A PROJECT REPORT

ON

(DEMONETIZATION IN INDIA)
SUBMITTED TO THE DEPARTMENT OF ECONOMICS

MATA SUNDRI COLLEGE FOR WOMEN

UNIVERSITY OF DELHI

NAME OF STUDENT: NAME OF TEACHER:

KHUSHI SINGH (BAP/21/236) SUKHVINDER KAUR

MUNIBA WAHAJ (BAP/21/257)

AKRITI MAHAJAN (BAP/21/294)

ASTHA GWARI (BAP/21/314)

 CERTIFICATE

This is to certify that we, Khushi Singh, Muniba Wahaj, Akriti Mahajan and Astha Gwari
have worked hard and completed our Project work for the semester (VI) B.A Programme on
the title “Demonetization in India” under my supervision. This is their own work and facts
reported by their personal findings and investigations.

Name & Signature of Teacher Date of Submission

Ms. Sukhvinder Kaur 29th April, 2024

ii
 DECLARATION

We Muniba Wahaj, Khushi Singh, Akriti Mahajan and Astha Gwari hereby declare that the
report for the project entitled “Demonetization in India’’ is a result of our own hard work
and indebtedness to other work publications, references if any have been duly mentioned and
acknowledged.

Date: 29th April ,2024 Khushi Singh

Muniba Wahaj

Akriti Mahajan

Astha Gwari

iii
 ACKNOWLEDGMENT
We are glad to express our profound sentiments of gratitude to all who rendered their
valuable help for the successful completion of this project titled “Demonetization in India’’.
We record our deep sense of gratitude to Ms. Sukhvinder Kaur for providing us with the
chance to work under their guidance, which helped us to steer our study in an appropriate
way. Our sincere appreciation to our institution and my university for giving us the
opportunity to improve our practical knowledge for this project report.

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 PREFACE
In partial completion of the specifications for the subject: Project report of the integrated B.A
Programme (Sem. VI) in the academic year 2023-24. This project report on the
“Demonetization in India’’ has been written. The primary goal of this research is to learn
more about the role of cash in the Indian economy and in the lives of individuals .The project
report covers the analysis of the demonetization process and its execution ,as well as the
modifications and effects on the economic components following demonetization, Preparing
this project report allowed us to learn about the important role of money in the country which
was worthwhile experience .We feel great pleasure to submit this project report and sincerely
hope that you will recognize and value our work. .

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 TABLE OF CONTENTS

S. No. Topic Page No.

1. INTRODUCTION 1-7
1.1 Theoretical Background 3
1.2 Statistical Background 6
2. STATEMENT OF PROBLEM 8-10
3. REVIEW OF LITERATURE 11-16
3.1 Demonetization: A General Perspective 11
3.2 Demonetization and Indian Economy 13
3.3 Demonetization and Banking Sector 14
4. RESEARCH METHODOLOGY 17-24
4.1 Objectives of the Study 17
4.2 Collection of Data 20
4.3 Aim of Research 20
4.4 A Case Study 21
4.5 Questionnaire 23
5. VISUALISATION THROUGH GRAPHS & CHARTS 25-44
5.1 Education Profiles of the Respondents 25
5.2 Occupations of the Respondents 27
5.3 Monthly Income before Demonetization 30
5.4 Experiences after Implementation of Demonetization 32
5.5 Modes of Payment 33
5.6 Banknotes in Circulation 34
5.7 Impacts of Demonetization 36
5.8 Significance of the Research 44
6. DATA ANALYSIS AND INTERPRETATION 45-60
6.1 Descriptive Statistics 45
6.2 Regression Statistics 50
6.3 Correlation 55
6.4 Hypothesis Testing 58
7. LIMITATIONS OF THE STUDY 61-72
8. CONCLUSION 73-74
9 REFERENCES 75-76

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 LIST OF TABLES

1. Education profile of respondents

2. Occupation of fathers
3. Occupation of mothers
4. Experiencing implementation of demonetization
5. Monthly income of families
6. Modes of payment during demonetization
7. Bank notes in circulation
8. Descriptive statistics
9. Regression statistics
10. Correlation
11. T-Test Two-Sample Assuming Unequal Variance
12. Index returns table
13. Change in percentages of how the note ban pulled down the growth of loans

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 INTRODUCTION
The Indian government declared on November 8, 2016, that all ₹ 500 and ₹ 1,000 Mahatma
Gandhi Series banknotes would be demonetized. In addition, it declared that new ₹ 500 and
₹ 2,000 banknotes would be issued in lieu of the demonetised ones.

The move, according to Prime Minister Narendra Modi, will decrease the shadow economy,
boost cashless transactions, and decrease the use of illicit and counterfeit money to finance
terrorism and other criminal activities. Prolonged cash shortages that ensued in the weeks that
followed the announcement of demonetisation caused serious disruptions across the
economy. Long lines of people had to wait to exchange their currencies, and the haste to do
so was blamed for several deaths. The Indian government announced the demonetisation on
November 8, 2016.

Leader of the right-wing Bhartiya Janata Party in India, Narendra Modi, faced pressing
challenges in his newly elected administration in 2014, including a rising poverty rate and a
growing population. During his tenure, the 14th Prime Minister of India implemented several
initiatives, including the Pradhan Mantri Fasal Bima Yojana (Prime Minister Agriculture
Relief Fund) and Swachh Bharat India (Clean-Up India).

Modi was the Chief Minister of Gujarat, a state in western India, before he was elected Prime
Minister of India. Modi holds the record for the most days (2063) spent in office as Gujarat's
chief minister. Modi changed the state while serving as its chief minister. Following his
election on October 7, 2001, Modi reduced poverty, upgraded the state's infrastructure, and
provided power to every community.

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FIGURE 1: Flow Chart on Demonetization (Source: wallstreetmojo.com)

Analysis of Modi’s Speech

On November 8, 2016, Modi made a kind plea during a live broadcast from the nation's
capital, Delhi. Earlier in his address, Modi discussed the past. He talked about how India is
still far behind the rest of the globe even after more than 65 years of freedom. He also talked
about how, in contrast to the other leaders present, he felt anxious when attending the
BRICS2 Summit. He brought up the drought that occurred in 2014, a two-year period with a
12% rainfall shortfall. Maharashtra was significantly impacted by the drought. Given that
Maharashtra is the second most populated state in India, this is noteworthy. He established a
shared mood by connecting to the difficulties that the Indian people were going through.

The BRICS Summit functions as an ethos since it is a formal gathering of well-known

leaders. Even with the elevated Despite the level of corruption, he said, India remains a
"bright spot." In addition to expressing his belief in that regard, he mentioned the World Bank
and the International Monetary Fund (IMF) in his address. In the context of the speech, the
IMF is significant since it is an institution made up of 189 nations that collaborate to boost
trade, reduce global poverty, and advance monetary cooperation. Underdeveloped nations can
obtain finance from the World Bank to help with rebuilding. These organisations increase the
speech's level of knowledge. People with some education and familiarity with the World
Bank would naturally assume that the favourable comments made by the World Bank and the

2
IMF point to positive economic growth. After serving the country, Modi came to this
realisation. He said as much in his address, saying, "There are times in a nation's history
when every individual feels he too should be part of that moment, that he too should make his
contribution to the country's progress" (Business Standard, 2016). Modi was able to
communicate the key elements that affected his choice in this address. These comprise, but
are not restricted to, terrorism, the shadow economy, and counterfeit money.

1.1 THEORETICAL BACKGROUND

The term demonetization is not new to the Indian economy. 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. The goal was to combat tax evasion by "black money" held outside the formal
economic system. In 1946, the pre-independence government hoped demonetisation would
penalise Indian businesses that were concealing the fortunes amassed supplying the Allies in
World War II. It turned out to become more like a currency conversion drive as the
government couldn’t achieve much profit in the cash-strapped economy at that time. In 1978,
the government demonetised banknotes of 1000, 5000 and 10,000 rupees, again in the hopes
of curbing counterfeit money and black money. The Wanchoo Committee had recommended
the government to withdraw the currency because the country was going through a difficult
period In 2012, the Central Board of Direct Taxes had recommended against demonetisation,
saying in a report that "demonetisation may not be a solution for tackling black money or
economy, which is largely held in the form of benami properties, bullion and jewellery."

To combat tax evasion using "black money" kept outside of the official economic system, the
Indian government had already demonetized banknotes twice before, in 1946 and 1978.To
reduce illicit money and counterfeit money, the Janata Party coalition government
demonetized banknotes of ₹ 1,000, ₹ 5,000, and ₹ 10,000 in 1978. Recommending against
demonetisation in a report from 2012, the Central Board of Direct Taxes, Black wealth
holders retained only 6 percent or less of their wealth in cash, according to data from income
tax investigations. The plan to demonetize the ₹ 500 and ₹ 1,000 banknotes was initiated
between six and ten months before a report by the State Bank of India (SBI) analysed
possible strategies and effects of demonetization. In May 2016, the Reserve Bank of India
had started preparing for new banknotes and confirmed the design of ₹ 2,000 banknotes in
August 2016. The printing of new banknotes started in October when the news stories of

3
forthcoming new banknotes appeared in the media. On 27 October 2016, the Hindi daily
Dainik Jagran published a report quoting RBI sources speaking of the forthcoming of
₹ 2,000 banknotes alongside withdrawal of ₹ 500 and ₹ 1,000 banknotes. On 21 October
2016, The Hindu Business Line had also demanded to withdraw the banknotes to prevent
hoarding of black money. The Board of the Reserve Bank of India met on Nov 8th, 2016,
5:30 PM to consider a letter from the Ministry of Finance regarding demonetization. "Two
key reasons for the proposal cited in the government letter were: (1) between 2011 and 2016,
the supply of 500- and 1,000-rupee bills had grown by 76 and 108 percent, respectively,
while India's economy had only grown by 30 percent during this period; and (2) cash
typically facilitated "black money." The board was further told that the measure was also
intended to encourage greater financial inclusion and to incentivize greater digitization of the
economy. The board approved the proposal, but not before making a few trenchant
comments. It noted that the measure may not have the desired effect on black money because
most people do not hold undeclared wealth in cash. It further worried about the negative
effects on growth that were likely to occur in the short run. Possibly the most damning
observation was that the primary fact on which the government had based its proposal—that
the supply of 500- and 1,000-rupee bills had far outstripped the growth rate of the economy—
was simply wrong. The board pointed out the embarrassing fact that the government had
compared GDP growth in real terms with the growth of currency supply in nominal terms. In
fact, nominal GDP growth had summed to over 80 percent between 2011 and 2016 and hence
was in line with the growth of the currency bills to be demonetized."

The Union cabinet was apprised of the plan on 8 November 2016 in a meeting in the evening
convened by Prime Minister Modi.Soon after the meeting, Modi announced the
demonetisation in an unscheduled live national televised address at 20:15 IST.He declared
circulation of all ₹ 500 and ₹ 1,000 banknotes of the Mahatma Gandhi Series as invalid
effective from the midnight of the same day, and announced the issuance of new ₹ 500 and
₹ 2,000 banknotes of the Mahatma Gandhi New Series in exchange for the demonetised
banknotes. In an interview following the announcement of demonetisation, a number of
well-known businessmen 'allegedly' stated that they had been aware of rumours and tip-offs
prior to the move, and that they had "knew what was coming" after seeing leaked photos of
the new ₹ 2,000 notes. This knowledge allowed them to preserve their capital by converting it
into smaller denominations. Bhawani Singh Rajawat, a BJP MLA from Rajasthan, jokingly
asserted in a video that affluent businesses were told about the impending demonetisation

4
beforehand. Later on, he denied saying the things. The demonetised banknotes could be
deposited with banks within fifty days, up till December 30, 2016, according to a directive
issued by the Reserve Bank of India. All banks offered the option to exchange the banknotes
for legal cash over the counter. From November 8 to November 13, the exchange limit was
₹ 4,000 per person; from November 14 to November 17, it was raised to ₹ 4,500; and from
November 18 to November 25, it was lowered to ₹ 2,000. On November 25, the government
ended all banknote exchanges, notwithstanding earlier announcements that an increase in the
amount of currency would occur after that date. Foreign visitors and departing travellers
could also exchange banknotes for a maximum of ₹ 5,000 per individual at international
airports. Up to December 2, 2016, government hospitals, fuel stations, booking counters for
trains and airlines, ration stores and dairies recognized by the state government, and
crematoriums were permitted to take the demonetized banknotes. From November 10 to
November 13, there was a limit of ₹ 10,000 per day and ₹ 20,000 per week for each bank
account on cash withdrawals. As of November 14, 2016, the weekly cap was raised to
₹ 24,000. Later, restrictions on the amount of money that could be taken out of current
accounts, cash credit accounts, and overdraft accounts were removed. On February 20, 2017,
the RBI raised the maximum withdrawal amount from a savings bank account to ₹ 50,000
from the previous ₹ 24,000, and on March 13, 2017, it eliminated all withdrawal restrictions
from savings bank accounts.
Additionally, there was a daily cap on ATM withdrawals that varied from ₹ 2,000 till
November 14 to ₹ 2,500 until December 31. On January 1, 2017, this cap was raised to
₹ 4,500 per day , then on January 16, 2017, it was raised to ₹ 10,000 once again. Families
could withdraw up to ₹ 250,000 for wedding expenditures starting on November 17. A
weekly withdrawal of ₹ 25,000 was allowed for farmers against agricultural loans. On
December 28, 2016, the Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016 was
published, which put an end to the government's responsibility for the banknotes that were
demonetised. Additionally, those who were discovered conducting business with them after
November 8, 2016, or possessing more than 10 of them after December 30, 2016, were
subject to sanctions under the ordinance. For those who had been outside of India between
November 9 and December 30, it allowed for the exchange of banknotes after that date. On
March 1, 2017, notice of the Specified Bank Notes (Cessation of Liabilities) Act, 2017 was
given, superseding the ordinance.

