are running
high among the masses as there is a delay in the circulation of new currency.
• Due to the inability to pay cash to poor daily wage workers, the small employers
have stopped their business activity.
• The poor planning on the part of the government has also added to the woes of
the common people with low incomes. The Rs.2000 currency note does not find
many takers as it is difficult to get the balance back when you are buying daily
needs like vegetables, milk, bread or paying for petty expenses like bus fare.
While rs.100 currency notes were not available in sufficient number, Rs.500 note
arrived in the market very late.
• Demonetization is the 2 way sword in regard to incurring the public expenditure.
On the one hand huge cost is to be incurred on printing the new currency and on
the other hand managing the lakhs of crores of old currency volume has also
become a big expenditure incurring item.
• Many Economists are of the view that Rs.2000 currency note will be much
easier to hide and can be used to store black money in shorter space.
• Entire opposition has stood against demonetization and has called this decision a
draconian law.

14
 1.9 IMPACT ON DIFFERENT SECTOR:

Jobs:

• According to Labour Bureau's Sixth Annual Employment-Unemployment

Survey, the unemployment rate rose to a four-year high in 2016-17, when the
government demonetised old currency notes. In 2017-18, the country's
unemployment rate stood at a 45-year-high of 6.1 per cent, according to the
National Sample Survey Office's (NSSO's) periodic labour force survey (PLFS).
• Moreover, demonetisation caused a 2-3-percentage-point reduction in jobs and
national economic activity in November and December 2016, according to a
research.
• Between 2016 and 2018, five million people lost their jobs and the labour force
participation started declining suddenly between September and December 2016
for both urban and rural men. The rate of decline slowed down by the second
half of 2017, but the general trend had continued and there had been no
recovery.

Income Taxpayers:

• As many as 8.80 million taxpayers did not file tax returns in the financial year
2016-17 - the year Modi government demonetised high-value currency notes.
Records accessed by The Indian Express reveal a massive spike in the number of
“stop filers” in the same year, reversing a four-year trend. In 2016-17, the
number of stop filers jumped 10-fold to 8.80 million from 856,000 in 2015-16,
the highest increase since 2000-2001.
• During 2017-18, there was some positive impact of demonetisation on the
widening of the tax base. The Income Tax department said it added 1.07 crore
new taxpayers while the number of dropped filers' came down to 25.22 lakh.
• The Central Board Of Direct Taxes (CBDT) said 6.87 crore Income Tax Returns
(ITRs) were filed during FY 2017-18 as compared to 5.48 crore ITRs filed

15
 during FY 2016-17, translating into a growth of 25 per cent. Also, during FY
2017-18, the number of new ITR filers increased to 1.07 crore as compared to
86.16 lakh new ITR filers added during FY 2016-17.

Real Estate:

• The total number of developers in the top nine Indian cities shrunk by over 50
per cent by 2017-18. While Gurugram witnessed a decline of 76.8 per cent in the
number of developers from 82 in 2011-12 to 19 in 2017-18, Noida registered a
plunge of 73.2 per cent – from 41 to 11.
• Financial distress of small developers, lack of execution capability and over-
supply of inventory played a key role in the downturn.
• According to analysts, a large number of fly-by-night developers were forced to
leave the market after demonetisation. All major cities with significant potential
for real estate development – Mumbai, Pune, Thane, Kolkata, Bengaluru and
Hyderabad – saw a decline in the number of developers.

On Agriculture:

Agriculture is the largest sector of the economy from the number of persons
employed in it and was badly hit by demonetisation. In this sector, most
transactions happen in cash and the liquidity crunch affected the purchase of
seeds and fertiliser and consequently sowing and agricultural production were
impacted adversely.

Fruit and vegetable farmers were terribly hit. They need cash to purchase
pesticides, fertilisers and need to hire labour for cultivation, harvesting and
also to transport and sell at towns and mandis. Lack of liquidity therefore
resulted in lower yields, reduced sales, higher wastage and lower price
realisation. Besides, retail vegetable sellers faced another difficulty of lack of

16
 demand, and their goods being perishable, ended up wasting a lot of produce.
Further, since there was acute shortage of Rs 500 denomination notes and
change for the high denomination Rs 2000 notes was not readily available
with the vegetable and fruit vendors, it affected their sales. This was also
taking the buyers away from the small vendors to big retail markets, thus
impacting the livelihood of the unorganised sector. As labour is paid in cash
for agricultural work, non-availability of cash with farmers impacted their
employment.

Financing for agriculture happens largely through cooperative banks, which

were barred from exchange-deposit of demonetised currency, affecting the
farmers. Sale, marketing and distribution of agricultural produce happens
through mandis, which are mostly cash-dependent and disruptions took place
in the supply chain during demonetisation. Further, it is learnt that during the
demonetisation period which was at the peak of Rabi crop sowing, no
significant lending was done by the banks. Lack of PAN cards with farmers
which is necessary for bank transactions above Rs.50,000 also badly affected
the farmers who were unable to buy farm machinery. Lack of banking
facilities and ATMs in rural areas also affected the availability of cash with
farmers and illegal moneylenders and black marketers and middlemen took
advantage of the situation.

• Both farmers’ incomes from crop cultivation as well as wages of farm labourers
contracted in 2016-17 despite the above-normal monsoon season. On the
positive side in agriculture as a whole, output from fishing and livestock grew
the fastest in 2016-17. The growth was nearly 10 per cent over the previous year.
• In a period of low supply of cash, input suppliers demanded higher prices.
Demonetisation was carried out briefly after the harvest of the kharif season
entered the markets, and when the entire rabi output was yet on the fields. On the
other hand, agriculture had grown (gross value added) the fastest since 2012 in
the demonetisation year due to a bumper crop.

17
Factory investment:

In the year when the demonetisation was implemented, investment in the

country’s factories contracted 10.3 per cent over 2016-17, showing their worst
performance since 2002-03. In the year immediately after the note ban
exercise, even as factories in the organised sector witnessed job growth and
wage rise consistent with previous years, their ability to channel funds in
productive capital was severely dented in 2017-18.

Spending on milk and milk products:

In 2017-18, the amount spent on milk and milk products (M&MP) dropped 10
per cent. Households, hotels, and halwai shops spent Rs 6 trillion on M&MP
in 2016-17, consumption expenditure reduced to Rs 5.4 trillion in 2017-18, the
data released by the National Statistical Office (NSO) showed.

Digitisation:

• In the demonetisation period, digital transactions have taken a huge leap and
reached a peak of Rs.1,54,059 crore from a level of Rs. 97,554 crore in the pre-
demonetisation period. The government has given it a big push and has
announced new Aadhaar-linked apps, like BHIM app and other payment
platforms like RuPay cards so as to make India less of a cash economy.
However, it is noticed that despite all possible efforts, digital transactions have
come down to Rs. 1,13,827 crore level, partly because of remonetisation. It is
also seen that across states, digital transaction penetration is varying , which is
over 24.5 per cent in southern states like Karnataka, Tamil Nadu and Andhra
Pradesh, while it is less than 12 per cent in states like J&K , MP, Bihar and West
Bengal. The all-India figures have also gone up from 9 per cent to 18 per cent in
this period, showing greater formalisation of economy. This will help in

18
 capturing even those transactions which were somehow not coming under the
tax bracket and will thus improve the tax base and tax collections.

• The total value of electronic transactions in November 2016 was Rs 94 lakh

crore when demonetization was declared. This was increased to Rs 149.6 lakh
crore in March 2017 but lost steam thereafter. In April, it came down to Rs 109.6
lakh crore, in July 2017 to Rs 107.3 lakh crore and in October 2017 to Rs 99.2
lakh crore, which was more or less the same level as was before demonetization,
negating the government’s theory that demonetization improved digital
transactions.

• Looking into different modes of electronic transactions also exhibits a

moderation in growth for different instruments. The most prominent of these
instruments is mobile banking, where the volume of transactions has gone up
from 72.3 million in November 2016 to 86.3 million in September 2017, but
values have fallen below their older levels. The total value of mobile banking
transactions has also come down from Rs 1.24 lakh crore in November 2016 to
Rs 1.12 lakh crore in September 2017.

• Both RTGS and NEFT transactions were the highest in March 2017, at Rs
123.37 lakh crore and Rs 16.29 lakh crore respectively, but thereafter came
down to Rs 102.34 lakh crore and Rs 104.18 lakh crore respectively in
September 2017. Steady growth has been only in Unified Payment Interface
(UPI) like BHIM app, credit card transactions and Prepaid Payments Instruments
(PPI), which includes mobile wallets.

• However, most of these instruments had a very low base. Immediate payment
services (IMPS) through mobile banking transactions have grown from 36.2
million to 82.9 million between November 2016 and September 2017, but a
small fraction of established modes of payment like National Electronic Fund
Transfer (NEFT). UPI, and PPI based payments, despite growing, still only
accounted for Rs 5,290 crore, Rs 2,760 crore and Rs 3,235 crore worth of
transactions in September 2017.

19
 • Therefore, it can be said that though most of the digital transaction modes had
increased during the demonetization period, as the economy was remonetized,
some of the instruments lost sheen. This may be firstly because people are still
not very conversant with these modes and do not find it easy to pay through
these mediums and secondly the costs charged by the banks and credit card
companies etc. is quite high so these modes are not very economical. Most of all,
security of transaction and misuse in process is also a threat. It is hoped that the
government will try to address these glitches in months to come so as to make
the Digital India campaign a real success.

• The government pushed for a less-cash society by increasing infrastructure to

allow digital payments. In most of the tier-II and tier-III towns, digital payments
had doubled since demonetisation. From global tech giants such as Google,
WhatsApp, to few of the country's biggest mobile wallets, including Paytm,
MobiKwik all adopted the digital payments system around the time
demonetisation took place.

Till December 2018, UPI managed transactions of more than Rs 1.02 trillion.
National electronic funds transfer (NEFT) transactions saw an upsurge from Rs
9.88 trillion. Mobile banking payments also saw a spike since September 2015.
All the digital transactions collectively registered an increase of 440 per cent
since demonetisation.

On Gross Domestic Product (GDP):

The Indian economy is a cash-driven economy and demonetisation has largely

affected its growth. The GDP growth rate of 8.01% in 2015-2016 fell to 7.11% in
2016-2017 after demonetisation. This was largely due to less availability of cash in
cash-intensive industries like manufacturing and construction. It has also adversely
impacted the primary function of banks to issue loans and has put pressure on them as
current account holders demand0 large sums of cash.