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1.2 STATISTICAL BACKGROUND

FIGURE 2: Process of Exchanged Demonetization Currency (Source: Commercial Bank)

The gross domestic output of India is increasing gradually. In India, there is a positive
relationship between the population and the GDP. Every leader wants these kinds of
outcomes for a country that is expanding and developing. However, given the size of the
population, the figures might be higher. The three sectors that make up India's GDP are
agriculture, industry, and services. Although it employs the greatest number of people, India's
agriculture industry contributes the least to the country's GDP. According to Statistics Times
(2017), the services sector makes up the largest portion of the GDP. Financial services
including retail banking, lodging, real estate, education, media, information technology,
power, etc. are included in the services industry. The industry sector is the one with a focus
on manufacturing and building. In terms of employment, agriculture is rated first while
services are ranked second. This leaves industrial as the lowest employer by sector. The
current labour force of India represents 41.8% of the national population.

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FIGURE 3: Breakdown of Employment (Source: World Bank)

This figure shows the break-down of employment in India according to each sector.

FIGURE 4: Countries with Fastest Growing GDP. (Source: World Bank)

This fig demonstrates that India and China are the countries with the fastest growing GDP’s
in the world. The GDP growth in both countries is partially related to the relatively high and
constant growth of their population and the growth in GDP shows that.

7
 STATEMENT OF PROBLEM
According to the government, the exercise's primary goal was to reduce "black money,"
which includes unreported income that was not subject to taxes, money obtained through
corruption, the sale of illegal items, money obtained through unlawful operations including
human trafficking, and counterfeit money. Further goals mentioned were cutting down on
cash transactions, decreasing the amount of money available to extremist organisations like
the Naxalite Maoists and terrorists, raising the tax base and number of taxpayers, and
merging the official and informal sectors.

Black money : Twenty percent, or about ₹ 5 trillion, of the currencies that were demonetized
will be permanently taken out of circulation, according to government estimates.
Nonetheless, 99.3% of the demonetized banknotes, or ₹ 15.3 trillion of the ₹ 15.41 trillion
that had been demonetized, were deposited with the banking system, according to a 2018
report from the RBI. The value of the undeposited banknotes was ₹ 107.2 billion.
Commentators concluded that the government's attempt to eradicate black money from the
economy had failed.

Revenue Collection : In comparison to the growth between 2015 and 2016, the number of
income tax returns filed climbed from 43.3 million to 52.9 million between the fiscal years
2016 and 2017. However, this increase was not statistically significant. Tax compliance had
improved, as seen by the rise in income tax returns filed; however, the vast majority of these
came from the salaried and non-business class. The Income Disclosure Scheme of 2016
contributed to an increase in income tax receipts in the 2017 fiscal year. There was just a
slight gain in tax revenue after accounting for it. The growing tax base has resulted in an
increase in the tax-to-GDP ratio.The number of new taxpayers or the amount of direct tax
collection due has not significantly increased, according to a review of the economic data.
Municipal and local civic body taxes were able to be paid with the demonetised banknotes,
which resulted in an increase in their revenue collections. For instance, during the first four
days of demonetisation, the Greater Hyderabad Municipal Corporation reported collecting
approximately ₹ 1.6 billion in cash payments of unpaid and advance taxes.

Moving the goalposts: It was said that the government was "moving the goalposts" regarding
the objectives of the demonetisation process. The original stated objectives were to combat
terrorism, black money, and corruption. However, when it became clear that practically all of
the cash was being exchanged, the objectives were broadened to include, among other things,

8
neutralising the money that terrorists, Maoists, and human traffickers were holding and
turning India into a cashless economy.

Evasion : There have been instances of people exchanging significant sums of demonetised
banknotes at banks in groups, as well as of people completing repeated transactions at various
bank branches to get around the restrictions on exchange transactions. Sales of gold rose after
demonetization in Gujarat, Delhi, and many other large cities, driving up the price to as much
as ₹ 45,000 (US$560) per 10 grams (0.35 oz), compared to the previous ruling price of
₹ 31,900 (US$400). Several forex firms that were producing backdated entries were searched
by the Enforcement Directorate. Cooperative banks, jewellers, mobile phone sellers, and a
number of other companies engaged in money laundering through the use of backdated
accounting. The tax department does not investigate money placed in daan petis , or cash
collecting boxes seen in temples and gurudwaras; this is occasionally done to launder money
.Following the demonetisation, there was a surge in donations to temples made using the
demonetized currencies. To get rid of undeclared cash, many train tickets were purchased.
The Indian Railways authorities were made aware of this and implemented measures to
prevent any potential escape.

Fake Banknotes : There was a rise in the quantity of fake ₹ 50 and ₹ 100 banknotes after
demonetisation. There was a spike in the quantity of fake ₹ 500 and ₹ 1,000 (demonetized
version) banknotes in 2016–17, followed by a drop in 2017–18. However, compared to the
previous year, there was a rise in counterfeit ₹ 2,000 and ₹ 500 banknotes (new edition) in
2017–18. The quantity of counterfeit banknotes found has not changed noticeably. The
quantity of counterfeit banknotes found between 2017 and 2018 was comparable to that of
the period before demonetisation. Furthermore, only 0.0035% of the ₹ 1,000 banknotes were
discovered to be counterfeit following demonetisation.

Circulation of Banknotes : As of October 28, 2016, the total value of banknotes in circulation
in India was ₹ 17.77 trillion. It was not clear how much of this amount came from banknotes
priced at ₹ 500 and ₹ 1,000. The Reserve Bank of India (RBI) reported in its March 2016
annual report that the total value of banknotes in circulation was ₹ 16.42 trillion, with around
86% (or ₹ 14.18 trillion) coming from ₹ 500 and ₹ 1,000 banknotes. According to the
research, out of the total 90.26 billion (9026.6 crore) banknotes in circulation, ₹ 500 and
₹ 1,000 banknotes accounted for 24% (or around 22.03 billion) in volume.

9
Prior to the November 2016 demonetisation, the market included banknotes valued at ₹ 17.97
trillion. Eighty-six percent were the banknotes that were demonetized. Prior to their
demonetisation in March 2018, the number of banknotes in circulation had reached that level.
There were ₹ 18.03 trillion worth of banknotes in circulation by March 2018, a 9.9% rise.
Eighty-six percent of it is made up of new banknotes worth ₹ 2,000 and ₹ 500. Small
dominance banknotes had a mere 5.8% increase as a result. The market's quantity of
banknotes rose by 2.1%. The total amount of banknotes in circulation rose to ₹ 19.5 trillion in
September 2018 and ₹ 21.41 trillion in March 2019, representing a 19.14% rise from the pre-
demonetization level. On October 29, 2021, five years after demonetisation, the amount of
money in circulation reached a record high of ₹ 29.17 trillion.

Digital Payments : One of the declared goals of demonetisation was to encourage the use of
digital payments. A sudden and dramatic increase in digital payments occurred in November
and December of 2016 because of cash shortages. The point-of-sale transactions using debit
cards had twice the value indicated by pre-demonetization patterns. Credit card values rose,
but not at a particularly rapid rate. Following demonetisation, mobile wallet transactions
increased quickly. However, as cash shortages decreased in the middle of 2017, these
transactions declined. After that, there was a sudden surge once more. The number of digital
payments had doubled by April 2018. Following the cash return, there has been just a slight
increase in digital payments. In 2015–16, the currency-to-GDP ratio was 12.1%. Due to
demonetisation, it fell to 8.8% in 2016–17 but rose to 10.9% in 2017–18. The ratio of
currency to GDP was very slightly reduced in comparison to pre-demonetization levels.

Interior security and terrorism : The Maoist Naxalite radical groups' activities and attacks
initially declined after demonetization, which was ascribed to a shortage of funds. The
percentage of surrenders had peaked. The events resumed in a few months. In Jammu and
Kashmir, there was a decline in terrorist activity.

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 REVIEW OF LITERATURE
Demonetization was one of the most historic decisions in the Indian Economy. The decision
which surprised the entire nation also attracted many researchers. After demonetization,
many researchers attempted to examine the demonetization and its impact on the Indian
Economy. The present study analyses the existing literature in 3 categories; namely,
Demonetization- A General Perspective, Demonetization and Banking Sector, and
Demonetization and Indian Economy.

3.1 DEMONETIZATION- A GENERAL PERSPECTIVE

Chelladurai & Sornaganesh (2016) studied the influence of demonetization on the Indian
Business Environment. Citizens of India faced a lot of challenges due to demonetization.
Government decision of demonetization was to reduce black money thereby and reduction in
terror funding with false currency notes. It was a sign from the government to create cashless
India as well as use technology. The application of demonetization would have been better if
printing of sufficient cash and modification of ATMs was facilitated with efficiency. Jaiswal
& Jagtap (2017) described the several economic changes and the possible consequences of
demonetization on various sectors. This study helps in determining the helpful and harmful
consequences of note ban decisions taken by the Indian government. The study was based
only on secondary information, which was taken from newspapers, magazines, internet
websites, and some related books linked to the subject. The government's recent decision to
eliminate black currency in India was a big step in showing high-value currency.
Demonetization decisions affected the common public; however, it was unavoidable in such
decisions in concern of the country. Also, it cannot entirely prevent black money, but
definitely there was a big impact on breaking large quantities of black money. Going cashless
is one theme government focused post demonetization. Singh & Singh (2016) highlighted in
their study that India has the highest level of cash inflow at 12.1% of GDP. Money in hand
was probably at around 3.2% of domestic resources. 87% was from 500 Rs & 1,000 Rs notes
or approximately Rs 14 lakh crore. A major share of the national money in hand is created by
monetary transactions that remain uninformed to tax specialists or from corruption. Scrapping
the complex denomination currency would also affect these being taken into the structure or
the currency just vanishing. This paper highlights the possible significance of this judgement
on various monetary variables and entities. If the cash vanishes, the economy will not be
valued. And if the cash finds its approach in the economy it could have a significant effect.

11
But practices from various countries display that the change remained single of the series that
failed to answer a debt-hampered and inflation ridden economy. Nerkar (2016) found that a
brave step was taken by the government of India of demonetization of great worth currency
denomination notes. Demonetization of money means the cutting off of some cash from the
money flow and exchanging it with new cash. It has extremely crushed the Indian economy
in several ways. However, it has been broadly commended as a helpful decision taken for the
advantage of the citizens. This paper hints at the influence of this move on the Indian
economy. Demonetization alone cannot make India match similar economies in Patil, Parab
& Reddy | The Impact of Demonetization on the Indian Stock Market 107 terms of removing
black currency. Some other processes are necessary for the Indian government to change the
economy for the better. We should respect and support this move and wait with tolerance for
healthier implementation. Each Indian citizen should be responsible for part of our nation-
building. And our temporary money issues are minor as related to the outcome in future. We
should inspire and join the task of India development. Betz, Anderson & Puthanpura (2017)
elaborated the fiscal event of unexpected demonetization 2016-17 in India can offer a
practical sample in which to examine the rationality of various schools of fiscal theory,
mainly the Chartalist Institute. The Chartalist Institute distinguished three classes of currency
namely Fiat, Commodity, and Managed Cash. The occasion provided a practical sign that this
difference between money and now an economy was legal and significant. The unexpected
removal of Fiat cash immediately reduced the expanse of commodity change, forming an
economic disaster in local Indian exchange. Managed cash, as bank interpretations, was
incapable of plugging the impermanent break in the resource of cash because a huge share of
the Indian residents did not require bank interpretations. As well, the administration did not
supply enough of the new 500 and 2000 Rs. notes to rapidly exchange the reserved 500 and
1000 Rs. notes. Dharmapala & Khanna (2017) conducted a study and revealed how the stock
market reacted to demonetization in India. The specified motive for sudden demonetization
was to battle tax avoidance and corruption. This study figures irregular earnings for
organisations on the Indian stock market nearby this occasion, and link patterns of irregular
earnings for altered subsamples of organisations defined by business, possession structure,
and other features. There was a slight sign that areas thought to be associated with more tax
avoidance or corruption had meaningfully different yields. The study finds helpful incomes
for banks and state-owned enterprises, suggesting market expectations that are confusing in
some compliments. Besides find outline of greater returns for businesses that are considered

12
by a better requirement on outside finance, possibly advising hope of an enabling of
economic limitations.

3.2 DEMONETIZATION AND THE BANKING SECTOR

As demonetization involved the exchange of old currency notes with new ones, one sector
which witnessed a huge inflow of cash deposits was in the banking sector. Jain (2017)
observed that the demonetization is one sector probably totally benefited from this
involvement was the banking area. The two areas of the banking area- private and public area
banks have seen different trends in managing of non-performing assets ensuing in the
recapitalization of public area banks by the government. This study observes the influence of
demonetization on the returns of 40 listed banks in India. The study implemented an event
study approach and regression methodology. The outcomes recommend that the overall
banking sector had recorded a modest rise in returns after demonetization, but the effect was
short-lived. By segmenting the sector hooked on public and private segments reflect
differential impacts. The public area banks witnessed an immediate positive result on the
returns whereas the private banks recorded a lagged negative impact. Kanakalatha (2017)
conducted the study to designate the modifications that are trending in Indian Banking and
connected to managing the cash part as the influence of demonetization. In demanding
elements which may reason for the never-before-seen modification, this study increases the
pros and cons of money demonetization in altered banking areas. AABFJ | Volume 12, no. 2,
2018 108 Data was collected over surveys that were mailed available to a number of
individuals in Hyderabad. Individuals in the study finished the survey & packed out a distinct
permission linked form. Individuals who replied have selections in a diversity of sections,
including Banking, Finance, Capital Markets, and Insurance areas. Individuals who replied
were from a range of Institutions from both private and public organisations, the bulk being
study oriented. Secondary information is collected from the Internet and Newspapers.
Specialists say that it is a good change as it will bring more formal money to the area.

Gupta (2017) tried to recognize the problems tackled by restricting banking services and if
sufficient arrangements were complete for the restricted during the demonetization stage. The
recent stage of the Indian government to bite the money notes of Rs. 1000 & Rs.500 as a
permitted tender on November 8th, 2016, had an enormous influence on Indian masses. 50
Scheduled banks were plotted for the study and banking officers from several public banks
along with private banks were also questioned.

13
3.3 DEMONETIZATION AND THE INDIAN ECONOMY

Rao & Kotian (2017) made an attempt to know the outcome of demonetization of upper
value currency notes on the running of the Indian economy. This study also observes the
consequence of demonetization happening to the GDP of India. Demonetization of currency
in India has a significant role to play in the Indian economy as the effects caused by the
demonetization-driven cash crisis that was singled out in India paralyses economic activity
only in the short period and has a dynamic and important role towards the upliftment of the
economy. It will definitely bring structural modifications in the longer run and lead to a
greater formalisation of the modern economy. Singh & Panwar (2017) illustrated in their
research on the present economic sensation in India and reflected as the base of extreme
economic improvements. This paper studies the likely influence of demonetization on the
casual economy of India along with the prospects and concerns of the Indian economy.

In this viewpoint, few problems need to be taken care off like will demonetization develop
the recognized economy and analyse the informal one? How will it touch the comfortable
credit market? What actions are required to restrain the black budget other than
demonetization? Will digitalization benefit online spending and marketing businesses? It also
temporarily explains little programs of the present government. The discussion in this study
delineates the development as to how demonetization is a circumstance of growing strategy?
Thus this paper considers the demonetization conclusion as a strategic conclusion. Samuel &
Saxena (2017) studied the short-period and long-period influences of demonetization with
mention to the different divisions of Indian economy. It also deliberates whether
demonetization will be involved in removing the black currency from Indian economy which
is the key objective after the currency switch. It is measured to have concentrated the
country's GDP, undesirably hit the cash-sensitive sectors, certain divisions of the nation
namely agriculture area, small merchants, domestic are facing short-time disturbances due to
lack of liquid cash etc. Besides corrupt applications, running of weapons, the stock of black
currency will decrease etc. It can be assumed that demonetization creates a cash crisis and
liquidity crisis causing a problem to the overall public in short-time, but its resolution is
shown to be helpful to the budget in the long run on aspects like government income, the rise
in credit, little interest charges on mortgages, and decay in inflationary force.

Sivankutty (2017) highlighted the consequence of demonetization Patil, Parab & Reddy | The
Impact of Demonetization on the Indian Stock Market 109 proceeding GDP and the
involvement of different areas in GDP. By an opinion to restrain the capital of terrorism and

14
actions such as surveillance, running of weapons, drugs & extra illegal imports to India and
removing black currency, it has been decided to cancel the authorised tender charm of great
denomination notes of Rs.500 & Rs. 1000 values issued by RBI. At the opening there raised a
negative influence on the numerous areas of the budget which caused lesser growth. Reports
from numerous sources throughout the country recommend that every area and district have
adversely exaggerated. Separately from all this information later at the finale of this fiscal
year, the country displayed a growth of 7.1%. This paper explains the influence of such a
transfer on the GDP and study of some data in a systematic method. Bhatnagar (2017) studied
the influence of demonetization in India. The word demonetization was not fresh to the
Indian economy. The maximum denomination note constantly published by RBI was the
10,000 Rs note in 1938 and over in 1954. Then these notes stood demonetized, happening in
January 1946 and once more in January 1978, giving to RBI records. On 8 Nov. 2016, the
cash was demonetized 3rd time by the current Modi government. This was the brave step
engaged by the government for the improvement of the budget and nation. The change was
directed towards confronting black currency, corruption, and terrorism. This paper studies the
implication of denomination and the past of denomination in India.

Further, the paper will centre on the belongings of demonetization on the altered area of the
Indian economy in detail. Bhausaheb (2017) stressed on the subject of the influence of
demonetization happening in the Indian Economy. The dispute imagined now favouring
demonetization was that the money that would be doused would be “black currency” and
hence, must be fairly doused to regular accurate the willful incentive organisation in the
economy. While the details are not obtainable to anyone, it would be irrational to dispute that
this was the only prospect. So, it is commanding to estimate the short outing and medium
duration effects that such a tremor is expected to ensure on the economy. Further, the
influence of such modification would differ depending on the grade to which the
administration agrees to remonetize. This paper clarifies the effect of such modification on
the disposal of credit, spending, level of action and government funds. Pradeep (2017)
examines the promptness of the Indian economy to become cashless & its suggestions in
future. Demonetization only affects narrow money & leaves the major component of the
money supply; the broad money wide open, which if left unchecked would leave the issues as
it is. In this case, the transition towards a cashless society proves to be a good way of
achieving economic welfare. Although the rewards of a cashless culture are numerous & have
the potential to become one such society, some hurdles need to be crossed before we can

15
enjoy all its welfare. The review of the literature shows that a considerable amount of
research has been done on the theoretical aspect of demonetization, but less contribution is
given to the practical aspect. The present study breaches this gap and critically tests the
impact of demonetization on the Indian Stock Market by considering sectoral evidence using
the GARCH Model. The study has been conducted on the Nifty 50 index and 10 sectoral
indices of NSE to investigate the significant impact of demonetization. Nifty 50 index and 10
sectoral indices represent the major sectors of Indian Stock Market.

16
 RESEARCH METHODOLOGY
4.1 OBJECTIVES OF THE STUDY

Research Objectives and Questions:

Clearly define the research objectives and formulate specific research questions that the data
collection process aims to address. This helps guide the data collection efforts and ensure that
the collected data are aligned with the research goals.

Research objectives:

● To analyse the impact of demonetization on the Indian economy, including its effects
on GDP growth, inflation, and employment.

● To assess the effectiveness of demonetization in curbing black money, corruption, and

the informal economy.

● To examine the implications of demonetization for various sectors, such as

agriculture, manufacturing, and services, as well as for different segments of the
population.

● To investigate the challenges and opportunities associated with the demonetization

policy implementation, including its effects on banking, digital payments, and
financial inclusion.

● To explore the socio-economic consequences of demonetization on households,

businesses, and vulnerable groups, such as farmers, small traders, and informal
workers.

● To identify the lessons learned from the demonetization experience and implications
for future policy interventions aimed at promoting economic reform and development.

Research Questions:

● What was the immediate impact of demonetization on key economic indicators such
as GDP growth rate, inflation, and unemployment rates?

● How successful was demonetization in achieving its stated objectives of curbing black
money, corruption, and the informal economy?

● What were the sectoral effects of demonetization on industries such as agriculture,

manufacturing, and services, and how did these effects vary across regions and states?

17
 ● What were the challenges faced by individuals, businesses, and financial institutions
during the demonetization period, and how did they adapt to the policy changes?

● What were the socio-economic consequences of demonetization on different segments

of the population, including rural and urban residents, low-income households, and
marginalised communities?

● What were the long-term implications of demonetization for India's economic and
social development trajectory, and what lessons can be drawn from the experience for
future policy-making?

Study Design and Methodology:

Determine the appropriate study design and methodology based on the research objectives
and nature of the research questions. Consider whether the study will be qualitative,
quantitative, or mixed methods, and select data collection techniques accordingly (e.g.,
surveys, interviews, observations, experiments).

Objective of the Study:

Clearly state the main objective(s) of the study related to demonetization. This include
understanding the impact of demonetization on various aspects of the economy, society, or
individuals, evaluating the effectiveness of demonetization policies, or assessing public
perceptions and responses to demonetization.

Hypotheses:

Through this table of t- table test we observe that if the t stat is larger than the critical two tail
value we reject the HO, since degree of freedom is 6 greater than 2.44 which is the t critical
two tail i would reject HO and say data does not support H0. Therefore we can say that the
overall implementation of the whole demonetization of father and mother cannot be
considered zero. Thus, it is not a null hypothesis it is an alternative hypothesis, which is
effectively the opposite of a null hypothesis (e.g., the population mean return is not equal to
zero).

Study Design:

Statistical techniques to analyse quantitative data collected from surveys or secondary

sources. This may involve calculating descriptive statistics (e.g., mean, median, standard
deviation) to summarise data or conducting inferential statistics (e.g., t-tests, regression
analysis) to test hypotheses about the impact of demonetization on variables such as GDP

18
growth, inflation rates, or employment levels. Analysing textual data from documents, news
articles, social media posts, or public discourse related to demonetization. Content analysis
techniques can be used to identify recurring themes, discourses, or narratives surrounding
demonetization and to understand how it has been framed and interpreted by different
stakeholders.

Sampling Strategy:

There are 214 households in the sample of polled families that reside in 28 lower-class or
slum areas of Delhi. Two households live in Delhi's neighbouring areas or the Delhi NCR,
while 27 of the 28 neighbourhoods are in Delhi. The households who were questioned for this
study were not chosen at random, and therefore may not be typical of Delhi's impoverished
neighbourhoods. However, the bulk of the families questioned fit within India's lower middle
class, details regarding the distribution of income among the sample households and monthly
earnings in 2016 prior to demonetization. From this, we can infer that the service industry
employs males in large numbers (45%), with labour making up the least desired occupation at
8% and others at 5%. Additionally, a respectable 24% of them are tradesmen, indicating that
many men engage in this work as well, indicating around 50 families earn a monthly total
income of 8000–10000 rupees. The lowest monthly income is earned by only 3 families and
the highest monthly income is earn by 8 families respectively. And 33 families earn between
10000 and 12000. These are the two trends in which the majority of the families fall. Up to
18,15,14 families earn between 12000-14000, 16000-18000 and 22000-24000 respectively.
By including these components in the sampling strategy section of your demonetization
project report, you can provide a clear and comprehensive explanation of how you selected
your sample and ensure the validity and reliability of your study results.

Data Collection Instruments:

Developed data collection instruments, such as surveys, questionnaires, interview guides,

observation protocols, or experimental protocols. Design the instruments to capture the
necessary information accurately and efficiently while minimising respondent burden.

Ethical Considerations:

Adhere to ethical principles and guidelines governing research involving human subjects.
Obtain informed consent from participants, ensure confidentiality and anonymity of collected
data, and minimise any potential risks or harm to participants. By incorporating these
elements into the data collection process, researchers can ensure that the collected data are of

19
high quality, reliable, and suitable for addressing the research objectives and questions
effectively.

4.2 COLLECTION OF DATA

When tackling any real-world issue, it is frequently discovered that the available information
is insufficient. As a result, it is vital to gather relevant information. There are several
approaches to gathering the necessary data, and they vary greatly when considering the
researcher's available funds, time, and other resources. Primary data might be obtained
through surveys or experiments. When a researcher performs an experiment, he or she
records quantitative measurements, or data, which they might use to investigate the validity
of their hypothesis. However, in regard to a survey, data can be collected by any one or more
of the following ways:

a) By observation

b) Through personal interview

c) Through telephone interviews

d) By mailing of questionnaires

e) Through schedules

A technique of data collection that takes into account the nature of the study, the goal and
scope of the inquiry, the available funds, the time available, and the required degree of
accuracy should be chosen by the researcher. Even though he should consider each of these
aspects, the researcher's skill and expertise will play a major role.

4.3 AIM OF RESEARCH

The essence of research lies in employing scientific methods to uncover answers to questions.
Its primary goal is to unveil hidden truths yet undiscovered. While each research endeavor
has its unique objectives, they generally fall into several broad categories:

1. Exploration: Aims to gain familiarity with a phenomenon or gain new insights. These
studies are termed exploratory or formulative research.

2. Description: Seeks to accurately depict the characteristics of individuals, situations, or

groups. Known as descriptive research, it focuses on providing an accurate portrayal.

20
 3. Diagnosis: Aims to determine the frequency of occurrence or association of
phenomena. These studies, termed diagnostic research, focus on establishing
prevalence or correlation.

4. Hypothesis Testing: Seeks to test the causal relationship between variables. Known as
hypothesis-testing research, these studies aim to validate or refute proposed
hypotheses.

In summary, research endeavours are diverse, ranging from exploring new phenomena to
testing causal relationships between variables. Each type of research serves its distinct
purpose in advancing knowledge and understanding.