On the negative side, demonetisation had a huge adverse impact on GDP growth and
employment in 2016-2018. The economy which was in recovery mode post elections
and was growing at about 8 per cent in Q4 of 2015-16, steadily came down to 5.7 per

20
cent in Q2 of 2017-18 , which had a huge impact on fiscal deficit and spending of the
government for social programmes. However, the slide in GDP growth is not solely
attributable to demonetisation alone and rolling out of GST also may have had a
significant negative effect on that. It is widely believed that both the major reforms
should have been little more spaced by the government to avoid the negative fallout.
It is expected that recovery in GDP growth will take at least a few more quarters. The
growth in quarter on quarter basis is shown in Figure 2.

On Daily Wage Workers:

A major portion of the Indian workforce is a part of the informal economy. They use
cash to meet all their expenses and demonetisation has resulted in a lot of them losing
their jobs due to unavailability of cash. According to CMIE’s Consumer Pyramids
Household Surveys (CPHS), approximately 1.5 million jobs were lost during the final
quarter of the financial year 2016-17. The estimated employment during this period
was 405 million as compared to 406.5 million during the previous four months.

On Small Scale Industries:

Businesses like the textile industry, salons, restaurants, and seasonal businesses are
low capital enterprises and work on the basis of liquidity preference. Demonetisation
gravely impacted their revenue collection and threatened their existence to an extent.

21
On Black Money and corruption:

Curbing black money and corruption was one of the important objectives of
demonetisation. There are no exact estimates of black money in India. However, it has
been a serious problem since the very beginning, so much so that the Wanchoo
Committee mentioned that black money is cancerous for India and it will ruin the
economy. Global Financial Integrity (GFI) in its 2010 report mentioned that assets
worth USD 462 billion were sent outside India on account of tax evasion and
corruption. The National Institute of Public Finance and Policy in its 2012 report
estimated the level of black money as per Table

According to Transparency International, corruption is “the abuse of entrusted power

for private gain.” Corruption has several dimensions, causes and effects. It is a
fundamental problem with Indian politics and exhibits the moral decay of society.
This problem is quite deep-rooted. Corruption has been quite prevalent in all walks of
life, which takes several forms like bribe money, speed money etc. Corruption has
paralysed most of the institutions in the country.

Demonetisation severely impacted the existing black money in the form of cash,
which was either discovered by depositing it in the bank account when it loses its
anonymity. Secondly, it could be destroyed when the owner destroys it rather than
depositing it in the bank. There is also a third possibility where a hoarder may adjust
it through illegal means either in new currency or some kind of investments.
Therefore, the forward and backward effect of any policy action taken by the
government needs to be examined. In that sense, demonetisation had only a backward
impact as it destroyed or detected the existing black money in the form of cash. It
could neither impact future generation of black money nor check its conversion into
different forms like property investments etc.

22
The future of black money will therefore depend upon legal and legislative measures
to be taken by the government in years to come. But one thing is sure: that it created a
sense of awareness about black money among the masses and also created some kind
of fear in the minds of black money hoarders.

Though only a small portion of black money is stored in the form of cash and
majority is in the form of physical assets like gold, land, and building, demonetisation
of the rupee 500 and 1000 notes might take out a lot of black money from the
economy.

On the General Economic Situation:

Till months after demonetisation the general economic situation was disturbed. The
public had to queue up outside banks to exchange their old currency for new ones.
Households lacked liquidity and could not do transactions for daily items. Small
shopkeepers who only accepted cash went into losses and some even shut down.

On Inflation:

The Reserve Bank of India (RBI) considers the Wholesale price index (WPI) and the
Consumer Price Index (CPI) to measure inflation. Demonetisation is expected to
reduce inflation as consumers have cut down on spending and aggregate demand has
considerably fallen. According to government press releases, the official WPI for ‘All
Commodities’ (Base: 2004-05=100) for the month of December, 2016 declined by 0.2
percent to 182.8 (provisional) from 183.1 (provisional) for the previous month. The
index started rising during the month of January and rose by 1.0 percent to 184.6
(provisional) from 182.8 (provisional) for the previous month. This may be correlated
with the availability of cash with people which led to increased spending.

On Terror Funding:

Demonetisation was aimed as a clean-up of the economy where Fake Indian

Currency Notes (FICN) would be checked. It is aimed at rendering all fake notes of
rupees 500 and 1000 useless and thus drastically affecting illegal funding of terror
groups in Jammu and Kashmir, states in the North-East, and Naxalism-influenced
states.

23
On Political Parties:

Many Political Parties use large amounts of undeclared cash to campaign for
elections and meet other requirements. Due to Demonetisation such acts might get
restricted to an extent and parties will have to formulate new strategies has been in
circulation for over 10 years.” Government of Philippines demonetized its currency
notes which prevailed valid for over 30 years with new currency being in circulation
since 2010 to fight Counterfeiting. Pakistan has also announced to move all its old
designed currency notes out of the economy. Pakistan had demonetised its 5 Rs and
500 Rs denomination notes earlier too. In European Union, creating the single
currency (Euro) over the period 1998-2000 is considered to be the largest
demonetisation ever happened in the history. didn’t solve the purpose to fix the
country’s debts and containing the rising inflation “Banana” notes by Japanese had
been in circulation during their occupation and those notes were demonetised after
their surrender in 1945, according to ‘Singapore Mint’. In Fiji, the central
“Banana” notes by Japanese had been in circulation during their occupation and those
notes were demonetised after their surrender in 1945, according to ‘Singapore Mint’.
In Fiji, the central history of Demonetization in India and the World

Effect on Parallel Economy:

The removal of these 500 and 1000 notes and replacement of the same with new 500
and 2000 Rupee Notes is expected to remove black money from the economy as they
will be blocked since the owners will not be in a position to deposit the same in the
banks,
- Temporarily stall the circulation of large volume of counterfeit currency and
- curb the funding for anti-social elements like smuggling, terrorism, espionage, etc.

Effect on Money Supply:

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

24
permanently. However gradually as the new notes get circulated in the market and the
mismatch gets corrected, money supply will pick up.

Effect on Demand:

The overall demand is expected to be affected to an extent. The demand in following

areas is to be impacted particularly:
Consumer goods
Real Estate and Property
Gold and luxury goods
Automobiles (only to a certain limit)
All these mentioned sectors are expected to face certain moderation in demand from
the consumer side, owing to the significant amount of cash transactions involved in
these sectors.

Effect on Prices:
Price level is expected to be lowered due to moderation from demand side. This
demand driven fall in prices could be understood as follows:
•Consumer goods: Prices are expected to fall only marginally due to moderation in
demand as use of cards and cheques would compensate for some purchases.
•Real Estate and Property: Prices in this sector are largely expected to fall, especially
for sales of properties where major part of the transaction is cash based, rather than
based on banks transfer or cheque transactions. In the medium term, however the
prices in this sector could regain some levels as developers rebalance their prices
(probably charging more on cheque payment).
Effect on various economic entities:
With cash transaction lowering in the short run, until the new notes are spread widely
into circulation, certain sections of the society could face short term disruptions in
facilitation of their transactions.
These sections are:
•Agriculture and related sector
•Small traders
•SME

25
•Services Sector
•Households
•Political Parties
•Professionals like doctor, carpenter, utility service providers, etc.
•Retail outlets

Effect on food sector:

Foods witnessed the highest increase in growth during the demonetization week at
19% vs. year-ago. Within the food basket, packaged grocery and cooking medium
saw a big upswing. Tea, packaged Attaand rice, baby food, milk food and non-refined
oil also contributed to the growth.

Impulse categories (biscuits, chocolates, salty snacks and confectionery) also

grew, but at much slower pace. Soft drinks’ slowed down significantly; however, the
onset of winter could also be contributing to this slowdown

Volume growth patterns in foods indicated a shift to bulk packs. Much of this could
be driven by retailer private labels or the ongoing offers in the demonetization week.

Non-food sales grew as well, driven by personal care (17% in demonetization week
vs. a 4.8%growth year-till-date before demonetization). All non-food categories

26
including essentials like detergent powders and cakes, toothpaste, shampoo etc.,
saw a healthy double-digit growth (despite demonetization falling right after the
monthly shopping period).Food categories received a mixed response with certain
categories having witnessed positive tailwinds while other categories saw a dip in
demand from retailers. Impulse food witnessed the steepest decline in demand, while
cooking oil and packaged grocery saw an exorbitant demand from retailers on the
back of the belief that consumers would prefer to stock up on essentials in wake of the
cash crunch.

Elimination of fake and counterfeit currency:

Note: Assuming number of Rs 2 and Rs 5 notes to be equal

The above table represents the fake currency detected and reported in the
system during the last financial year, a point to be noted is that just three banks
Axis, ICICI and HDFC reported 80% of such counterfeit notes, which implies that
such notes are not detected fully in other banks. A data from India spend reports
that the only 6 out of every 250 fake currency is reported. Going by that percentage
the estimated fake currency that would have been eliminated would be Rs 1.2 trillion.
Adding it up with anticipated 3.6 trillion black money, the total counterfeit and black
money that would have been eliminated would be Rs 4.7 trillion.

27
Another reason cited for demonetisation, albeit a small one, was that counterfeit
currency in circulation had risen. Judging the extent of counterfeit currency is
difficult. The only data available is the number of counterfeit notes detected, put out
by the RBI but this only tells the story of what has actually been detected as opposed
to what exists.

Still, going by that data, the extent of counterfeit notes detected have gone down
following a spike in the year of demonetisation when banks were screening all the
notes being deposited

In 2018-19, 3.17 lakh counterfeit notes were detected shows the RBI’s latest annual
report.

However, there are other indicators that do suggest an increased usage of non-cash
methods of payments, particularly as a share of consumption expenditure, perhaps
across urban consumers. Spends on credit and debit cards at point-of-sale terminals as
a percentage of personal final consumption expenditure have nearly doubled since
before demonetisation, shows data from the RBI when compared with Nationals
Account Data.

28
1.10 Demonetization on Different District:

• Using RBI data, the authors constructed a metric called the local area
demonetisation shock—the ratio of post-demonetisation to pre-demonetisation
currency in an area. The top 10 percentile of the districts were those that had
cash equal to 70 percent of their pre-demonetisation level. The bottom 10
percentile had currency equal to only 33 percent of its pre-demonetisation
level. Districts which were relatively ranked in between, had currency equal to
42 percent of the pre-demonetisation level.