4.4 A CASE STUDY

Introduction

The Indian government unexpectedly announced on television on November 8, 2016, that

denominations of Rs. 500 and Rs. 1000 currency notes will be removed from circulation
immediately. The Indian Prime Minister Narendra Modi supported the "notebandi" idea as a
means of combating the problems of black money, counterfeiting, and corruption. Honest
residents have nothing to worry about, according to the administration. The two withdrawn
denominations' holders had two options: deposit them in banks or swap them there for fresh
banknotes. After the announcement, people flocked to banks and ATMs to swap their old
notes for new ones and withdraw cash. 86% of the money in circulation was made up of the
two withdrawn denominations. As bank lineups expanded, journalistic stories surfaced
detailing the hardships faced by those without access to credit cards or mobile wallets,
particularly the impoverished. As the days passed, news outlets stated that notebandi would
have a detrimental effect on GDP and that India's sizable informal sector had been upended in
both rural and urban areas. Eduquest, an educational NGO in Delhi, teaching underprivileged
and slum children, decided to evaluate notebandi's effect on the families they were assisting.
The aim was to have a firsthand understanding of how these households were managing
notebandi.

About the Study

EDUQUEST is a non government. Organisation working under the leadership of Dr. Snehlata
Rewaria running several interventions in the area of healthcare, child education, women
empowerment and vocational training. Eduquest reaches out to more than 700 beneficiaries
everyday including children, adolescents, women and families.

21
 To study the effects of
notebandi on the families of the
eduquest the questionnaire was
designed to better study the
consequences faced by them.

It was decided that each business

student would interview the
family whom they were
mentoring, and obtain responses
to the questions. The responses
would be collected using
Google Forms, on smartphones.
On Dec 3, the questionnaire was uploaded on Google Forms, and the business students were
given a link to the questionnaire, to be filled online on the phone. For slum locations without
data access, the MBA students were instructed to fill out the form on paper and then upload
it on Google Forms when they returned to the campus. From Dec 3 to Dec 9, the students
visited the families and obtained the answers to the questionnaire.

The data collected via the questionnaire was then merged with the existing
socio economic data about each family. The survey consists of 37 questions, which address
families’ initial response to the demonetization announcement, the economic consequences
for their income, expenditure, and savings, changes in payment choices following
demonetization as well as a subjective assessment of the policy.

Surveyed Families

There are 214 households in the sample of polled families that reside in 28 lower-class or
slum areas of Delhi. Two households live in Delhi's neighbouring areas or the Delhi NCR,
while 27 of the 28 neighbourhoods are in Delhi. The households who were questioned for this
study were not chosen at random, and therefore may not be typical of Delhi's impoverished
neighbourhoods. However, the bulk of the families questioned fit within India's lower middle
class, as seen by the socioeconomic criteria.

22
4.5 QUESTIONNAIRE
QUESTIONNAIRE

Name : __________________ Gender : _____________

Age : __________________ Debit Card : Yes / No
Relation with the child : __________________ Credit Card : Yes / No

1. Do you have a Smartphone?

● Yes
● No

2. Mode of payment during purchase?

● Cash
● Credit / Debit Card
● Mobile Wallet
● Others ____________________

3. What is the educational profile of the respondent? (father or mother of eduquest)

● 1-4 Years
● 5-7 Years
● 8-10 Years
● 11-12 Years
● 13- 16 Years
● None

3. What kind of occupation is the respondent engaged in? (Father or Mother)

Ans.

4. What was the total income of the family before demonetization?

Ans.

5. How did the demonetisation affect them?

Ans.

6. Did you have waited in queues for cash withdrawal in Bank

● Yes
● No

23
7. How long did it take for everything to be normal?

● 2 week
● 2 month
● 6 month
● 1 year
● Other _______________________________

8. What were the implications of the whole demonetisation in your life?

● Good Experience
● Could Improve
● Bad Experience
● Can’t Say

24
 VISUALIZATION THROUGH GRAPHS AND CHARTS
We can characterise question 1: Education profile of respondents (fathers and mothers of
Eduquest) in a table.

5.1 EDUCATION PROFILE OF RESPONDENTS

TABLE 1: Education Profile of Respondents

Years Mother Father

None 21 9

1-4 year 9 9

5-7 year 35 23

8-10 year 30 47

11-12 year 3 10

13-16 year 0 2

FIGURE 5: Education profile of respondents

25
In order to compare values across categories—such as years, countries, etc.—where the data
is discrete, we created a column chart or graph using the table. Rectangular bars are used to
display the data. The height of the rectangular bars according to the numbers. It offers a
visual representation of the data for comparison, allowing for instantaneous, clear data
visualisation. The arrangement of the columns is vertical. The vertical axis in this case
represents years of education, whereas the horizontal axis represents the respondents—the
mother and father. The graph indicates that the majority of males and females have eight to
ten years of schooling, respectively. However, none of the women have an education
comparable to this, and only two males have completed 13–16 years of schooling. That
means that overall men have higher levels of education than women.

26
5.2 OCCUPATION OF RESPONDENTS

Similarly for the question 2: Occupation of respondents in tabular form:

A) For Father:

TABLE 2: Occupation of fathers

Occupation No. of male engaged

Tradesman 51

Auto / Taxi Driver 19

Self Employed 19

Labour 17

Service 96

Others 10

FIGURE 6: Occupation of fathers

Using this table, we generated pie charts, which are the best visual aids for presenting data
since they allow for the pictorial representation of data from a single series exclusively. It is a
circular chart with various sections. Every component denotes a percentage of the variable
included in the component. In a pie chart, the quantity can be shown as a percentage or as
absolute values. The entire value is 100. From this, we can infer that the service industry
employs males in large numbers (45%), with labour making up the least desired occupation at

27
8% and others at 5%. Additionally, a respectable 24% of them are tradesmen, indicating that
many men engage in this work as well.

B) For Mother

TABLE 3: Occupation of mothers

Occupation No. of female engaged

Housewives / Unemployed 119

Domestic Help 59

Tradeperson 14

Other service job 10

Self employed 4

Labour 4

FIGURE 7: Occupation of Mothers

Pie charts, which are the best visual aids for displaying data since they allow the pictorial
representation of data from a single series entirely, were created using this table. This pie
chart indicates that the majority of women are either unemployed or stay at home with
children (58%), while the lowest percentage of women work for themselves (2%).

28
Additionally, a respectable number of women (28%), work as domestic helpers. Others are 0,
and the percentage of women working in trades and services is only 7% and 5%, respectively.

From question 3: Gives details regarding the distribution of income among the sample
households and monthly earnings in 2016 prior to demonetization, Total Family Income
before Demonetization (in INR) in tabular description

29
5.3 MONTHLY INCOME BEFORE DEMONETIZATION

TABLE 4: Monthly income before demonetization

Income No. Of families

4000-6000 4

6000-8000 8

8000-10000 49

10000-12000 34

12000-14000 19

14000-16000 10

16000-18000 16

18000-20000 8

20000-22000 8

22000-24000 18

24000-26000 17

26000-28000 14

28000-30000 9

30
FIGURE 8: Monthly Total Income before Demonetisation

Here we created a histogram, histogram is a bar graph which represents a frequency distribution. The
nature of data demarcates the main difference between a bar graph and a histogram. Histogram
represents quantitative data divided into equal parts known as bins or class intervals. It shows
frequencies of data points that fall into different bins or class intervals. The bin width can be used to
change the class interval size. The number of families is displayed on the vertical axis, while the
monthly income is depicted on the horizontal axis. The histogram indicates around 50 families earn
the monthly total income of 8000–10000 rupees. The lowest monthly income is earned by only 3
families and the highest monthly income is earned by 8 families respectively. And 33 families earn
between 10000 and 12000. These are the two trends in which the majority of the families fall. Up to
18,15,14 families earn between 12000-14000, 16000-18000 and 22000-24000 respectively.

31
5.4 EXPERIENCE AFTER IMPLEMENTATION OF DEMONETIZATION

Question 4 is about rating overall experiences of males and females after implementation of
whole demonetisation.

TABLE 4: Experience after Implementation of Demonetization

EXPERIENCE MALE FEMALE

Good Experience 42.9 47

Could Improve 18.00 28.01

Bad Experience 10 9.26

Can’t Say 6.5 6.3

FIGURE 9: Bar graph for after implementation of demonetization

32
5.5 MODE OF PAYMENT

According to the pie chart, 28% of respondents agreed to use Internet banking, 31% utilised
e-wallets, and 66% of respondents used debit or credit cards during the demonetization.
Because respondents could select more than one response, the percentage figures vary, and
some respondents used more than one cashless alternative to deal with their cash problem.
12% of all respondents said they didn't use any cashless options since they weren't aware of
or couldn't access the aforementioned preferred payment methods. Thus, we can conclude
that the majority of the people used debit cards or credit cards for daily transactions.

33
5.6 BANKNOTES IN CIRCULATION (MARCH 2016)

34
A line graph is also known as a line chart or line plot. It shows the information that changes over time.
Line graphs are used in many fields to analyse data, making them easier to understand. A line Graph
is nothing but a way to represent two or more variables in the form of lines or curves to visualise the
concept and help to understand it in a better form. It displays the data that changes continuously
concerning time. In a line graph data points are connected with an edge and data points are
represented either with points. Multiple line graphs also include a double line graph or we can say that
a double line graph is also a multiple line graph. Here we have used multiple line graphs to show two
variables. Thus, we can interpret that both variables are non-proportional. As volume is increasing the
value of the currency declines.

35
5.7 IMPACT OF INDIA’S DEMONETIZATION ON THE ECONOMY

The demonetization campaign had a detrimental effect on the economy, as evidenced by the
GDP, the index of short-term stocks, and the rate of inflation. The choice made many wonder
if demonetization was a wise option and if it resolved all of the issues Prime Minister Modi
had brought up in his speech. While many observers and individuals thought the
demonetization drive could have been carried out more carefully, others said it was the ideal
way to end unethical behaviours in India.

1. Financial Markets

The S&P BSE index, which is also known as the Standard & Poor's Bombay Stock Exchange
index, is the benchmark index for the Indian stock market. The NIFTY 50 is an additional
index on the Indian Stock Market. The weighted average of the 50 equities is represented by
the NIFTY 50, which considers 50 firms. Researchers Upadhyay and Suvarna (2018) looked
into how demonetization affected the 30 stocks that make up the S&P BSE Sensex index.
Through the utilization of the index's daily closing prices for the period spanning from
February 8th, 2016 to August 8th, 2017, Upadhyay and Suvarna (2018) identified anomalous
returns. The statistical analysis determined using a Durbin-Watson test that demonetization
had no discernible effect on the S&P BSE Sensex.

TABLE 5: Index returns table

Index Nov 7, 2015 – Nov 8, 2016 – Nov 8, 2016 –

Nov 7, 2016 Nov 8, 2017 Nov 8, 2018

S&P BSE SENSEX 5.12% 20.40% 27.71%

NIFTY 50 7.35% 20.60% 24.05%

S&P 500 2.55% 21.26% 31.19%

Nikkei 225 -12.55% 33.44% 30.96%

36
FIGURE 10: The average monthly returns before and after demonetization

From figure 10 we can examine the performance of the Nikkei 225 and the S&P 500 against
the S&P BSE Sensex and the Nifty 50 one year prior to, one year following, and two years
following India's demonetization and from the table provide the real returns expressed as
percentage. The S&P BSE Sensex and the Nifty 50 both had total returns of 5.12% and
7.35% in the year before the demonetization. Both the Nikkei 225 and the S&P 500, which
generated total returns of 2.55% and 2.55%, respectively, were surpassed by the two Indian
indexes. The S&P 500 returned 21.26% and the Nikkei 225 returned 33.44% in the year after
the demonetization announcement, while the Nifty 50 returned 20.60% and the S&P BSE
Sensex returned 20.40% (“S&P 500 (\GSPC) Stock”, 2016). As a result, both Indian stock
indices somewhat underperformed their benchmark. The S&P 500 and the Nikkei 225 both
substantially outperformed the Indian stock indices in the two years after the demonetization.
Figure 10 demonstrates that, as comparison to the S&P 500, the S&P BSE Sensex had poorer
returns over the first two years following the announcement of demonetization, but it
recovered well over time. However, two years after demonetization, the Nifty 50 only
managed to make a return of 2.68%. Therefore, I could not find much indication that the
demonetization will have a detrimental long-term effect on the Indian stock market.

37
FIGURE 11: Volatiles of stock market indexes

Upon examining the benchmarks' volatility in Figure , it is evident from the standard
deviation that, three months after demonetization, both the Nifty 50 and the S&P BSE Sensex
exhibited more volatility, with standard deviations of 2.70% and 2.31%, respectively.
However, after six months, the Nifty 50's standard deviation was 1.85% and the S&P BSE
Sensex's was 1.77%. Over time, the standard deviation declined, suggesting a decrease in
volatility.
Demonetization impacted the S&P BSE Sensex and Nifty 50 benchmarks in the near run
(three months), but it rectified itself in the relative long term (six months), according to an
analysis of returns and volatility. Neither the Nifty 50 nor the S&P BSE Sensex specifically
affected any one industry. Overall, the stock market does not appear to have been impacted
by the demonetization decision since it was done with a long-term impact in mind. However,
there is some evidence that the market was disrupted in the near term.

2. Agriculture Sector
Cash is the main form of payment and processing in the agriculture industry. About 75% of
Indians rely on agriculture for their daily needs, making it their primary source of income.
According to Bisen (2017), the news of demonetization coincided with the height of
agricultural activity. November marks the beginning of the Rabi season, which follows
Kharif. The difficulties the farmers faced as a result of using cash for day-to-day activities are

38
further examined by Bisen (2017). The availability of labour, the availability of agricultural
items like fertilisers, and the selling of Kharif crops in the market were some of the examples
of hardship he noted in his research. In all, Bisen (2017) polled forty farmers for his study.
Seven of the forty farmers were major farmers fifteen were little farmers, 18 were middle
farmers, and 18 were farmers. Small farmers were the most affected of the three types of
farmers.
According to another survey by Bisen (2017), just 70% of farmers knew what programs were
offered by the government. The quantity of withdrawals was restricted as the banks could
only accept so many different kinds of notes. Due to restricted withdrawal, farmers were
unable to purchase fertiliser or seeds. Among the 263 million farmers in the nation, the local
farmers were taken aback not just by the verdict but also by the timing of its delivery. Winter
harvests could not be harvested by farmers. In addition, the states of Maharashtra and Uttar
Pradesh had just experienced two years of drought.
There are two categories of farmers in India. In Sumathy (2017), the impact on the cash-
dominated society is explained. First, there are farmers who possess Kisan Credit Cards
(KCC), a type of credit card specifically designed for farmers. Secondly, some farmers do not
own the KCCs. The State Bank of India provides farmers with short-term loans as part of the
KCC's operations, so that the Farmers are able to meet their immediate demands. Farmers can
use the KCC to withdraw up to Rs. 25,000 per week to aid with crop seeding. Collateral for
the farmers' agricultural loans is their harvest.
The farmers who received the loan before the demonetization announcement were still in
charge of the old money. Fortunately, the government let them purchase seeds and maintain
operations using the outdated Rs. 500 and Rs. 1000 banknotes. It is simpler for farmers with
smaller land holdings to liquidate their cash position than it is for those with larger land
holdings. In the near term, the agriculture industry showed significant resilience despite being
such an informal sector. Farmers did experience challenges with employment and production,
but they rebounded successfully by using family labor. Products like tomatoes and bananas
saw price declines, although this was because of a rise in supply. Due to the decrease in
demand and rise in supply, there was a rapid accumulation of short-term fruit waste. The total
quantity of waste totaled up to 50 million INR, or around $713,400, in large cities like
Nagpur and Baroda.
Generally speaking, the agriculture sector had brief setbacks but recovered by March 2017.
With the aid of modern technology and the government, the farmers managed to survive.

39
 3. Banking Sector
The bank received a large infusion of cash as a result of demonetization. The banking
institutions have more deposits after demonetization. Demonetization's effects on the banking
industry are categorised by Agarwal and Reddy (2018) into four groups: low lending volume,
demand for government bonds, decline in funding costs, and rise in deposits. Higher inflows
allowed banks to raise their deposit levels. Public sector banks invested huge amounts of
money in 21 government bonds. The banks gained an additional 15-20% in earnings from the
government bonds' return on investment.
Agarwal and Reddy (2018) listed the advantages as more deposits, enhanced digital interface,
unrestricted deposit flow, and a rise in the number of account holders. People transferred
more of their bank deposits into money markets since there was more money in the bank.
Citizens who were deemed to be low-income may now establish bank accounts thanks to
demonetization.
Punia et al. (2018) performed research that demonstrates the advantages of demonetization
for Indian financial institutions, particularly public sector banks (PSB). The PSB banks had
bigger deposits since they had three times as many branches as banks in the private sector.
Demonetization had benefits for the banking industry, but the industry also suffered
significant losses. The Rs. 20 transaction charge was not borne by the citizens who were able
to take money out of the ATM. Because much of the management was preoccupied with
exchanging currency notes, banks also suffered financial losses because they were unable to
offer lending products.
TABLE 6: Change in loans because of banned notes.

Region Second Half of Second Half of Percentage

2016 2017 Change

Rural India 12.9% 2.5% -80.60%

Semi-Urban India 11.9% 6.4% -46.21%

Urban India 11.2% 6.1% -45.53%

40
Table 6 demonstrates that the volume of loans handled had the greatest impact on India's
rural areas. India's cities have a more structured urban economy, yet in 2017 there was a -
45.53% decline in the number of loans approved there. A decline in loan processing
suggested that financial institutions were making less money. Rather, the banks used the
currency inflow to invest in the bond market. For the financial institutions, the additional
earnings that loan interest would have produced in comparison to bond returns represented
the opportunity cost. For instance, Table 2 shows that during the second half of 2017, rural
India had extremely little loan growth of 2.5%, which equated to an 80.60% decrease in loans
over the same time in 2016.

4. Unemployment
In India, there are two types of employment: white collar and blue collar. White collar
occupations are corporate in nature, whereas blue collar positions require physical work. For
blue collar laborers, cash is typically the most popular method of payment. After
demonetization, almost 1.5 million people lost their jobs, according to IAS Score (2019). The
number of jobless workers in each industry is displayed in Figure 7. Following the close of
2016 and the beginning of 2017, the rate of unemployment rose. It changed from
FIGURE 12: The % of lost jobs in medium size companies after demonetization.

From 2015 to 2017, it was 3.49% to 3.52%. The unemployment rate was 3.41% in prior to
2015. The lower rates of investments in the market can be attributed in part to the
unemployment rate. According to Ajit Karnik (2016), demonetization has a detrimental effect
on employment. In October 2017, the labour force participation rate (LPR) fell short of
projections. The LPR was expected to be 49.67% in October 2017 by the Centre for
Monitoring Indian Economy. Rather, the announcement of the demonetization effort caused

41
the rate to increase to 46.28% (Karnik, 2016). A low of 45.8% was reached by the rate in
November and December of 2016. Figure illustrates how demonetization forced the road
construction industry to lay off over 35% of its workforce. About 29% of workers in the
industrial sector also had to be laid off.
FIGURE 13: The unemployment rate in India(2013-17)

Figure indicates that in 2017, India had the highest unemployment rate at 3.523%. The
graph's straight line provides a rough estimate of the time when India announced
demonetization. Demonetization generally had an effect on the unemployment rate since
India has an informal economy that runs on cash.

5. Overall Economic Impact

Kumar (2018) did a quantitative research on the Indian economy and found that whereas the
GDP grew by 8.01% in the base year of 2015–2016, it grew by 7.11% in the base year of
2016–2017. All but a few industries saw a decline in gross value added. The gross value
added of the trade, lodging, transportation, communication, public administration, and
defence all increased. From 2016 to 2018, the gross value added decreased overall from 7.6%
to 5.6%. The industries that employed the greatest number of people and had the worst
effects also had an impact on the unemployment rate.
India runs on such a large cash basis that there was a short-term decline in the overall sales of
consumer durables. According to a report by Rajiv Chopra (2017), there was an approximate
average 30% decline in both the volume and value growth for consumer durables such
washing machines, refrigerators, air conditioners, microwaves, and flat panel televisions. The
effect of demonetization on inflation is another economic factor to take into account. Anirban
Nag and Kartik Goyal (2017) claim that India's inflation rate has decreased. India's inflation

42
rate was over 11% in 2013, however it declined till the end of 2017, when it reached a
historic low.
FIGURE 14: The inflation rate in India (2012-17)

The figure, illustrates how inflation dropped between 2013 and 2015, the year it steadied at
about 5%. Nevertheless, following the demonetization in 2016, inflation dropped to a record-
low 3.33 percent. One possible explanation for this extra decline in inflation is that customers
are becoming less inclined to buy non-essential items as a result of the demonetization.
Figure 5's declining inflation rate suggests that there was more supply than demand in the
economy. However, the inflation rate returned to 5% in 2017, which may indicate that the
demonetization's effect on inflation was just temporary.

43
5.8 SIGNIFICANCE OF THE RESEARCH

The RBI released its annual report prior to demonetization, which included a balance sheet of
the demonetization that was put into effect 21 months prior. Just Rs 10,720 crore of the Rs
15.41 lakh crore demonetized notes in the Rs 500 and Rs 1000 denominations did not make it
to the Reserve Bank of India. This indicates that during the exercise, just 0.7% of the cash
notes were junked. When PM Narendra Modi announced demonetization on November 8,
2016, he had three main goals in mind: reducing black money, stopping corruption, and
stopping terrorism. Due to a lack of precise, reliable data, these goals have always been
debatable. The growth of the Indian economy was less than 1.5 percent of GDP. That
amounted to a yearly loss of Rs 2.25 lakh crore. Following demonetization, the RBI cut its
dividend to half of its previous level, and the total number of banknotes in circulation in
India's money market was Rs 17.97 lakh crore. November 4, 2016.Eighty-six percent of the
money in circulation was in the prohibited denominations. The value of all banknotes in
circulation as of March 2018 is Rs 18.03 lakh crore, according to the RBI. This indicates that
there is 9.9% more money in circulation now than there was in March 2016.

44
 DATA ANALYSIS AND INTERPRETATION
We surveyed about the years of education of mother and father and experiences of men and
women through descriptive statistics and regression statistics & correlation respectively. We
used this data for further data analyses such as descriptive statistics, regression statistics,
correlation and hypothesis testing using excel. As it helps organisations harness the power of
data, enabling them to make decisions, optimise processes, and gain a competitive edge. By
turning raw data into meaningful insights, data analysis empowers businesses to identify
opportunities, mitigate risks, and enhance their overall performance in the table below, we
can see the following experiences by men and women respectively:

6.1 DESCRIPTIVE STATISTICS

We have analysed the education years of the respondents that are mother and father through
descriptive statistics on excel.

Implementation of demonetization

EXPERIENCE MALE FEMALE

Good Experience 42.9 47

Could Improve 18.00 28.01

Bad Experience 10 9.26

Can’t Say 6.5 6.3

Descriptive statistics summarise the dataset, painting a picture of its properties. These
properties include various central tendency and variability measures, distribution properties,
outlier detection, and other information. Unlike inferential statistics, descriptive statistics
only describe a dataset's characteristics. We have 6 observations in total which are denoted by
count or (N) for both mother and father respectively. The count is the number of observations
for each variable. A measure of central tendency describes where most of the values in the
dataset occur. It’s the centre of the distribution of values.

45
FATHER MOTHER

Mean 19.35 Mean 22.6425

Standard Error 8.21061 Standard Error 9.4

Median 14 Median 18.635

Mode #N/A Mode #N/A

Standard Deviation 16.421 Standard Deviation 18.870

Sample Variance 269.65 Sample Variance 356.088

Kurtosis 2.2004 Kurtosis -1.506

Skewness 1.52 Skewness 0.778

Range 36.4 Range 40.7

Minimum 6.5 Minimum 6.3

Maximum 42.9 Maximum 47

Sum 77.4 Sum 90.57

Count 4 Count 4

➢ Mean is the simple division of the total number of data points by the sum of all the
numbers in the data set. It’s best for data that follow symmetric distributions. The data
indicates that the mean or average for the mother and father are, respectively, 22.6425
and 19.35. Mean is the most commonly employed measure of central tendency in
practice because of the merits such as simple to understand and easy to calculate,
based on all Items, least affected by fluctuations in sample, convenient Method of
comparison, no Arrangement Required. Some demerits of arithmetic mean are
affected by Extreme Values, Assumption in the case of Open-end Classes, Absurd
Results, Complete Data Required, No Graph Use.

46
 ➢ Median: The midway value in a data set is called the median. Half the values fall
above the median while half are below it. It’s best for skewed distributions. The data
indicates that the median for the mother and father are, respectively, 14 and 18.635.
This indicates that the middle value for fathers is 14 while for mothers it is 18.635.
The remaining values fluctuate between the mid value and above it.

➢ Mode: The number that appears the most frequently in the data set is the mode. It’s
best for categorical and ordinal data. There is no mode for moms and dads because no
number is repeated in their data.

Measures of dispersion indicate how closely clustered or loosely spread the data points fall
around the centre.

➢ Standard Deviation: The standard or typical difference between each data point and
the mean. This measure uses the original units of the data, simplifying interpretation.
Hence, analysts use this measure of variability the most frequently. The standard
deviation is the square root of the variance. Fathers have a standard deviation of
16.421 and moms have a standard deviation of 18.870. Smaller values show that the
dataset's values are often consistent—the data points cluster closer to the mean.
Higher values, on the other hand, indicate that the values deviate further from the
mean. It is evident to us that this data has large standard deviation values. As a result,
values are dispersed, and this can be connected to a normal distribution as the
majority of the data in a normal distribution are empirically expected to be dispersed
around the mean. The amount of data points will decrease when you deviate far from
the mean..

➢ Variance: The average squared difference of the values from the mean. The variance
is in squared units rather than the original data units. While higher values of the
variance indicate greater variability, there is no intuitive interpretation for specific
values. The father's sample variance is 269.65, and the mother's is 356.088. This
indicates that since estimates of the population variance are derived from the sample
variance, the results may be skewed and biased. Thus, biased and skewed test results
are the consequence of uneven variances amongst samples. For this reason, when
comparing samples, homogeneity or comparable variances are required. Here, the
variance is large as variance is a measure of variability. It is calculated by taking the
average of squared deviations from the mean. Variance tells you the degree of spread

47
 in your data set. The more spread the data, the larger the variance is in relation to the
mean

➢ Range: The difference between the largest and smallest values in a dataset. The range
is easy to understand but it is based on only the two most extreme values in the
dataset, making it very susceptible to outliers. Range shows how much the numbers in
a set vary. While a large range means high variability, a small range means low
variability in a distribution. The range of mother and father is 40.7 and 36.4
respectively this tells us that both have high variability.