The authors then went on to assess the adverse effect on real economic activity
using a new household survey of employment and satellite data on human-
generated nightlight activity to measure demonetisation’s effects at the district
level.

The study found a difference in output of roughly 4 percentage points between

districts at the 10th and 90th percentile of the demonetization shock in the
period immediately after the announcement.
• Districts that experienced more severe demonetisation shocks had much larger
contractions in ATM withdrawals.

29
• Economic activity, as measured by employment rates and nightlights, fell in
these areas relative to areas experiencing smaller shocks.
• These areas adopted alternative forms of payment such as cards, e-wallets,
informal lines of credit or use of old notes. That is evident from the fact that the
difference in output is far less than the difference in the amount of currency
replaced.
• Deposits increased more and credit fell in Areas in higher shock as household
could not withdraw money from their bank accounts.

30
Did It Push Digital Payments?

An often stated objective for demonetisation was to encourage digital payments and
reduce the use of cash in everyday transactions.

31
However, currency in circulation as a percentage of GDP moved back towards its
long term trend quite quickly after demonetisation. Prior to demonetisation, currency
in circulation as a percentage of GDP was just about 12 percent. Over a longer period
of time, This ratio has been between 11-12 percent.

As soon as reprinting of currency was completed, this share of currency in GDP

started to move back up. For the full year FY19, it settled at 11.257 percent.

32
1.11 Impact on Businesses:

It is noticed that because of demonetization, small and medium businesses suffered a

great deal, more so the informal sector, primarily because of lack of liquidity. It is
seen that many small businesses closed down, affecting employment, and creation of
new jobs got badly hit. The micro, small and medium-sized enterprise (MSME)
sector, which is the backbone of the economy employing more than 80 million, where
wages are largely paid in cash, was adversely affected by the demonetization move.

Unemployment has also been reported owing to decline in demand of various goods
because of lack of cash liquidity. It is also found that even the organized
manufacturing was adversely impacted as evident from the decline in the sales of fast
moving consumer goods (FMCG) and automobiles in the months from November to
January.

Further contraction in the manufacturing purchasing managers’ index (PMI) in

December for the first time in 2016 and deceleration in export growth during
November was also seen. As regards sales of consumer goods, the 2016 festival
season was the best since 2012, coming as it did it on the back of a healthy monsoon
and the 7th Pay Commission award to government salaried persons. It is gathered
demonetization also impacted sales performance of the consumer durables industry.
Manufacturers also cut down production due to rising inventories on account of lack
of demand.

The adverse impact of demonetization on disposable incomes and hence on consumer

spending resulted in slowdown in domestic demand for apparels and other end-
products of textile industry. The impact was reportedly most severe for winter-wear
retailers and manufacturers focused on the domestic market, who make a significant
part of their annual sales during the period October-February. Although from the
manufacturers’ end, shipments typically take place by September-October, pressure
on sales in the retail space during the subsequent peak season had indirectly affected
manufacturers. The new investment proposals dropped to 1.41 trillion in Q3 as against
an average of 2.36 trillion in the preceding nine quarters and terms of new investment
proposals, Q3 was the lowest in a decade. Some segments in the services sector also

33
appeared to have been adversely impacted. Production of cement, one of the main
indicators for the construction sector, decelerated sharply in November, and
contracted by 8.7 per cent and 13.3 per cent in December 2016 and January 2017
respectively. Sales of commercial vehicles – an indicator for transportation activity -
also contracted by 11.6 per cent in November, 5.1 per cent in December 2016, and 0.7
per cent in January 2017, as against an average growth of 6.9 per cent during April-
October 2016. In February, it increased by 7.3 per cent. Growth in sales of passenger
vehicles also decelerated to 1.8 per cent in November and contracted by 1.4 per cent
in December, but rebounded sharply to 14.4 per cent in January 2017 and expanded
by 9 per cent in February. Organized real estate declined significantly after
demonetization. While real estate prices reportedly held up, sales and new launches
declined. According to Knight Frank India, demonetization created a real dent in the
residential real estate sector, pulling back the last quarter trend of residential sales
substantially across the cities. Two major components of the organized sector under
services, viz.; financial services and public administration, imparted significant
resilience to the overall GVA growth momentum. The average growth of deposits and
credit (a key indicator for financial services) remained largely unchanged after
demonetization. In transportation, domestic air passenger traffic growth was robust at
22 per cent in November and 23.9 per cent in December and 25.6 per cent in January
2017. Service tax collections - a lead indicator for communication and other services -
registered a growth of 43.9 per cent in November, but decelerated to 13.1 per cent in
December and further to 12.1 per cent in January. However, there have been job
losses in labour-intensive sectors like textiles, garments, leather and jewellery. As
many as 4 lakh people, mostly daily wagers, either lost their jobs or shunned work
temporarily due to the lack of payment. Since consumer demand had slowed and
consequently industrial production had declined, employment generation had been
adversely impacted by the currency demonetization drive. Since the manufacturing
sector which accounts for the highest employment of skilled and semi-skilled
labourers, is witnessing slowdown in production, not only fewer jobs are being
created but lay-offs are also taking place at a higher rate. These details are shown in
Table 8 below:

34
1.12 Operation Clean Money and Enforcement by Income Tax
Department:

Post demonetisation, the Income Tax Department launched Operation Clean Money (OCM) on
31st January, 2017 with a view to analyse the data of cash deposited in the bank accounts and to
identify the cases through a data mining software, where such deposits were not in sync with their
tax returns. The preliminary analysis of data by the CBDT revealed that during the demonetisation
period from 8 November, 2016 to 30 December, 2016, about 36 per cent of cash depositors were
not filing tax returns, while 40 per cent of them were running proprietorship businesses, while
only 2 per cent depositors were corporate tax payers but deposited about 14 per cent of the total
cash. The salaried people constituted about 6.7 per cent of total depositors but their total cash was
only about 4.3 per cent. The average cash deposit size varied from 4 lakh in case of small
businesses and individuals to Rs. 42 lakh in the case of non-corporate tax payers to Rs. 1.37 crore
in the case of corporates, which is shown in Table 3. It can be seen from Table 3 that major cash
deposits were by the small businesses and proprietorship concerns to the extent of about 56 per
cent, while the corporates constituted about 22 per cent and individuals and others formed the
remaining. It may be seen that 12.5 per cent of such depositors were not filing even the tax returns
which were tapped by the Income tax department during the years 2016-17 and 2017-18.

35
Besides, it is noticed that a majority of depositors (about 10 million) deposited cash below 10 lakh
with an average deposit size of 5.03 lakh and only 462 people deposited more than 25 crore, as is
evident from Table 4.

The preliminary analysis of cash deposit data also revealed that the corporates which
account for 2 per cent of the reported PAN have a share of 22.6 per cent in the
reported cash transactions. Proprietors (individual running business) have a share of
41.5 per cent in the reported cash transactions and taxpayers doing business have a
share of 78.4 per cent in the reported cash transactions.

It was identified that 36.1 per cent of the PAN holders in the reported cash
transactions did not file return of income. In the first phase of OCM, 18 lakh suspect
cases were identified through use of data analytics where cash transactions did not
appear to be in line with the tax profile of depositors. Online verification in these
cases was enabled and done quickly in a record time of four weeks.

36
The scale of the operation may be gauged from the fact that the responses of 9.72
lakh persons in respect of 13.33 lakh accounts involving cash deposits of around
Rs.2.89 lakh crore, as per pre-defined parameters on sources of the cash deposits, was
captured by the Income Tax Department. Online queries were raised in more than
35,000 cases and online verification was completed in more than 7,800 cases. In
phase 2 of the Operation Clean Money, enforcement actions were being taken in high
risk cases and taxpayer engagement through a dedicated website in medium risk cases
and close monitoring in low risk cases

. There were 100,000 persons identified under the high risk bracket, wherein the
department has initiated enforcement action through verification, search, survey and
scrutiny. For 754,000 persons in the medium risk category, the tax department has
started a targeted campaign communicating with the assesse and explaining the
findings in specific cases, so that similarly placed persons can foresee the
consequences. For 595,000 persons in low risk and 341,000 persons in very low risk
category, the department will monitor tax compliance in due course.

Furthermore, the department has also identified 371,000 new accounts relating to
158,000 taxpayers who made partial declaration of accounts and amounts in responses
under phase 1 of Operation Clean Money. The exercise has also unearthed large
number of persons and clusters having suspect transactions. These include about
14,000 properties of more than Rs. 1 crore each, where persons have not even filed
income tax returns. Actions in all these cases is being taken by the officers of the
Income Tax Department, as denoted in Table 5.

37
 CHAPTER 2: RESEARCH METHODOLOGY

2.1 Title of the Research Study:

“A study on Impact of Demonetization on Indian Economy.”

Meaning of Research:

Word `Research' is comprises of two words = Re+Search. It means to search again.

So research means a systematic investigation or activity to gain new knowledge of the
already existing facts.

Research is an intellectual activity. It is responsible for bringing to light new

knowledge. It is also responsible for correcting the present mistakes, removing
existing misconceptions and adding new learning to the existing fund of knowledge.
Researches are considered as a combination of those activities which are removed
from day to day life and are pursued by those persons who are gifted in intellect and
sincere in pursuit of knowledge. But it is not correct to say that the research is
restricted to such type of persons, however, it is correct to say that major contribution
of research comes from highly gifted and committed workers. Thus research is not at
all mysterious and is carried on by hundreds of thousand average individuals.

Research is also considered as the application of scientific method in solving the

problems. It is a systematic, formal and intensive process of carrying on the scientific
method of analysis. There are many ways of obtaining knowledge. They are intuition,
revelation, and authority, logical manipulation of basic assumptions, informed
guesses, observation, and reasoning by analogy. One of the branches of research
known as empirical research is highly goal-oriented technique.

38
Definitions of Research:

The following are the important definition of research

“Research is an endeavour / attempt to discover, develop and verify knowledge. It is

an intellectual process that has developed over hundreds of years ever changing in
purpose and form and always researching to truth.”

J. Francis
Rummel

"Research is an honest, exhaustive, intelligent searching for facts and their meanings
or implications with reference to a given problem. The product or findings of a given
piece of research should be an authentic, verifiable contribution to knowledge in the
field studied."

P. M.
Cook

Purpose of Research:

The purpose of research is to discover answers to questions through the application of

scientific procedure. The main aim of research is to find out the truth which is hidden
and which has not been discovered as yet. Though each research study has its own
specific purpose.