Kurtosis and skewness are two measures that help you understand the general properties of
your data’s distribution. These measures compare your distribution’s shape to a symmetric
distribution and the normal distribution. Skewness is a metric that can be either positive or
negative that quantifies symmetry, or more precisely, the absence of symmetry in the data
collection. Kurtosis, on the other hand, quantifies the extremes of the distribution's outliers
and indicates how tails are distributed.

➢ Skewness: The distribution's form is determined by its skewness. We often obtain a

large number of asymmetric distributions with unevenly distributed data.

● Right skewed: A distribution that has a lengthy tail towards the right side of
the graph is said to have positive skewness. This graph is known as being
right-skewed. The mean in this distribution is higher than the median, which in
turn is higher than the mode. In other words, mean > median > mode.

● Left skewed: When the distribution is skewed negatively, the graph's left side
is dominated by a lengthy tail. This graph is referred to as left-skewed. Its
values range from -infinity to +infinity.

According to the table, fathers have 1.5234 and moms have 0.778, respectively. The data in
this case is referred to as positive or right-skewed data. Data distributions that are somewhat
skewed are indicated by skewness values between 0.5 and 1 (positively skewed) or between -
1 and -0.5 (negatively skewed).

➢ Kurtosis: Kurtosis is a statistical metric used to characterise how peaked or flat a

distribution is. The Greek word "Kurtos," which means curved, is where the name
"Kurtosis" originates. Because distributions with high kurtosis have more extreme
values than normal distributions, kurtosis can be used to identify possible outliers in a
dataset. Kurtosis comes in three types:

48
 ● Platykurtic (This distribution has lower kurtosis than the mesokurtic. That is,
it has shorter tails. This means there is less data in the tail portion, which
makes the tail flatter),

● Leptokurtic (This distribution has a greater kurtosis than the mesokurtic,

which has longer tailed. This indicates that a more significant percentage of
data is present near the tail, which causes the tail to get longer)

● Mesokurtic (This is a type of distribution in which there is symmetry. This

means that both the extreme ends of the graph are similar. This is the same as
the normal distribution).

For the mother and father, the kurtosis is -1.506 and 2.2004, respectively. Mothers have a
negative skewness value, which means that their distribution will be less peaked and
platykurtic. A distribution that is more peaked than usual is indicated by a positive kurtosis
value. A negative kurtosis, on the other hand, denotes a flatter-than-normal shape. Given that
the usual rule is that a distribution is too peaked if the kurtosis is more than +2, the
distribution for dads will be overly peaked.

➢ The minimum and maximum values in the dataset can help us understand where data
falls. The sum is simply the sum of all values for each variable. The minimum values
for mother and father are 6.3 and 6.5 respectively and maximum values for mother
and father are 47 and 42.9 respectively. The standard error and the confidence interval
assess how precisely the sample mean estimates the population mean. The standard
error of the mean is the standard deviation of the sampling distribution of the mean.
Smaller standard errors indicate that the sample provides a more precise estimate of
the population value. The standard error values for mothers and fathers are 9.435 and
8.21 respectively.

49
6.2 REGRESSION STATISTICS

We have analysed the experience of the respondents that are males and females during
demonetization through regression statistics and correlation on excel.

EXPERIENCE MALE FEMALE

Good Experience 42.9 47

Could Improve 18.00 28.01

Bad Experience 10 9.26

Can’t Say 6.5 6.3

A regression is a statistical technique that relates a dependent variable to one or more

independent (explanatory) variables. A regression model is able to show whether changes
observed in the dependent variable are associated with changes in one or more of the
explanatory variables. It does this by essentially fitting a best-fit line and seeing how the data
is dispersed around this line. Regression helps economists and financial analysts in things
ranging from asset valuation to making predictions. In order for regression results to be
properly interpreted, several assumptions about the data and the model itself must hold.
regression is used to identify the associations between variables occurring in some data. It
can show both the magnitude of such an association and also determine its statistical
significance (i.e., whether or not the association is likely due to chance).

Regression is a powerful tool for statistical inference and has also been used to try to predict
future outcomes based on past observations. Assumptions That Must Hold for Regression
Models:

● The relationship between variables is linear.

● Homoscedasticity, or that the variance of the variables and error term must remain
constant.
● All explanatory variables are independent of one another.
● All variables are normally distributed.

50
Regression Statistics

Multiple R 0.96975039

R Square 0.94041582

Adjusted R 0.91062373
Square

Standard Error 4.90926731

Observations 4

ANOVA

df SS MS F Signific
ance F

Regression 1.00 760.76 760.76 31.56 0.0302

Residual 2.00 48.201 24.1

Total 3.00 808.97

Coefficients Standard t Stat P-value Lower Upper Lower Upper

Error 95% 95% 95.0% 95.0%

Intercept 0.242 4.19 0.057 0.95 -17.8 18.28 -17.8 18.28

X (Mother) 0.84 0.15 5.61 0.03 0.19 1.49 0.19 1.49

51
REGRESSION EQUATION:

Y= 0+ 1X

Y(dependent variable)

X (independent variable)

0 is 0.242. (y-intercept)

1 is 0.84 which has positive sign which indicates positive relation. (slope of coefficient of y
with respect to x)

For the above table, the equation would be approximately:

Y = 0.242+0.84x

➢ Multiple R.: This is the correlation coefficient. It tells how strong the linear
relationship is. For example, a value of 1 means a perfect positive relationship and a
value of zero means no relationship at all. It is the square root of r squared. In our
analyses, the multiple R is 0.96 which indicates strong correlation as the number can
be between -1 to +1. A number close to +1 as in the above case indicates very strong
correlation between dependent and independent variables.

➢ R squared: This is R², the Coefficient of Determination. It tells how many points fall
on the regression line.we got 0.94 as r square, 55% means that 55% of the variation of
y-values around the mean are explained by the x-values. In other words, 55% of the
values fit the model. In other words, r-squared shows how well the data fit the
regression model (the goodness of fit).

➢ The adjusted R-square adjusts for the number of terms in a model. Adjusted R-
squared is a modified version of R-squared that has been adjusted for the number of
predictors in the model. Adjusted R square is 0.9106 which means it has moderate
influence as We often denote this as R2 or r2, more commonly known as R Squared,
indicating the extent of influence a specific independent variable exerts on the
dependent variable. Typically ranging between 0 and 1, values below 0.3 suggest
weak influence, while those between 0.3 and 0.5 indicate moderate influence.

➢ Standard Error of the regression: An estimate of the standard deviation of the error µ.
The standard error of the regression is the precision that the regression coefficient is
measured. The standard error of the regression (S), also known as the standard error

52
 of the estimate, represents the average distance that the observed values fall from the
regression line. Conveniently, it tells you how wrong the regression model is on
average using the units of the response variable. The standard error is 4.909.

Analysis of Variance (ANOVA)

Sum of squares(ss):

Residual SS = It is the total variation in the dependent variable that is left unexplained by the
regression model. It is also called the Error Sum of Squares and is the sum of the squares of
the difference between the actual and predicted values of all the data points. From the table,
ss of residual ss is 48.201. In general, the smaller the error, the better the regression model
explains the variation in the data set and so we would usually want to minimise this error. But
here, it is high. Regression ss is the total variation in the dependent variable that is explained
by the regression model. It is the sum of the squares of the difference between the predicted
value and mean of the value of all the data points. The ss of regression is 760.76.

From the ANOVA table, the regression SS is 760.76 and the total SS is 808.97, which means
the regression model explains about 760.76/808.97 (around 94%) of all the variability in the
dataset. Total ss is the sum of both, regression and residual SS or by how much the chance of
admittance would vary if variable not taken into account. The total ss is 808.97.

Degrees of freedom(df):

Regression df is the number of independent variables in our regression model i.e 1. Residual
df is the total number of observations (rows) of the dataset subtracted by the number of
variables being estimated that is 2.Total df — is the sum of the regression and residual
degrees of freedom, which equals the size of the dataset minus 1. Which is 3.

Mean of squares(ms):

Regression MS = Regression SS / Regression degrees of freedom. The regression ms is

760.76. Residual MS = mean squared error (Residual SS / Residual degrees of freedom). The
residual ms is 24.1. A residual is the vertical distance between a data point and the regression
line. Each data point has one residual. A residual is a measure of how far away a point is
vertically from the regression line. Simply, it is the error between a predicted value and the
observed actual value. They are:

● Positive if they are above the regression line,

● Negative if they are below the regression line,

53
 ● Zero if the regression line actually passes through the point.

➢ F — is used to test the hypothesis that the slope of the independent variable is zero.
Mathematically, it can also be calculated as: F = Regression MS / Residual MS

➢ This is otherwise calculated by comparing the F-statistic to an F distribution with

regression df in numerator degrees and residual df in denominator degrees. Overall F
test for the null hypothesis. F is 31.56.

➢ Significance F is nothing but the p-value for the null hypothesis that the coefficient of
the independent variable is zero and as with any p-value, a low p-value indicates that
a significant relationship exists between dependent and independent variables. The
significance associated with P-Value. The significance f is 0.0302. Coefficient gives
you the least squares estimate.

➢ The T Statistic for the null hypothesis vs. the alternate hypothesis. P Value gives you
the p-value for the hypothesis test. It is the t-statistic or t-value of the test and its value
is equal to the coefficient divided by the standard error. Since the p-value of the
independent variable is very close to 0, we can be extremely confident that there is a
significant linear relationship between mother and father education years.

➢ The p-value of x variable is 0.03 which interprets A p-value below 0.05 indicates 95%
confidence that the slope of the regression line is not zero and hence there is a
significant linear relationship between the dependent and independent variables. We
have a p- value of 0.95 which implies A p-value greater than 0.05 indicates that the
slope of the regression line may be zero and that there is not sufficient evidence at the
95% confidence level that a significant linear relationship exists between the
dependent and independent variables.

➢ Lower 95% & Upper 95%: The lower boundary for the confidence interval and the
upper boundary for the confidence interval.

54
 6.3 CORRELATION

Correlation quantifies the strength of the linear relationship between a pair of variables,
whereas regression expresses the relationship in the form of an equation. Correlation is a
statistical measure that expresses the extent to which two variables are linearly related
(meaning they change together at a constant rate). It's a common tool for describing simple
relationships without making a statement about cause and effect. Correlation can be found
from 3 methods:

1. Simple function in excel:

We used the CORREL function to calculate correlation.

Syntax: =CORREL(B2:B7,C2:C7)

2. Karl Pearson function method:

We use the PEARSON function to calculate correlation.

Syntax: =PEARSON(B2:B7,C2:C7)

3. Data analysis method:

Male Female

Male 1

Female 0.9697504 1

We can see that the correlation coefficient is obtained the same with all methods which is
+0.96 that interprets:

1. A positive sign in +0.96 indicates positive or direct linear relationship between the
two variables. It signifies both variables tend to move together in the same direction
either upward or downward.

2. With a correlation coefficient of 0.96 (r > 0.5), the data sets show a strong positive
association. This indicates that female’s experience will increase by 96% if their
Male’s experiences increase by 100%. Similarly, a female's experience drops by 96%
if Male’s experiences decline by 100%. Consequently, the two variables rise and fall
simultaneously.

55
FIGURE 9: Scatter plot of experiences of male and females

The scatter chart shows, The shape and pattern of the data points follow a linear pattern. The
trendline is upward sloping to the right. This indicates clearly a direct or positive correlation
between the two variables. Both the variables tend to move in the same direction. The data
points are close to the line which interprets there is a strong relationship between the variables.
We have plotted a scatter graph for understanding the relationship between two variables.

Dots are used in a scatter plot (sometimes called a scatter chart or scatter graph) to show values
for two distinct numerical variables. Each dot's location on the horizontal and vertical axes
represents a single data point's values. A trend line is a line that minimises the distance
between each point in a scatter plot and the line itself. There are positive trend lines (the values
of the variables rise and fall together) and negative trend lines (the values of the variables
move in opposite directions).

The direction of the data points helps to determine in which direction the variables change
together or covary.

1. Positive or Direct linear relationship indicates upward sloping straight lines. The two
variables tend to move in the same direction.

2. Negative or Indirect linear relationship indicates downward sloping straight line. The
two variables tend to move in different directions.

56
The degree of closeness of data points helps us to understand the strength of the relationship
between the variables. As given below:

1. If the data points lie on a straight line, they have perfect correlation between
variables.

2. If the data points are close to line, they have a strong relationship between variables.

3. If the data points are widely scattered or dispersed around the line, they have low
correlation between variables.

4. If the data points are widely scattered and there is no upward or downward sloping
line, they have no linear relationship between variables.

Thus, scatter plots provide a visual and statistical means to test the strength of a relationship
between two variables. It can be effective in measuring the strength of relationships uncovered
with a fishbone diagram.

57
6.4 HYPOTHESIS TESTING

Hypothesis testing, sometimes called significance testing, is an act in statistics whereby an

analyst tests an assumption regarding a population parameter. The methodology employed by
the analyst depends on the nature of the data used and the reason for the analysis in
Hypothesis testing is used to assess the plausibility of a hypothesis by using sample data.
Such data may come from a larger population, or from a data-generating process. The word
"population" will be used for both of these cases in the following descriptions. In hypothesis
testing, an analyst tests a statistical sample, with the goal of providing evidence on the
plausibility of the null hypothesis. Statistical analysts test a hypothesis by measuring and
examining a random sample of the population being analyzed. All analysts use a random
population sample to test two different hypotheses: the null hypothesis and the alternative
hypothesis.

Null Hypothesis (H0): The null hypothesis is usually a hypothesis of equality between
population parameters; e.g., a null hypothesis may state that the population mean return is
equal to zero. The null hypothesis is a statement of no effect or no difference. It represents
the status quo or the assumption that there is no relationship or difference between variables.

● Symbolically, the null hypothesis is denoted as H0.

● For example, in a study comparing the effectiveness of two treatments, the

null hypothesis might state that there is no difference in effectiveness between
the treatments.

Alternative Hypothesis (H1 or Ha): The alternative hypothesis is effectively the opposite of
a null hypothesis (e.g., the population mean return is not equal to zero).

● The alternative hypothesis is a statement that contradicts the null hypothesis and
represents the researcher's hypothesis or the effect of interest.

● Symbolically, the alternative hypothesis is denoted as H1 or Ha.

● Using the previous example, the alternative hypothesis might state that there is a
difference in effectiveness between the treatments.

Thus, they are mutually exclusive, and only one can be true. However, one of the two
hypotheses will always be true.

Steps followed for hypothesis testing:

58
 1. The first step is for the analyst to state the hypotheses.

2. The second step is to formulate an analysis plan, which outlines how the data will be
evaluated.

3. The third step is to carry out the plan and analyze the sample data.

4. The final step is to analyse the results and either reject the null hypothesis, or state
that the null hypothesis is plausible, given the data

There are different types of hypothesis tests, including:

● Parametric Tests: Used when the data meet certain assumptions about the population
distribution, such as the t-test for means and the F-test for variances.

● Nonparametric Tests: Used when the data do not meet the assumptions of parametric
tests, such as the Wilcoxon signed-rank test and the Mann-Whitney U test.

● One-Tailed Tests: Used when the alternative hypothesis specifies the direction of the
effect (e.g., greater than or less than).

● Two-Tailed Tests: Used when the alternative hypothesis does not specify the direction
of the effect (e.g., not equal to).

Overall, hypothesis testing provides a systematic framework for making inferences about
population parameters based on sample data, helping researchers draw conclusions and make
decisions in scientific research.

t-Test Two- Sample Assuming Unequal Variance

FATHER MOTHER

Mean 19.35 22.6425

Variance 269.656 356.08

Observation 4 4

Hypothesised Mean Difference 0

df 6

t stats -0.263

59
P(T<=t) one tail 0.4005

t critical one tail 1.943

P(T<=t) two tail 0.801

t critical two tail 2.44

Through this table of t- table test we observe that if the t stat is larger than the critical two tail
value we reject the HO, since degree of freedom is 6 greater than 2.44 which is the t critical
two tail i would reject HO and say data does not support H0. Therefore we can say that the
overall implementation of the whole demonetization of father and mother cannot be
considered zero. Thus, it is not a null hypothesis it is an alternative hypothesis, which is
effectively the opposite of a null hypothesis (e.g., the population mean return is not equal to
zero). We can also conclude it by looking at the p values and we compare the p values with
the alpha values which is 0.05, alpha value is what we actually put in excel as our level of
significance and in general, if the p-value is smaller than alpha we reject H0and conclude
H1and the conclusion will be similar to the t- test, since the p-value is 0.801 is larger than
alpha we fail to reject H0 .

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 LIMITATIONS
In India, recently, the NDA government, in its first term of 2014, declared demonetization on
8 November 2016. In this demonetization, the banknotes of INR 500 and INR 1000 were
stripped of legal tender status, and their circulation was prohibited. The government also
issued new notes of INR 500 and INR 2000. The issue of the denomination of INR 2000
banknotes was new for the country because, for many years, the INR 1000 was the highest
denomination note available. It was not the first time in 2016 that demonetization was done in
India. In 1946, the RBI demonetized the currency notes of INR 1000 and INR 10,000 that
were under circulation. After that, in 1954, the currency notes of INR 1,000, INR 5,000, and
INR 10,000 were reissued. Then in 1978, the Morarji Desai government demonetized the
banknote of INR 10,000; until 2016, INR 1,000 was the note of the highest denomination.

CASH SHORTAGE AND INCONVENIENCE

Everyone in the country, including foreigners in India, in different ways and in different
degrees, has been experiencing the consequences of the cash shortage. Clearly, from their
experiences everyone can see that the shortage is also far from being over. This, however,
begs a question that may not be obvious at first sight. If it was true that recipients and
generators of black income have, over the years, been stocking up large cash holdings, would
the economy have not been experiencing periods of cash shortage? After all, how does it
matter if the cash is stacked up in the houses and safes of some who are not going to release it
for a long time or is with the banks and the RBI? Either way it would not be available for
immediate use by others.

In other words, the hoarding of cash by some people would be equivalent to withdrawing that
cash from effective circulation as neither the hoarders nor anyone else would be using it to
make payments. The total currency issued by the RBI would therefore be divided into two
parts – one that was part of a black cash hoard and another part in active circulation. If the
hoarded part tends to be large relative to the total currency issued and the active part small,
then the only possible explanation for us not feeling the cash shortage before demonetization
would have to be that a much smaller amount of cash in active circulation (than the total
amount issued by the RBI) was enough to meet most of our requirements. Thus, it makes
sense that the replenishment of a smaller amount of currency, than what was rendered useless
by demonetization, should be able to restore normalcy, provided of course that this
replenishment does not go into converting the cash hoards of India’s black money holders.

61
To put it slightly differently, the greater and longer the pain of demonetization, the greater is
the degree to which one its key premises – namely, that large amounts of black incomes are
held in the form of cash holdings – is undermined.

On December 10, over a month into the Modi government’s demonetization exercise, figures
from the RBI imply that about Rs 7 lakh crore was available to the public. This consists of
the valid currency withdrawn from banks against deposits or conversion of SBNs between
November 10 and December 10 (Rs 4.61 lakh crore) and the old currency of smaller
denominations held by the public on November 8 (roughly Rs 2.4 lakh crore). By December
10, a total of at least Rs 12.44 lakh crore of the invalid SBNs (more than 80% of the total in
circulation on November 8) have also been deposited into bank accounts. The balance of
these deposits, after deducting the amount withdrawn, or about Rs 8 lakh crore, was also
usable by the depositors to make payments through non-cash modes (on which there is no
restriction). Despite some payments having shifted to such modes, bank deposits and the
currency of Rs 7 lakh crore are certainly not proving to be enough to meet the payment
requirements of the public. Therefore, even if one assumes that some part of the Rs 12.44
lakh crore deposited is black money, that a large portion of it was inactive cash stashed away
by their holders seems unlikely. The shortage of currency therefore is still acute and is likely
to be felt for an extended period as the supply of new currency by the RBI is still below a
third of the amount invalidated from November 9.

There are three basic ways in which people usually get cash in their hands. They could
receive it from someone else as payment for something – a service provided or a good sold.
Alternatively, they withdraw it from their bank deposits at a bank branch or making use of an
ATM. A third way is borrowing cash from someone who already has it or receiving it as
some kind of transfer (a gift, parents giving pocket money to their children, a bribe, and
etcetera). The shortage of cash is being experienced in all these different ways – apart from
the inability to withdraw from bank deposits is the absence of buyers who would make
payments with currency or lenders who can lend in that form. Each of these ways by which
people get cash involves its transfer between themselves or banks – the circulation of
currency rather than its standing still. These cannot change the quantity of the total currency
in circulation, which is defined as the sum of the currency with the public and the cash
reserves held by banks (in normal times the former is close to 96% of the total). The total
currency in circulation only increases through a combination of mechanisms which involve
the RBI using currency printed by it (and increasing its notional liabilities) in transactions

62
with others. The government increasing its spending by borrowing from the RBI, increase in
the borrowing by banks from RBI and acquisition of foreign exchange assets by the RBI are
the main mechanisms for increases in currency in circulation, most of which ends up in the
hands of the public through the credit activities of banks and the withdrawals by the public
from their deposits.

ADVERSE EFFECT ON INFORMAL SECTOR LIKE SMALL BUSINESS:

The informal sector, however, is not an aberration in our growth process. It is an integral part
of the process of transition from a traditional economy to a modern economy. While it may
not pay taxes and is largely dependent on cash, it plays an important role in providing jobs to
millions of first-time workers and to millions of others who are moving out of agriculture to
the non-agricultural sector. It provides the first exposure to many of these illiterate and low-
skilled workers to the new economy. At the same time, it is also the biggest agency, which
does the painful task of re-skilling the majority of these workers—much more than any
government scheme. Any attempt to reduce the role of the informal sector is only going to
make the transition arduous and difficult for the economy. However, in the rhetoric of
‘everybody is a thief’, the real casualty are the informal enterprises. Attempts at forcing
informal enterprises to become formal may kill the golden goose, which has been taking care
of the transitional pains of the economy by providing jobs. It has also acted as a sponge,
creating incomes and demand when the agricultural sector was in stress. The short-term
benefit of formalisation of the economy is at the cost of long-term loss of the crucial agency
of the informal sector. The net benefits to the economy through income generation,
employment creation and re-skilling of labour by the informal sector far outweighs any short-
term benefits of tax collection through a process of forced formalisation. The need of the hour
is to protect and nurture the informal sector and handhold it to become formal in the process
of growth rather than through surgical strikes a la demonetization.

LIMITED IMPACT ON BLACK MONEY

Black money refers to the income and wealth of individuals and organizations that have not
been accounted for by the relevant government authority. While the government may not
have captured it, the money does not necessarily remain economically unproductive. It is
often circulating in the economy during the course of normal business transactions.

A sudden withdrawal of currency in circulation meant that normal business transactions were
going to be disrupted. Given that currency is used largely in retail, agricultural and informal

63
sector transactions, the disruption was bound to be more intensely felt by the middle class and
poorer individuals. The only reasonable way to judge a government policy is by comparing
the approach and its outcome with the policy’s objectives.

What were the objectives of demonetization? According to the statements put out then by the
Centre and the Reserve Bank of India, the objectives were twofold.

One, to nullify black money hoarded as cash.

Two, curb funding of terrorism with fake or counterfeit currency notes.

On black money, it is impossible to judge whether the government succeeded or failed. This
is because soon after the government announced demonetization, it informed the Parliament
that it has no estimate of black money. Without an estimate, there is simply no way of
gauging if demonetization was warranted. Neither is there any way of judging its outcome.

It is not that there were no estimates available with the government. Economic research outfit
NIPFP had worked out an estimate. Independently, the World Bank in 2007 had estimated
that black money amounted to about 23.7% of the economy. The second objective was to
deal with fake or counterfeit currency. Demonetizing 85% of the currency in circulation
removed the legal tender status of the old Rs 500 and Rs 1000 notes. The measure removed
all currency notes in circulation of those two denominations, genuine and fake. Therefore,
one can conclude that this objective was met, even if success was temporary as new
counterfeit notes came back into circulation. A related aspect is how serious the problem of
counterfeit currency was. According to data placed in the Parliament by the Centre before
demonetization, a joint study by the National Investigation Agency and the Indian Statistical
Institute estimated that 0.022% of the currency in circulation was counterfeit.

DISRUPTION TO CASH DEPENDENT SECTORS : EFFECTS ON REAL ESTATE

CONSTRUCTION AND JEWELLERY

The impact of demonetization completely relies on the factors of demand and supply.
Demonetization affects cash-dependent industries and consumers the most, rather than the
cash-independent ones, especially the heterogeneous consumers by creating a bigger liquidity
shock to India’s macro economically stable output and welfare (Bajaj & Damodaran, 2022).
Similarly, India’s large informal sectors that comprise 80% of the labour force were affected
adversely by the demonetization due to a shortage of cash (Karmakar & Narayanan, 2020).
However, the findings by Fouillet et al (2021) are quite interesting, where the authors claim

64
that the demonetization was executed mostly to promote the digital economy in the country
rather than contending with financial corruption. It has also been stated by the researchers
that the impact of demonetization is temporary; it can be reinstated upon the arrival of normal
conditions (Zhu et al., 2018). On the positive side, researchers argued that demonetization
promoted financial inclusion (Singh & Ghosh, 2021) through a cashless economy such as
digital transactions, electronics payment, point of sales (POS), etc. (Fouillet et al., 2021; Sam
et al., 2021; Singh & Ghosh, 2021; Zhu et al., 2018).

In this study, the impact of demonetization on the Indian stock market is set as the research
objective. We have extended as well as differentiate the works of Dharmapala and Khanna
(2019) by considering NIFTY 50 indices from National Stock Exchange (NSE) as our
sample. Risk-Adjusted Return Model, Market Adjusted Return Model, and Mean Adjusted
Return Model are employed as solution approaches. It is believed that the stock market is a
good example of how shareholder expectations over this disruptive event remain grounded
across various industries. The ideal indicator for analysing this impact would be the financial
performance of companies in any industry as it would be possible to interpret changes in
sales and profits regarding how sectors were affected (Masood & Sergi, 2008). The current
study helps to understand the impact of the announcement of demonetization on the stock
market as a whole and the impact of demonetization on different sectors of the stocks that
constitute the NIFTY index. For this study, the Nifty 50 index has been taken as a sample and
used for event study methodology due to its large representation of the Indian economy. As
per the report on the methodology of NIFTY 50 indices (NSE Indices Limited, 2019, 2022),
there are more than 1600 companies trading routinely on the National Stock Exchange of
India (NSE). Out of them, NIFTY 50 constituted those 50 blue-chip companies that
approximately hold 66% (NSE Indices Limited, 2022) of float-adjusted market capitalization.
In addition, the NIFTY 50 indices cover major Indian economic sectors and offer helpful
insights to investment bankers for benchmarking purposes through a single efficient portfolio.
In addition, the speed of information adjustment (Prasanna & Menon, 2013) is well
maintained in NIFTY 50 indices in the form of addition and deletion of companies, share
changes, stock splits, etc. For these reasons, NIFTY 50 indices are considered a strong
representative of the Indian economy and hence we have used the data from NIFTY 50 for
our study proposed in this paper.