Research methodology, in a way, is a systematic representation of either a research or

any other problem. It is a written game plan for conducting the step taken by the
researcher in studying the research problem along with a logical background. It is a
procedure that is followed to solve a particular problem.

It tends to describe the methodology for the solution of the problem that has been
taken for the purpose of the study. It focuses on the technique used for the collection,
classification and tabulation of the data. It throws light on the research problem, the
objective of the study and its limitations. Therefore, in order to solve a problem, it is

39
necessary to design a research methodology for the problem as it may differ from to
the problem.

In this chapter Research Methodology is described systematically by showing the

objectives of the study, scope of the study, limitation, sources of data and
methodology used for making the analysis. The scope of the study is to understand the
use of internet banking on customer satisfaction levels.

2.2 Duration of the Research Study

The study was carried out for Duration of 6 months.

2.3 Objectives:

1. To understand how it helped in curbing illegal and unethical business

activities such as black marketing, adulteration.
2. To study the way it change Indian economy into cashless economy.
3. To learn the pros and cons of demonetisation on Indian economy,
4. To know to what extend it affected the rural and urban areas.
5. To understand how it was useful in tracking fake currency.

2.4 Scope of the Research Study:

The research will help in estimating the acceptance of impact of demonetisation on

Indian economy, which has become a very important aspect of the economic sector
today. For the purpose of the research, i.e. for data collection, I have covered
Mumbai. The reason as to why 1 have chosen this city is that today this is among the
fastest developing city of India. This city has the highest per capita income in this
India thus indicating the high standard of living of its people. The literacy rate is also
high and major chunk of the population of this city has a knowledge of
demonetisation. Moreover these cities also knows about its impacts.

40
2.5 Limitations of the study:

Although sincere efforts have been made to collect authentic and reliable information
from the respondents even then the report is subject to certain limitations which are as
follows:

1. Time was the major limitation, which may have affected the inferences drawn
in the study.

2. Some of the respondents were reluctant to share the information with the
researcher.

3. All the results and conclusion have been drawn to the basic of information
provided by respondents, so it may lack authenticity.

4. Some of the respondents being visited were preoccupied with their routine, so
sometimes it proved to be very difficult to obtain information from them. Due
to unfamiliarity with certain areas few of the respondents could have been
missed out.

5. The geographical scope of the study was limited to the city Mumbai which
may not represent the whole sector. The size of the sample is 100, which is, of
course, small in comparison to population of the economy.

2.6 Methods of Data Collection:

The data has been collected from both primary and secondary sources.

Primary Data: When the data are collected directly by the researcher for the first time
is called as Primary Data. It is original in nature and is specific to a research problem
under study.

41
Secondary Data: Secondary data refers to data which is collected by someone who is
someone other than the user. Common sources of secondary data for social include
censuses, information collected by government departments, organizational records
and data that was originally collected for other research purposes.

Primary Data Collection:

Questionnaire:

It is list of questions related to one topic. It may be defined as, "A questionnaire is a
systematic compilation of questions that are submitted to a sampling of population
from which information is desired. Barr, Davis & Johnson.

Questionnaire method is used for the purpose of collecting primary data. A set of
questions was prepared, which the respondents had answered on the basis of their
knowledge and experience with the issue concerned. The questionnaire is probably
most used and most abused of the data gathering devices. It is easy to prepare and to
administer. The questionnaire is a form prepared and distributed to secure responses
to certain questions. It is a device for securing answers to questions by using a form
which the respondent will fill by himself. It is a systematic compilation of questions.
It is an important instrument being used to gather information from widely scattered
sources. Normally used where one cannot see personally all of the people from whom
he desires responses or where there is no particular reason to see them personally.

Hypothesis:

H0: There is no significant impact of demonetisation on Indian economy.

H1: There is significant impact of demonetisation on Indian economy.

Method of sampling:

A sample is a subset of a population. Usually, the size of the sample is much less than
the size of the population. The primary goal of much research is to use information
collected from a sample to try to characterize a certain population. As such, it should
be considered as to how representative the sample is to the population.

• Sampling technique: Simple random sampling

42
Simple random sampling method is used to collect the data from the respondents.
Simple random sampling is the basic sampling technique where we select a group of
subjects (a sample) for study from a larger group (a population). Each individual is
chosen entirely by chance and each member of the population has an equal chance of
being included in the sample. Every possible sample of a given size has the same
chance of selection.

Sample size:

A sample size of 100 respondents are taken into consideration for the purpose of this
research.

Tools of Data Analysis:

Data analysis embraces a whole range of activities of both the qualitative and
quantitative type. It is usual tendency in behavioural research that much use of
quantitative analysis is made and statistical methods and techniques are employed.
The statistical methods and techniques are employed. The statistical methods and
techniques have got a special position in research because they provide answers to the
problems. Kaul defines data analysis as. "Studying the organized material in order to
discover inherent facts. The data are studied from as many angles as possible to
explore the new facts.”

The following tools are used for data analysis:

• Pie chart: A pie chart is a circular statistical graphic, which is divided into slices to
illustrate numerical proportion.

• Tabulation of data: The process of placing classified data into tabular form is known
as tabulation. A table is a symmetric arrangement of statistical data in rows and
columns. Rows are horizontal arrangements whereas columns are vertical
arrangements.

2.7 Importance of the study:

Demonetization gave individuals several lessons that have changed the way we look
at managing finances. Demonetization made sure that we monetize our earnings to get
the best returns possible whether it is by turning to monthly investment schemes to

43
save better or by turning our safe cash pile into an easy withdrawal FD (fixed
deposit). The government's revenue will see an increase because of demonetization
and its initial effects are already prevalent in the income tax filings post note ban.
Demonetization has played a crucial role in bringing digitalization and financial
planning into the forefront for many. India has withstood the immediate chaotic
impacts of demonetization and it is evident that the returns of the hardships will begin
to show in the coming months.

44
 CHAPTER 3: REVIEW OF LITERATURE

The present research work is conducted on the topic “Impact of Demonetisation on

Indian Economy.” The literature review is a text content written by author’s eminent
personalities, scientist who considered the significant points pertinent to current
information and facts including substantive findings, as well as theoretical and
methodological assistance to a specific subject. Review of related literature help to
know about the studies which have already done in the related field.

It is nothing but a significant and self-exploratory summary related with research

themes, concerns and constraints for specific work clearly define in research topic.
This is systematic process of reading, analysing, evaluating and summarizing
intellectual materials about a particular topic or subject.

Review of literature are the secondary source of data collection collected from
different national and international journals, magazines, books, websites, government
report, NSSO/Special survey and newspaper, annual reports of government
organisations, bulletins, departmental journals, management books and some
collected from other sources.

This chapter provides analysis of applicable writings available in different mediums

upon which this dissertation builds. Research scholar studied various books, articles,
unpublished theses, working papers, journals and collected the information related to
the topic.

Introduction:

Generally, a researcher conducts and surveys the related literature in order to review
the present status of a particular research topic. From the survey of literature, a
researcher is able to know the quantum of work already done in the research topic so
far not touched, or yet to be undertaken. The overview of literature at the nationals or
an international level is to be researched with the help of research reports, books,

45
articles and other materials. In this chapter an attempt is made to review a few studies
related to the Impact of Demonetisation on Indian Economy.

Dr. G Ganesanand and B Gajendranayagam

Countries across the globe watching India as a democratic country and is poised to
become a leader of regions. In the global environment, India has multiple
strengths of larger youth population, growing middle class people, increasing
literacy level and improving technical knowledge among the work force which would
address favourably any proactive change in the present setup. Moreover,
demonetization, coupled with Digital India and Jan Dhan Yojana, is aimed at
strengthening transparency in money transactions by curbing black money,
corruption and financial crimes. Therefore, it is the best time to strike the chord of
second financial reforms and new banking sector operations in tandem digital
network so as to achieve remarkable economic development at a faster rate .In
addition, a few immediate negative implications of demonetization are also
seen in terms of minimum growth in GDP, losing job by wage earners in some
industries and real estate sector which have affected the Indian economy to some
extent. But, adopting good governance practices, providing sound infrastructure,
congenial atmosphere to start business and ensuring trained workforce would have got
positive long term impact on Indian economy. Further, total transparency in business
operations through banking services would also increase tax revenue to the GDP ratio.
Therefore, this paper will take up the issues relating to demonetization and its
linkage to the implications of various sectors in Indian economy during pre and
post demonetization periods discusses the experience and impact of
demonetization on Indian economy.

Swati Chauhan and Nikhil Kaushik

Demonetization is the act of divesting a currency unit of its status as legal tender. It is
a tool to handle black money in the economy by lowering the cash circulation in the
country which is directly concerned with the corruption. It directly or indirectly

46
influences the various sectors. The effect of taking out so much money from the
market is obviously affect the various sectors, which are driven by the black economy
like real estate, construction, etc. But this move of government has also affected those
sectors that are driven by cash because they are the first that are affected when so
much money is suddenly removed from circulation. This research paper is trying to
analyse the impact of demonetization on Indian Stock market. This study is using
Event Study Methodology to analyze the stock of S&P BSE 100 companies. The
result is being observed from the comparison of both pre and post-event window and
found that there is no significant impact of demonetization on the stock market. The
study also found that this short period downfall in the stock prices can be due to some
other factors.

Piyush Kumar and Dr. Dhani Shankar Chaubey

The digital payment changed the buying behaviour of Indian society. It prevents black
money market. It helps the government to maintain a record of all transaction. Digital
Payment Habit has changed after demonetization. People have no other option for
transaction so Indian society move slowly from cash to digital transaction system. On
the earlier, when digital payment introduce people hesitate to change their transaction
habits but after demonetization, they force to do their transaction with digital
payment. This research is an encomium on the charisma of digital payment analysis
after demonetization and its, its usability and affordability while they are affecting its
preference of country. The way consumer perceives digital transaction after
demonetization, it affects a lot in the society, of Indian culture.

K.C. BALAJI and K.BALAJI

For every economy, money is considered as the life blood. Money emerged when the
unlimited wants of humans were not met through the barter system. Money forestalls
“the double coincidence of wants”. Demonetization strips a currency unit of its status
as a legal tender. On 8thNovember, 2016 around 8 p.m., the Prime Minister of India
brought the demonetization with the statement that with effect from 9thNovember
2016 Rs.500 and Rs.1000 rupees’ currency notes are invalid except in some essential

47
services for the time being. The demonetization has several aims of eradicating black
money, removing counterfeit notes, stopping money laundry and so on. Apart from
these direct and primary aims it focuses on encouraging cashless transactions as well.
Cashless transaction uses credit and debit cards, online payment gateways and digital
wallets for financial transactions. This conceptual paper attempts to study the
demonetization process in India and its impact on cashless transactions.

Dr.Arun Lawrence and Ms. Merlin Ann George

In the later hours on 8th November 2016 the Government of India announced a drastic
economic reform. It was demonetization of high denomination currencies such as
Rs.1000 and Rs.500. By the end of the Financial Year 2015-16, in value terms high
denomination notes of Rs.1000 and Rs.500 together accounted for Rs.14.18 trillion or
86.4% of the total value of notes in circulation. The unexpected announcement about
demonetization from the part of Government of India harmfully affects many sectors
mostly depending day-to-day cash payments. Retailers constitute an important part of
such sectors that has experienced the currency famine triggered by demonetization
was the financial system prepared to meet the immediate impact of demonetisation,
what extend of digitisation India had accomplished. The present study tried to analyse
the problems faced by the retailers due to demonetization of Indian currency. It also
tried to examine the perception of retailers on the anticipated benefits of
demonetization. Demonetization creates welfare losses to the retail sectors of the
society who gets income based on their daily sales and those who don’t have the
digital transaction culture. Overall economic activities will be dampened in the short
term. But the immeasurable benefits of having more transparency and decrease in the
volume of black money activities can be pointed as long term benefits

Patil Anoop ,Narayan Parab and Y.V. Reddy

On 8th November 2016, the Government of India demonetized its two highest
currency notes in the denomination of Rs. 500 and Rs. 1000. The purpose of
demonetization was to tackle the corruption and black money prevailing in the
country. The stock market is one of the areas which pools a large amount of funds, the

48
present study is an analytical attempt to examine the impact of demonetization on
Indian stock market. For the purpose of the study, various statistical techniques have
been used such as Graphical Analysis, Summary Statistics (i.e. Mean, Standard
Deviation, Skegness, and Kurtosis), Augmented Dickey-Fuller Test and GARCH
Model. The study utilizes the GARCH model to examine the impact of
demonetization on Nifty 50 Index and across sectorial indices in India considering a
period of 200 days prior and post event date by framing necessary dummy variables.
The study found the data to be stationary using the Augmented Dickey-Fuller Test. A
significant negative impact of demonetization on stock market returns was evidenced
from Nifty 50 Index and sectorial indices such as Nifty Auto Index, Nifty Financial
Services Index, Nifty FMCG Index, Nifty IT Index, Nifty Media Index, Nifty Private
Bank Index, and Nifty Realty Index. The study found the Nifty Realty Index to be
affected most because of demonetization. The results of the study will help the
Governing bodies to examine the impact of demonetization and frame necessary
policies. The results will also be useful for investors and other market participants for
framing investment and trading strategies.

Dr. Mohd Taqi

The Indian government implemented a major change in the economic environment by

demonetizing the high value currency notes of Rs 500 and Rs 1000 from the midnight
8th of November 2016. This involved withdrawing circulation of said currency and
gradually replacing them with a new set of currency notes. The main purpose of
demonetisation of the currency is to stop counterfeiting of the banknotes used for
terrorist activities and crack down the black money circulation in the country. The
present study is an attempt to evaluate the impact of demonetization on Indian capital
market with special reference to selected indices of Bombay Stock Exchange (BSE).
In order to evaluate the impact of demonetisation on capital market opening and
closing value of selected indices of BSE six months period prior to 8th November and
after 8th November has been considered. The sample consists of ten indices of BSE
viz. SENSEX and other sectors such as capital goods, consumer goods, consumer
discretionary goods, FMCG, infrastructure, industrial, utilities and Bankex. There is a
strong evidence to suggest that demonetisation have significant impact on selected

49
sectoral indices considered for the study. The study also reveals that indices of
manufacturing, FMCG and consumer discretionary goods sensitive increased during
the post demonetisation period while sensitivity of industrial goods and infrastructure
decreased during the period.

Mamta Hindocha and Jayesh K Pandya

Demonetization has been a remarkable move in the history of the Indian economy.
The latest round of demonetization, in 2016, has undoubtedly affected the common
public and bankers in the short run as well as the economy at large. The mode of
transactions has also been significantly affected. The people at large have shifted from
traditional pattern of cash transactions to e-transactions. Considering this, the paper
aims to examine the impact of demonetization on electronic fund transfers, which is
an important part of digital economy and a significant contributor to the development
of the nation. The results reveal that demonetization has a significant positive impact
on e-transactions, specifically on RTGS and NEFT, in terms of volume and value of
transactions. Mobile banking transactions also increased in volume and value
significantly in the post-demonetization period. Thus, it is concluded that
demonetization has successfully enhanced e-transactions in Indian economy. The
government objective of cashless economy was to a great extent fulfilled.

Pooja Bhagwan

Demonetization technically is a liquidity shock; a sudden stop in terms of currency

Demonetization effects clearly depends upon the duration of the liquidity shocks. It is
generations‟ memorable experience and is going to be one of the economic events of
our time. Its impact is felt by every Indian citizen. Demonetization affects the
economy through the liquidity side. As a result of the withdrawal of Rs 500 and Rs
1000 notes, there occurred huge gap in the currency composition as after Rs 100;
Rs2000 is the only denomination. Out of the total 121 croreIndians of Indian
population, 83.3 crore of population live in rural areas while 37.7 crore stay in urban
areas, said the Census of India 2011. As a rural populated country most of the rural
population are engaged in agricultural activities as most of the population of rural

50
areas depends on agriculture. Agriculture forms the backbone of the country’s
economy. The agricultural sector like forestry, logging and fishing accounted for 17%
of the GDP contributes most to the overall economic development of India. it is the
largest employment source and an important piece of the overall socio-economic
development of India The states of Uttar Pradesh, Punjab, Haryana, Madhya Pradesh,
Andhra Pradesh, Telangana, Bihar, West Bengal, Gujarat and Maharashtra are key
contributors to Indian agriculture.

Ashok Bantwa

While addressing India in his historical speech on 8th November, 2016, prime
minister of India, Narendra Modi announced that two highest denomination currency
notes in India (500 rupee notes and 1000 rupee notes) will not remain legal tender.
Demonetization is one of the most remarkable decisions of Indian government aimed
at eradication of black and counterfeit money and control of terror funding. This
decision is expected to bring significant change in mode of payment used by Indian
people and will transit India towards the cashless economy. Undoubtedly the exact
impact of demonetization on Indian economy can be figured out only in long run but
in short run demonetization has considerable impact on people, businessmen, small
and medium scale industries, companies and economy. This paper examines the
impact of demonetization decision on Indian stock exchange as represented by
NIFTY index of National Stock Exchange .The paper further examines the impact of
demonetization decision on various sectors of Indian economy as represented by
various sectorial indices of National Stock Exchange. These sectors include
Automobile, Banking, FMCG, Information Technology, Media, Metals, and
Pharmaceuticals, Real estate, Infrastructure, Private sector banks, Public sector banks,
financial services and Service sector. The result of this study indicated that
demonetization has statistically significant impact on all the indices under study.
Considering the absolute percentage change in closing price of indices within 30 days
of demonetization decision, demonetization has negative impact on all the indices
except IT index. Except media index and pharma index the volatility of all other
indices under study has increased considerably due to demonetization. Average
closing price of NIFTY for 30 days after the demonetization is 5.78% lower than the

51
average closing prices for 30 days before the demonetization. The absolute fall in
NIFTY after one month of demonetization is 5.64%. Among the sectoral indices the
highest impact of demonetization is on real estate sector followed by media and
automobile sector whereas the lowest impact is on metal index followed by PSU
banks and IT sector.

K.Sethi ,R Nasreen ,Matloobullah Khan

The Microfinance sector has been claimed to be one of the worst hit sectors of the
event of currency Demonetization. Thus, a study has been conducted to measure the
impact of Demonetization on the financial performance of the Micro Finance
Institutions (MFIs) in India pre and post the occurrence of the event. For the present
study, the data on 71 Microfinance Institutions operating all over India has been
acquired from the Microfinance Information Exchange (MIX) secondary source
database. The performance of the institutions has been based on the 18 financial
performance indicators obtained from the extant literature review undertaken. The
indicators have been further categorized into Outreach, Credit Performance,
Efficiency & Productivity, Earnings, Profitability, and Leverage. Successive
categories of each of the six variables mentioned-above helped frame a suitable
Performance Evaluation model for the MFIs and tested for paired sample t-test to
conclude that the impact of Demonetization had been negative for both the institutions
and their clients in the short run. A mathematical equation modelling has also been
formulated to predict the impact of Currency Demonetization on the Individual
Financial Performance Indicators. Currently, the situation has found to be improved,
and most of the sector is back to the previous Demonetization levels.

E Thippeswamy

Indian economy is the fastest growing economy and one of the bright spot among
emerging markets in the world. Economy has moved on a high growth path and hence
India’s current account deficit declined from about 1percent of Gross Domestic
Product (GDP)last year to 0.3 percent of GDP in the first half of 2016-17. Foreign
Direct Investment (FDI) grew 36 percent in 2016-17 over 2015-16, despite 5 percent

52
reduction in global FDI inflows. Foreign exchange reserves have reached 361 billion
US Dollars as on 20th January, 2017 (Budget, 2017-18). Despite rapid overall growth,
there is striking evidence of divergence or widening gaps in income and consumption.
More over the growth has led to parallel economy, based on the black money or
unaccounted money, is a big menace to the Indian economy. It is also a cause of big
loss in the tax-revenues for the government. As such, it needs to be curbed. Black
money elimination would benefit the whole economy in several ways. Thus the
government of India has taken a bold decision of demonetization which has been a
radical, unprecedented step with short term costs and long term benefits.
Demonetization, coupled with Goods and Service Tax (GST), in the days to come
might be ensured much larger revenues as far as states and the central government are
concerned and expand the size of the formal economy of the country. Besides, India is
largely a tax non-compliant society. The central and the states government struggled
with their revenues to run the system which created an unfair enrichment in favour of
the evader. The government, therefore, decided to demonetize the high denomination
currency (Jaitley, 2017).The effect of demonetization on government finances was
divided into three categories; the impact through RBI‟s finances, the impact through
taxes and the impact through credit available to finance deficits (Tax Research Team,
2016).In this background, an attempt has been made to analyse the impact of
demonetization of high value currency on tax revenue of the government.

S.D. Tiwari

On the 9th of November 2016, the Government of India, delivered a masterstroke, by

declaring, as illegal tender, the Rs. 500/-and Rs. 1000/-denominations in the currency
system. National Restaurant Association of India had reported downfall of averaging
up to 40% revenue in the sector in their initial weeks. Demonetization is the current
biggest challenge in business of hospitality and tourism sector in India have described
in this paper. After a tumultuous fortnight for the entire country ever since the
government declare the partial demonetization of the higher value rupee notes. The
service industry has definitely confront a short term effect of this, as spends are
adjourn towards immediate needs. The most challenging period of demonetization sits
fairly in the active season for the tourism industry. There was a flump in hotels and

53
related services bookings in the initial week after the paper money withdrawal.
Although, the premium hotel segment has not seen much effect as bookings are
mainly done in advance and online. So the knock has mostly been confined to the
unorganized sector. The paper draws facts from the existing articles and other reports.
Also analyse the implementation of demonetization and its impact on hospitality and
tourism sector which are based on the results collected through survey method from
the owners of small to medium tour & travel and hotel business of various cities in
India. This paper brings out key findings after interaction with industry professionals
as to incorporate real-time, relevant and contemporary data. Demonization changes
the working environment of the market. Organizations would also modify in their
usage and utilization of the innovative tools and applications for the cashless
payment. Tourist guide, home deliveries, QSR, KIOSK, Dhaba, etc. have bear the
major impact, as there has been enormous loss of opportunity.

S.Maity ,D Ganguly

Efficiency is a matter for continuing a business for long run either it is in public sector
or in private sector. Higher efficiency level only can give higher return or
profitability. The issue of demonetization is a hot topic for discussion and debate in
India from recent past since the announcement of the recent demonetization in
November 2016. In this regards the present study has been conducted to analyse the
trend in efficiency level during the pre and post demonetization phase from April
2014 to March 2018 by using data envelopment analysis. To analyse the technical
efficiency of banking sector, total assets, total expenses and net NPA consider as
input variables and total income as output variable which includes interest income and
non-interest income. The study measures efficiency both under CCR model and BCC
model for the each four years and for the two periods of pre and post-demonetization
with the average data. A comparative study has also been performed with t-test
between the two periods and between two banks group of public and private sector.
The present study concludes that during post-demonetization period efficiency of
banks have been degenerating compare to predemonetization period, though there is
no significant difference in efficiency of banks between pre and post-demonetization
period. The study also finds that there is significant difference in efficiency of banks

54
between public and private sector under both the models.

N Mathur N Mandali S kalyani

On the government announced its decision to discontinue the legal tender status of Rs.
500 and Rs. 1000 notes. The reason behind the demonetization policy attempt to curb
black money, regularising prices, create corruption free environment, stop flow of
funds to illegal activity, make people accountable for every rupee they possess and
pay A study by the National Investigation Agency and the Indian Statistical Institute,
conducted in 2016, estimated that fake Indian currency notes in circulation have a
face value of before the recent decision of demonetization of 500 and 1000 rupee
notes. The government has taken few steps in this direction much before its
announcement. Government insisted people to open Bank account in Jan
DhanYojana. They were asked to deposit all the money in their Jan Dhan accounts
and do their future transaction through banking only. Another step that the
government initiated was a declaration of the income and had given October 30, 2016
deadline for this purpose. Through this method, the government was able to wipe up
huge amount of undeclared income. It was a bold step of our government, many
economic expert their opinions and several research studies are conducted on
demonetisation. This provides a systematic review of literature on the demonetisation.
Various empirical studies are carried out in India and rest of the world on
demonetisation. The study is limited to twenty seven research studies and expert
opinions on demonetisation. The aim of this paper is to do logical and structural
appraisal of existing literature to determine the relevance of demonetisation in respect
of its motives.

V Divya , S Lovia

The study focuses on demonetization and its effect on stock price of top ten software
companies in India for a period of three months. Due to the change in regulation, the
challenges faced by all the sectors were enormous. An event study is carried on
demonetization to capture the market behaviour. The sensitivity in the market due to
demonetization will create a huge variation in the stock price. The study focuses on
the event days in which demonetization had a great impact in stock market. Literature

55
studies have taken different events to study variation in market behaviour, among
which demonetization stands as a prime event where the whole economy is disrupted.
The impact of this disruption has also affected the stock market and its return. The
study also captures the sentiments of the top ten software companies and the investors
during the period of demonetization. In order to capture the movements of stock price
returns at the time of the event, the study has employed time-series technique to
ascertain the relationship between index and share price of the top ten software
companies in India.

D kanchana N rajeshwari

Consumer buying behaviour concept has been argumentative from the past for so
many periods. Many researchers have undertaken the research to identify, analyse,
observe and find the outcomes of the study to understand the determinant of the
product price effects over the product quality of consumer buying behaviour. The
necessity of marketer reviews has been for the consumer buying behaviour towards
psychological aspect than the societal aspect. Following demonetization, the
government has been encouraging the dream of cashless society in India, urging the
people to use POS machine, e-wallet, plastic money, online payment, etc., in their
day-to-day transactions. Before demonetization, people used to buy impulsively from
the retail malls by using hard cash because of more convenience, but with the
implementation of demonetization, people have to think twice before making any kind
of purchase due to less money on hand as well as less habit of cashless transactions.
An impulsive buying is made instinctively and generally without regard to costs or
negative consequences. They are usually motivated by the need for instant self-
satisfaction. The present paper examines the impact of demonetization on consumer
buying behaviour with reference to consumer goods in Namakkal district by using the
primary data collected from 150respondents in Namakkal city with the help of a
structured questionnaire. Data analysis has been done. The study found that a majority
of the customers have moved from buying luxury products to essential products and
reduced their consumption due to demonetization

56
P Taluk

On 8 November 2016, India’s Prime Minister Narendra Modi announced the

Government of India’s decision to cancel the legal tender character of 500 and 1,000
banknotes with effect from 9 November 2016. He also announced the issuance of
new500 and 2,000 banknotes in exchange for the old banknotes. Rural Indians, which
is about 70 percent of Indian population, depend on cash .And so are daily wage
workers, whether rural and urban areas are their workplace. So a large no. of people
depended on cash money. And in the times of cash crisis, which unfortunately
happened due to a surprise decision of Mr Prime Minister, those people were hit very
badly. All of a sudden their earning stopped ,they couldn't trade with the old currency
notes, and people stopped hiring daily wage labourers ,as they were unable to pay
them. Purchasing power of people went down unprecedentedly. Daily wage earners
didn't have a chance to eat twice daily. The economic activities of middle lower class
people almost stopped .Big hit to them. And the best part is they were innocent, they
didn't have black money. But they had suffering. The demonetization decision of Mr
Prime Minister, according to me, failed big time. A lot of people didn't require cash
banks were unable to provide them. And the fun part is that there wasn't scarcity of
new notes, but they weren't available to common man. Everyone knows crore of new
currency notes were caught, many times at many places. Very few people had access
to unlimited new notes and they were doing business, trading them for old notes at
some commission rates. So this cash crisis brought suffering to a lot of people, and
not what Mr Prime Minister said it will do.

S Raj

The argument posited in favour of demonetization, therefore it is imperative to

evaluate the short run and medium-term impacts that such a shock is expected to have
on the economy. This paper elucidates the impact of such a move on the availability
of credit, spending, and level of activity and government finances. The Government
of India announced that the Rs. 500 and Rs. 1000 denominated currency notes will

57
cease to be legal tender. The move was targeted towards tackling black money,
corruption and terrorism. Declaration of 86 percent of currency notes as illegal tender
in just a blink of time on eve of 8th November 2016 mandated the creation of
immediate interruption in daily lives. The chaos was created in every strata of the
society whether upper, middle or lower. This paper aimed at reviewing the general
implications of demonetization on the people of India

Arpit Guru and shruti kahanijowand

As indicated by researcher paper composed by Arpit Guru and Shruti Kahanijowand

the research work done. They have investigated the black money income , they have
researched about it and the requirement for amendment in DTAA and ITEA and they
have arrived at a conclusion that the nearness of black money in India is available
over entire of the nation in immense amount and most of the black money controlled
by the general population is being available in the banks arranged in different nations,
they have likewise research the reason and effect of black money and how it has
irritated our economy and currency and how the general population in our nation
utilizes black money in what structures and how they can get it circle in the
framework. In the research paper and work done by Sukanta Sarkar 2010she had
played out an examination on the nearness of an alternate economy in the nation or
the parallel economy in our nation .In the research were she had broken-down what
are the causes and what were its effects. She had additionally centred on the work
done by government and a portion of the imitative taken by the administration in
choosing the reason and impact of black money in India. The outcome she discovered
after the research work done by him is that the primary factor which is the principle
hotspot for the expanding black money in our nation in none other than however our
Indian political framework .She arrived at the conclusion that the legislature just
barely centre around how might they shape an alternate advisory group as opposed to
how might they execute the current and these new board proficiently so the law and
the battle against black money can really be performed bitterly.

58
Dr Pratap Singh & Virender Singh

"Impact of Demonetization on Indian Economy" India has amongst the highest level
of currencies in circulation at 12.1% of GDP. Cash on hand is an estimated at around
3.2% of household assets, higher than investment in equities, or roughly around S 220
billion. Of this cash, 87% is in the form of its 500 and Its 1,000 notes or roughly its 14
lakh crore (S190 billion).A significant portion of the household cash on hand is
generated by economic transactions that are not reported to tax authorities or
generated through corruption. Scrapping the higher denomination money would either
result in these being brought into the system or the money just disappearing. The
study highlights the probable consequences of this decision on various economic
variables and entities. The author concluded that if the money disappears, as some
hoarders would not like to be seen with their cash pile, the economy will not benefit.
On the other hand if the money finds its way in the economy it could have a
meaningful impact. However experiences from different countries shows that the
move was one of the series that failed to fix a debt-burdened and inflation-ridden
economy.

Rahul Prakash Deodhar

"Black Money and Demonetisation" The Government of India announced that the Rs
500 and Rs. 1000 denominated currency notes will cease to be legal tender. The move
was targeted towards tackling black money, corruption and terrorism. After initial
euphoria, questions began to emerge. What are the costs of this demonetization? Will
it be effective if people can still create new black money thereafter? The author
concluded that it is just one move of one piece in the chess board of black money. To
check-mate the black money king, you have to win the board. There are various steps
required as detailed above. Government can play all these moves and still fail if they
play improperly. All we can say is that Government is playing well. But will it
succeed? The efforts will bring massive amounts of cash into the banking system — a
benefit in itself. Once the money is in the legitimate channels, it should be better
utilized and revenue will be generated from its use. If that is success enough then yes.

59
 CHAPTER 4: DATA ANALYSIS AND INTERPRETATION

Introduction:

Survey means going into the depth of the responses and collecting inner expression
for the purpose of knowing attitude of the respondents about which the survey is
conducted.

The purpose of conducting the survey is the in-depth study of the respondent’s
perception towards impact of demonetization on Indian economy.

For the purpose of survey questionnaire was prepared and was given to 100
respondents. The entire area covered by the survey is classified into different parts
and the respondents were given the format of questionnaire and were requested to fill
it and return to us.

The survey has been successfully carried out and the respondents gave good and
realistic answers to the questions.

60
Question No.1: Gender

Figure 4.1: Showing gender of respondent

Gender

0%
23%

77%

MALE FEMALE Prefer not to say

Table: 4.1

Gender Percentage
Male 77
Female 23
Prefer not to say 0
TOTAL 100

Interpretation:

The above data shows information about gender of the respondents. As we can see
that 77% of respondents are male and 23% of respondents are female.

Majority of the respondents are Male.

61
Question No.2: Age

Figure 4.2: Showing age of respondents

Age

29%
33%

38%

17-20 21-24 Above 24

Table 4.2

Age Percentage

17-20 29

21-24 38

Above 24 33

TOTAL 100

Interpretation:

In the above data we can see that 29% of respondents are between the ages of 17-20.
38% of respondents are between the ages of 21-24. 33% of respondents are above the
age of 24.

Majority of the respondents are between the ages of 21-24.

62
Question No.3: Level of Education

Figure 4.3: Showing level of education of respondents

Level of Education

38%

62%

Under Graduate Post Graduate

Table 4.3

Level of Education Percentage

Under Graduate 38

Post Graduate 62

TOTAL 100

Interpretation:

In the above data information is about the level of education of the respondents is
shown. As we can see 38% of respondents are Under Graduate. Where else 62% of
respondents are Post Graduate.

Majority of the respondents are post graduate.

63
Question No.4: What were the problem faced by you when demonetization was
announced?

Figure 4.4: Problems Faced

Problems Faced

24%
37%

39%

Getting new currency Getting change from the stores

Getting product that cost less than 100 Rupees

Table 4.4

Problems Faced Percentage

Getting New Currency 38

Getting change from the store 38

Getting product that cost less than 100 24

rupees
TOTAL 100

64
Interpretation:

In the above data 38% of respondents faced the problem getting new currency, 38%
of respondents faced the problem getting change from the store and on the other hand
24% of respondents faced the problem of getting product that cost less than 100
rupees.

Majority of the respondents both faced the problem of getting new currency and
getting change from the store.

65
Question No.5: Were you able to get new currency whenever you went to the
bank?

Figure 4.5: Getting new currency

Getting new currency

21%

53%

26%

Yes No Sometimes

Table 4.5

Getting New Currency Percentage

Yes 21

No 27

Sometimes 52

TOTAL 100

66
Interpretation:

In the above data 21% of respondents were able to get new currency, whereas 27% of
respondents were not able to get new currency and 52% of respondents were able to
get it sometimes.

Majority of the respondents were able it to get the currency sometimes.

67
Question No.6: Were you able to withdraw cash whenever you went to the
ATM?

Figure 4.6: Able to withdraw cash

Able to withdraw cash

21%

52%

27%

Yes No Sometimes

Table 4.6

Able to withdraw cash Percentage

Yes 21

No 28

Sometimes 51

TOTAL 100

Interpretation:

In the above data 21% of respondents were able to withdraw cash whereas 28% of
respondents could not. 51% of respondents were able to withdraw cash sometimes.

Majority of the respondents were able to withdraw cash sometimes only.

68
Question No .7: How long did you have to stand in the line at the ATM when you
went to withdraw cash?

Figure 4.7 TIME

TIME

16% 10%
9%

25%
40%

less than half an hour half an hour Around 45 minutes More than 45 minutes 1 hour or more

Table 4.7

Time Percentage
Less than half an hour 10

Half an hour 9

Around 45 minutes 24

More than 45 minutes 41

1 hour or more 16

TOTAL 100

69
Interpretation:

In the above data 10% of respondents were standing in the line for less than 30
minutes, 9% were standing in the line for 30 minutes. 24% of respondents were
standing in the line for around 45 minutes whereas 41% were standing more than 45
minutes. At last 16% of respondents were standing in the line for an hour or more.

Majority of the respondents had to wait for more than 45 minutes in the queue to
withdraw cash.

70
Question No.8: How did you feel about moving into digitalisation?

Figure 4.8: Digitalisation

Digitalisation

34%
47%

19%

It was easier than having liquid cash It was very inconvenient It was useful but not always

Table 4.8

Digitalisation Percentage
It was easier than having liquid cash 34
It was very inconvenient 19
It was useful but not always 47
TOTAL 100

Interpretation:

In the above data 34% of respondents said that it was easier than having liquid cash,
19% of respondents felt very inconvenient and 47% of respondents said it was useful
but not always.

Majority of the respondents felt that moving into digitalisation was useful but not
always.

71
Question No.9: Did digital payment such as PayTM or credit card always work
out for you?

Figure 4.9: Digital Payment

Digital Payment

21%
27%

52%

Always Sometimes Never

Table 4.9

Digital Payment Percentage

Always 21
Sometimes 52
Never 27
TOTAL 100

Interpretation:

In the above data 21% of respondents said that digital payment always worked for
them whereas 27% of respondents said that digital payment never worked for them.
And it was working sometimes for 52% of respondents.

Majority of the respondents said digital payment worked for them sometimes only.

72
Question No.10: Demonetisation makes things easier for you now?

Figure 4.10: Making things easier

Making things easier

22%

42%

36%

Yes! Very Much! No I don't have an opinion as far now

Table 4.10

Making things easier Percentage

Yes! Very Much! 22

No 36

I don’t have an opinion as far now 42

TOTAL 100

Interpretation:

In the above data it made things easier for 22% of respondents whereas 36% of
respondents said it didn’t make it easier. 42% of respondents don’t have an opinion.

Majority of the respondents said they don’t have an opinion as far now.

73
Question No.11: Do you think that demonetisation has helped reduce
corruption?

Figure 4.11: Reduce Corruption

Reduce Corruption

20%

41%

39%

Yes No Maybe

Table No.4.11

Reduce Corruption Percentage

Yes 20

No 39

Maybe 41

TOTAL 100

Interpretation:

In the above data 20% of respondents thought it reduced corruption whereas 39% of
respondents didn’t think so. 41% of respondents thought it may have reduce
corruption.

Majority of the respondents said it might have reduced corruption.

74
Question No.12: Are you satisfied by the way in which banking sector handled
demonetisation?

Figure 4.12: Satisfied with banking sector

Satisfied with Banking Sector

1%
28%
31%

18% 22%

Satisfied Very satisfied No opinion Dissatisfied Very disatisfied

Table 4.12

Satisfied with Banking Sector Percentage

Satisfied 28
Very satisfied 22
No opinion 18
Dissatisfied 31
Very dissatisfied 1
TOTAL 100

75
Interpretation:

In the above data 28% of respondents were satisfied, 22%were not satisfied, 18%
didn’t had an opinion And 31% were Dissatisfied, where as 1% was very Dissatisfied.

Majority of the respondents said were dissatisfied by the way banking sector handled
demonetization.

76
Question No.13: Do you feel that demonetisation has helped curb black money?

Figure 4.13: Helped curb black money

Helped curb black money

16% 20%

21%
19%

24%

Agree Strongly Agree Disagree Strongly disagree Neither Agree nor Disagree

Table 4.13

Helped curb black money Percentage

Agree 20
Strongly agree 19
Disagree 24
Strongly disagree 21
Neither agree nor disagree 16
TOTAL 100

77
Interpretation:

In the above Data 20% of respondents agreed, 19% of respondents Strongly Agreed,
24%of respondents did not agree, 24% of respondents Strongly disagreed, where as16
16% of respondents neither agreed nor disagreed.

Majority of the respondents said they disagree that demonetization has helped curb
black money.

78
Question No.14: Is it a good idea to encourage Digital Transaction?

Figure 4.14: Encourage Digital Transaction

Encourage Digital Transaction

38%
45%

17%

Yes No Maybe

Table 4.14

Encourage Digital Transaction Percentage

Yes 46
No 17
Maybe 38
TOTAL 100

Interpretation:

In the above data 46% of respondents said it encouraged digital transaction , 17% said
it didn’t encouraged digital transaction where as 38%said it might have encouraged
digital transaction.

Majority of the respondents said it is a good idea to encourage digital transaction.

79
Question No.15: Areas affected the most by demonetisation?

Figure 4.15: Areas Affected

Areas Affected

5%

34%
31%

9%
21%

Urban Rural Semi Urban Semi Rural All of the above

Table 4.15

Areas Affected Percentage

Urban 5
Rural 31
Semi Urban 9
Semi Rural 21
All of the above 34
TOTAL 100

Interpretation:

In the above data 5% said it affected urban areas , 31 % said Rural area , 9% said
semi urban area , 21 % of respondents said it affected semi-rural area, where as 34%
of respondents said All of the above areas were affected .

Majority of the respondents said every areas where affected during demonetization..

80
 CHAPTER 5: FINDINGS , SUGGESTION AND CONCLUSION

FINDINGS

77% of respondents were male and 23 % were female.

29% of respondents were between the ages of 17-20, 39% were between 21-24, and
32% were above 24.

38% of the respondents were under graduate where as 62% were post graduate.

37% of respondents faced the problem of getting new currency, 39% faced the
problem of getting change from the store.where as 24% faced the problem of
purchasing the product that cost less than 100 rupees.

21% of respondents were able to get new currency, 26 % did not get the new
currency, and where as 53% got it sometimes.

21% of respondents were able to withdraw cash from the atm, 27% were not able to
withdraw and 52% of people were able to withraw cash sometimes only.

10 % of respondents waited in a line for less than 30 minutes , 9% waited for more
than 30 minutes, 26% waited around 45 minutes , 40% waited for more than 45
minutes , where as 16 %waited for more than an hour.

34% of repondents felt that it was than having liquid cash, 19% felt moving into
digitalization was very inconvinient, and 47% felt that it was useful but not always.

21% of respondents said their digital payment always worked, where as 27% said it
didn’t work.and 52% said it sometimes worked.

22% of respondents said demonetization made easier things for them, where as 36%
said it didn’t and 42% did not had an opinion as far now.

81
20% of reponddents said demonetization has helped reduce corruption, 39% said it
did not reduce corruption, where as 41% said it may have reduce corruption.

28% of respondets were satisfied by the way banking sector handled demonitization,
22% were not satisfied , 18% didn’t had an opinion , 31% were dissatisfied and
1%was very dissatisfied by the way banking sector hanlded demonitization.

20% of people agreed that demonetization has helped curb balck money, 19%
strongly agreed, 24% disagreed, 21% strongly disagreed, 16% of people neither
agreed nor disagreed.

46% said it is a good idea to encourage digital transaction, 17% said no it is not a
good idea to encorage digital transaction, 38% said it may be a good idea to encorage
digital transaction.

5% of repondents said urban areas were affected , 31% said rural areas were affected,
9% said semi urban areas were affected , 21% said semi rural areas were affected ,
34% of people every area was affected.

82
 SUGGESTIONS

1. Among the recommendations are that the allowance given to Government

hospitals and healthcare providers of accepting old high denomination notes
should be extended to private healthcare providers. Mobile banking vans
should also be set up by banks at private hospitals. The industry members have
suggested that banking hours be extended on working days and a massive drive
should be launched to educate people on use of digital means for payments
across the country.

2. "RBI should consider bringing down the interest rates that could help stabilise
the demand in the economy. An immediate 50 basis points cut in repo rate
should be considered by RBI's monetary policy committee as well as some
measures may be introduced to provide easy finance for sectors like housing,
automobiles and consumer durables. "There should be a reduction in direct
taxes and widening of income tax brackets and the upcoming budget is being
keenly looked at from this perspective”, the members suggested.

3. Moreover, immediate measures to be taken so that forex dealers have enough

liquidity to meet the requirements of foreign visitors and the limit of Rs 5,000
for exchange by visiting foreigners should be reviewed to reduce the
inconvenience being caused to them.

4. Other suggestions call for RBI to issue guidelines to banks to raise the
overdraft limits of current accounts (currently Rs 50,000) to help businesses
tide over the currency shortage.

5. Besides, Government should consider leveraging the greater network of

systematically important NBFCs in rural markets to withdraw the demonetised
currency with KYC documents, for pre-existing loans of duly registered farm
equipment loans.

83
6. The industry members have also suggested lifting the cap on cash withdrawal
for micro finance institutions and leveraging the MFI network for withdrawal
of the demonetised currency and issue of fresh currency in the sector.
7. However, the industry feels that the demonetisation is a positive measure
which will have a major impact in reducing the parallel economy and moving
the informal economy into the main stream.

8. "This would result in larger revenues to the exchequer, consequently increased

public spending, which would boost the economy. This would also lead to
increased bank deposits, lower borrowing rates giving a boost to investments
and further strengthening the economic development of our country,"

9. Further, risk rating of India will improve that will have a positive impact on
foreign direct investment in key sectors.

10. Educate everyone about the use of e-wallet and Debit & Credit Cards. Proper
classes about the use of e-wallet and cards should be taken at each & every
office, organization, companies etc. whether private or government. Camps can
be held at village levels & city levels at each & every corners. Social workers,
panchayat members, municipal corporation members & staff should come
forward in explaining the use of digital media for buying commodities in the
market.

11. Give every businessman, who has current account with banks, swipe machine
at the earliest possible.

12. Tragedy is many bank branches still do not provide the facility of giving swipe
machines to its clients. Immediate steps to be taken by the concerned
authorities to equip banks with these machines so that it can be distributed to
the traders. Also, proper training should be given to traders about its use.

13. Undertake research to monitor, analyse and assess the short and medium-term
ongoing impact of demonetisation on the Indian economy, with research to be

84
 focused both of specific sub-sectors of the economy and on different regions of
the country.

14. Undertake research specifically to assess the ongoing impact of demonetization

on micro, small and medium enterprises.

15. Undertake research to consider the impact of the demonetisation programme on

attitudes towards, confidence in, and support for, government and government
policies among key sectors of business and civil society.

16. Undertake research on the short and medium-term impacts of demonetisation

on specific areas of corruption associated with cash transactions.

17. Undertake research on potential amendments of banking and taxation laws to

encourage enhanced use of digital finance.

18. Undertake research on the broader issue of government policy on challenging

corruption and bribery, in order to review the strategic framework and to
identify the activities that should be undertaken to build on, complement and
extend the demonetisation programme.

19. Undertake research on the practices and the functioning of the shadow
economy. Such investigation can optimally be done through case studies,
undertaken to gain a better understanding into precisely what is being
challenged or combated.

20. Undertake research to assess and determine the costs and risks of proposing
such radical measures as demonetisation, in advance of their implementation,
particularly with a view to regulating negative externalities.

85
 CONCLUSION

Though it is too early to say with certainty what was the real impact of
demonetisation, statistics show that it had a significant positive impact on the tax base
and tax collections, even though some people hold the view that it may be partly on
account of the GST roll out in 2017.One of the welcome turnarounds in the
demonetisation programme was the inseparable link between demonetisation and
digitalisation of transactions, which will yield rich dividends in future in terms of
increased tax revenue to the government. Inarguably, demonetisation encouraged
people to embrace digital methods

However, the biggest contribution of demonetisation has been its campaign value as a
nationwide awareness programme against black money. Although several other
initiatives in the past like Income Disclosure Schemes may have some impact, the
readiness of the people to undergo sacrifices expecting the end of black money
through demonetisation has made this programme a ‘mass movement against black
money’. This will help India to create a tax compliant and transparent society.
Demonetisation also reduced cash flow to terror organisations and led to the
dismantling of the counterfeit currency infrastructure

. However, it came at a huge social and economic cost and caused great misery to the
lives of common people. Many people lost their lives while standing in queue for
exchanging cash before banks. Many people could not fulfil their social obligations
because of non-availability of cash and curbs on drawing. Decline in manufacturing,
especially in SME sector as also in agriculture, deceleration of GDP growth and job
losses impacted the economy severely.

It is widely believed that though demonetisation was a good step, it could have been
implemented with better planning and preparation. The availability of sufficient
liquidity in new currency with the banks and readiness of digital platforms of
payments to the public would have made a lot of difference. General education to the
public on how to use the banking mechanism and digital modes of payments in day-

86
to-day transactions and reducing the charges of banks on such transactions and
payments through Aadhaar-enabled other instruments would have made a big
difference.

In fact, demonetisation costs are estimated at Rs 1.27 lakh crore to the economy
which includes decline in GDP of about Rs 1.1 lakh crore (taking decline in GDP
growth on average of 0.63 per cent and GDP size of 2.5 trillion USD and exchange
rate of Rs 70) and cost of Rs 17,000 crore towards the government and the RBI for
implementing the demonetisation process in India

Further, cash constitutes only about 6 per cent of the overall black economy and
therefore demonetisation as a one-time measure could target only this 6 per cent black
money in the form of cash and could not target black money in the form of real estate
and property investment, gold and jewellery investment etc.

It is widely believed that demonetisation alone is not sufficient to counter black

money and corruption in the country; rather, other measures are needed like action on
investment in benami properties, investment in jewellery and gold and other luxury
goods and bringing to book offshore tax evaders whose names figure in HSBC
accounts, the Panama Papers and Paradise Papers etc. and restrictions on donations to
political parties.

So it can be said that demonetisation 2016 had both a positive and negative impact on
the economy. However, there is broad agreement that though a little bit of GDP
growth was sacrificed and a short-term welfare loss of the unorganised sector had
occurred due to the demonetisation drive, yet the initiative helped to clean up the
system to a large extent and will go a long way in making India a transparent and tax
compliant society.

87
 APPENDIX

1. GENDER
• Male
• Female
• Prefer Not To Say

2. AGE
• 17-20
• 21-24
• Above 24

3. Level of Education?
• Under Graduate
• Post Graduate

4. What were the main problem faced by you when demonetization was
announced?
• Getting new currency
• Getting change from the store
• The ability to purchase products that cost less than 100 Rupees

5. Were you able to get new currency whenever you went to the bank?
• Yes
• No
• Sometimes

6. Were you able to withdraw cash whenever you went to the ATM?
• Yes
• No
• Sometimes
7. How long did you have to stand in the line at the ATM when you went to
withdraw cash?
• Less than half an hour
• Half an hour
• Around 45 minutes
• More than 45 minutes
• 1 hour or more

8. How did you feel about moving into digitalization?

• It was easier than having liquid cash
• It was very inconvenient
• It was useful but not always

9. Did digital payment such as PayTM or credit card always work out for
you?
• Always
• Sometimes
• Never

10. Did Demonetization make things easier for you now?

• Yes! Very much!
• No
• I don't have an opinion as far now

11. Do you think that Demonetization has helped reduce corruption?

• Yes
• No
• Maybe

12. Are you satisfied by the way in which Banking Sector handled
Demonetization?
• Satisfied
• Very Satisfied
 • No Opinion
• Dissatisfied
• Very Dissatisfied

13. Do you feel that Demonetization has helped curb black money?
• Agree
• Strongly Agree
• Disagree
• Strongly Disagree
• Neither Agree nor Disagree

14. Is it a good idea to encourage Digital Transaction?

• Yes
• No
• Maybe

15. Areas Affected the Most by Demonetization?

• Urban
• Rural
• Semi Urban
• Semi Rural
• All of the above
 BIBLIOGRAPHY

• Dr Pratap Singh & Virender Singh, “Impact of Demonetization on Indian

economy.”

• Rahul Prakash Deodhar, “Black money and Demonetization”.

• K.Sethi, R Nasreen, Matloobullah Khan, “Impact of Demonetization on the

financial performance of the micro finance institution (MFIs).”

• Swati Chauhan and Nikhil kaushik, “Impact of Demonetization on Indian

economy.”

• S raj “Impact on the availability of credit, spending and level of activity and
government finances.”

• Dr Mohd Taqi “Impact of Demonetization on Indian capital market with

special reference to selected indices of Bombay stock exchange (BSE).”

Websites:

1. www.researchgate.net
2. www.m.economictimes.com
3. www.bloombergquint.com
4. www.yothkiawaaz.com
5. www.mbauniverse.com
6. www.businessstandard.com
7. www.isec.ac.in