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 LIMITED LONG TERM IMPACT ON TAX COMPLIANCE

The Reserve Bank has twice released its reports stating that the demonetized Notes of `500
and `1000 have been substantially deposited in the Banks. A widely stated comment has
been that just because most of the currency came back into the Banks, the object of
Demonetization has not succeeded. Was the invalidation of the Non-deposited currency the
only object of demonetization? Certainly Not. The larger purpose of demonetization was to
move INDIA from a Tax Non-compliant society to a compliant society. This necessarily
involved the formalization of the Economy and a blow to the black money. How has this
been achieved?

WHEN cash is deposited in the Banks, the anonymity about the owner of the cash disappears.
The deposited cash is now identified with its owner giving rise to an inquiry, whether the
amount deposited is in consonance with the depositor’s income. Accordingly, post
demonetization about 1.8 million depositors have been identified for this enquiry. Many of
them are being fastened with Tax and Penalties. Mere deposit of cash in a bank does not lead
to a presumption that it is Tax paid Money.

In March 2014, the number of Income Tax returns filed was 3.8 crores. In 2017-18, this
figure has grown to 6.86 crores. In the last two years, when the impact of demonetization and
other steps is analyzed, the Income Tax returns have increased by 19% and 25%. This is a
phenomenal increase. The number of New Returns filed post demonetization increased in the
past two years by 85.51 Lakhs and 1.07 crores.

For 2018-19, advance Tax in the first quarter has increased for personal Income Tax Assesses
by 44.1% and in the Corporate Tax category by 17.4%. The Income Tax collections have
increased from the 2013-14 figure of `6.38 Lakh crores to the 2017-18 figure of `10.02 Lakh
crores.

The growth of Income Tax collections in the Pre-demonetization two years was 6.6% and
9%. Post-demonetization, the collections increased by 15% and 18% in the next two years.
The same trend is visible in the third year. The GST was implemented from 1st July, 2017 i.e.
Post demonetization. In the very first year, the number of registered assesses has increased
by 72.5%. The original 66.17 Lakh assesses has increased to 114.17 Lakhs.

This is the positive impact of Demonetization. More formalisation of the Economy, More
Money in the System, Higher Tax Revenue, Higher Expenditure, Higher Growth after the
first two quarters.

66
 POLITICAL AND SOCIAL BACKLASH

The Congress and other minor dispensations in power since independence have been solely
responsible for this huge decay in societal values which ultimately reflects in growing levels
of corruption at all levels and the consequent generation of black money....it is somewhat
hypocritical therefore that Dr. Singh should critique this move now without providing any
creative solutions, when this phenomena reached its crescendo during his time as the PM!

Having said that, even supporters of PM Modi are finding it difficult to ignore the three
principal shortcomings of this move : the inability to anticipate, and be prepared for, the
ingenuity of the corrupt to launder money and thus derail the core intent of this momentous
decision, the unpreparedness for the logistical challenges to replace 86% of the existing
currency and finally the debilitating impact on 80% of the working, largely unbanked
population who derive their income in legitimate cash transactions.

At last count, there were 17 different publicly disclosed means invented to launder old,
illegally held currency notes and this was happening in large numbers. The RBI, in its latest
policy meeting last week, pegged the currency returned already at Rs.12 lakh crore out of the
Rs. 15 lakh crore in circulation with more than 3 weeks to go for the Dec 30 deadline! The
net impact of this laundering would be that the Rs. 2- three lakh crore anticipated windfall
benefit to the government from unreturned currency, and available for direct transfer to Jan
Dhan accounts or other social benefit schemes for the poor, would now be an insignificant
number. Recognizing its fallacy, the Government hurriedly amended the law on Nov 29 to
provide another disguised "amnesty" scheme with a tax payable @50% for those who declare
black money and @81% for those who are caught later....a great deal for the perpetrators of
crime as they will land up paying effectively 3% tax on their unaccounted income (only 6% is
statistically held in form of cash) against 33% paid by honest citizens on their income over
the years. This is against the widely publicised 200% penalty and tax on unaccounted income
post the announcement that was the cornerstone of the calculations for the currency, which
was not expected to be returned. By assuring safe passage to those who it intended to punish,
the Government is effectively trying its luck to make the best of a bad bargain and encash
some benefits by those who choose to declare voluntarily. "If you can't catch them, join
them" seems to be the new mantra! A total somersault from the moral crusade, which was
meant to be unleashed on black money holders.

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Secondly, the logistical challenge to supply cash has been at the core of the public grievance
and hardship faced by the masses. The inexplicable change in the size of the notes
necessitating re-calibration of all ATMs and the fact that the capacity of the currency printing
presses will in itself require 4-6 months to replace the old notes was certainly known....surely
some forethought would have provided a solution to have reduced this one specific pain point
which has inflicted maximum damage to the Government's credibility.

Thirdly, the GDP loss of between 1% - 2% is colossal: but the impact on the marginal daily
worker is simply debilitating. The human cost just cannot be quantified and, whilst there
could have been an outside case for justifying it as the cost of engaging in a much-needed
moral crusade to cleanse the system, with the political narrative now having been turned on
its head I am not sure how this entire move will be justified politically or morally.

The elections are on hand. The voters will speak and that will be the first representative and
factual denouement from the masses. I fear PM Modi will find that the real casualty would be
the erosion of his huge personal political capital: and thus allowing critics to openly question
his leadership style. That would be the most serious blow to the India story, which had fired
the imagination of the entire global system post 2014. It would be a blow to the hope of
millions like me and, more importantly, his ability to push through the huge, largely
unpopular reforms, which were on the anvil.

For the sake of the nation, I hope that will not be the case .... the spectacular display of
popular resilience underscores the fact that he still has large popular support primarily
because of the deep seated belief amongst the poor that PM Modi will credit their Jan Dhan
accounts with money "recovered" from the black money exercise and that the corrupt elite
will suffer: this will simply not happen as I explained above and, when this finally dawns on
the lower socio economic class which forms the backbone of his support base, the backlash
can be severe. Hence, if I were in his advisors' shoes I would honestly provide him the
feedback necessary to mitigate the situation today:

Given that the anticipated gains did not materialise, acknowledge the fact that

demonetization went wrong and punishing many for the sins of the few was, in

retrospect, a morally flawed, though very unintended, decision.

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 Outline the full roadmap to battle corruption and not just the black money held in cash

: the people must be taken into confidence to elicit their support in any 'samudra
manthan' (churning ) of this nature

Our macros are relatively strong....use it to announce measures which will pump prime

the economy, introduce social benefits schemes linked to employment generation and

reduce taxes

Use his office to fast track innovative platforms like the NIIF, which are currently

floundering, to attract global capital to fund large ticket infrastructure investments in

greenfield, brownfield and stalled projects : this can be the single most structurally

important sector to create jobs and kick start the economy particularly in view of the

impending downturn in IT sector jobs and the lacklustre response to the flagship

schemes like Make in India, Start Up India and Smart Cities amongst others

Continue focusing the public discourse on the corrupt opposition parties across the

spectrum to nurture his carefully crafted narrative that there is no alternative to the

messiah who is destined to deliver us : and is the only beacon of hope amongst the entire

current political leadership in the country who commands respect, authority and trust to

implement cleaner politics and a purposive development agenda

By these steps I believe he can mitigate some of the damage from this needlessly callous
scheme and regain some of his lost political capital...something he desperately needs for the
nation to back him in his much bigger endeavours to make India prosperous again. The nation
needs his impeccable integrity and courageous, decisive leadership but not his self image of
infallibility and penchant for brinkmanship.

● INSUFFICIENT PREPAREDNESS AND COMMUNICATION

The most contradictory statement was” If you deposit up to rs 2.5 lac , nobody will ask you.”
The tax limit for tax exemption does not mean that you will save all your 2.5 lac rs, that too
in the form of 500 and 100 rs notes and deposit at once. This is the most dangerous statement
the Govt had. After a few days, the Govt started , warning people that action will be taken , if
a common man deposits money of other people or is involved in conversion of black money
into white. By the time the above statement was declared officially, many people had already

69
deposited, considering 2.5 lac as the ceiling limit. The govt. should have declared
punishment, clauses written from the first day, the moment Hon PM declared the
announcement of demonetization. Regarding, less preparation etc. , I suppose all these are
absurd things. Preparation could not be done in advance. Otherwise, news would have leaked.
The nation has to suffer for a few months, maybe a few years to streamline the system.
However, the results will be miraculous.

● NEGATIVE IMPACT ON GDP DUE TO DEMONETIZATION

Cash is the preferred mode of transaction globally, accounting on average for 85% of them.
In some of the developed countries, transactions carried out through cash are less than 50% of
total transactions. In India, this ratio is at around 95%. Easy accessibility, its certainty of
acceptance and efficiency as the settlement is not dependent on any additional infrastructure,
and no additional charges make it universally the most preferred mode. The only problem of
cash transactions is the anonymity and difficulty of establishing an expenditure trail which
make it an ideal mode for unreported transactions as well. The ratio of currency to GDP
(gross domestic product) in India, which averaged 8.4% during 1975-2000, crossed 10% for
the first time in 2002-03 and has remained above this level since then. This ratio has averaged
10.8% in the last decade. There has not only been a relatively sharp increase in the ratio of
currency to GDP during 2015-16 (table 1) but a reversal of the negative trend witnessed in
the previous three years. The increase in this ratio could have persisted through the current
year as well before the demonetization of higher denomination notes announced on 8
November. Demonetization of high denomination notes (of Rs1,000 and Rs500) has put over
85% of currency out of circulation. This has resulted in short-term disruptions in transactions
in agriculture and related sectors, small establishments, households and among professionals.
Since injection of liquidity is slow, incomes in both formal and informal sectors have been
affected with the intensity of adverse impact being greater for the informal sector. Since self-
employed and casual workers dominate in the overall economy, their incomes may suffer a
setback. While some may view it as deferring expenditure and income, a part of it may
actually be revenue and income forgone forever. It is indeed difficult to predict the likely
growth trajectory post demonetization. But assuming that the formal sectors maintain the
observed growth (average of last 10 quarters) and the informal sectors have a flat growth in
the third quarter (Q3) of 2016-17 (with an estimated contraction in informal economic
activity in trade, road transport and construction sectors by 5%), Q3 growth may decline to
4.1% in a best case scenario. In case the contraction extends to the industrial and professional

70
services sector and is a little sharper in construction and trade, Q3 growth may dip as low as
1.5%.

Growth is expected to recover gradually in the fourth quarter (Q4) of 2016-17 and in the first
quarter (Q1) of 2017-18 before returning to its normal trajectory thereafter. It is indeed true
that increase in liquidity in the formal banking sector will increase GDP growth originating in
this sector, but with its share of around 6% in GDP and with an increase in growth of 0.5 and
1.0 percentage points factored in, this sector’s growth in Q3 and Q4, respectively, its overall
impact on GDP growth assessed may not be significant. The impact of easy availability of
credit to the formal sector on account of this additional liquidity may take some time to
materialise, and in Q3 and Q4 it may not be significant. Further, a decline in demand in
general may also keep the demand for investible funds at moderate levels.

How these informal sector issues will get incorporated into the quarterly GDP numbers of the
ministry of statistics and programme implementation is important as the quarterly estimates
of GVA are compiled by the benchmark-indicator method. The previous year’s annual
estimates are extrapolated with the growth rates observed in indicators such as quarterly
estimates of forecast crops and livestock, index of industrial production, steel and cement
dispatches, sales tax returns, sale of commercial vehicles, deposit and credit growth of banks,
service tax, revenue expenditure of government, all of which are for the formal sectors. The
inherent assumption in this tracking approach is the assumption of uniformity of growth for
the formal and informal sector. This assumption has little relevance under the current
circumstances, and we may still be surprised with a better official rate of GDP growth for Q3
and Q4. If so, we have to take it with a pinch of salt.

LIMITATIONS ARE:

1. CAUSES PANIC AMONG THE PUBLIC: Cancelling the legal tender of currently
available money is disturbing news for the common public. It creates havoc among the public
regarding their earned money, leading to panic among them. After that, people have to put
some extra effort into exchanging invalid currency notes, which is an excruciating phase for
the public. This is the inconvenience that people face during demonetization.

2. HALT IN ECONOMIC DEVELOPMENT: Demonetization disrupts the monetary

circulation of the country, and for some periods, the physical monetary transaction becomes
very difficult due to the cancellation of existing currency. The transaction problem hinders

71
the business and economic activities of the country for some moment, resulting in a short
period of standstill in the country's economic growth.

3. RECALIBRATION OF ATMS: In demonetization, the government cancels the existing

currency and issues a new currency; this process poses the problem of the recalibration of
ATMs. Recalibration of ATMs means modifying the ATMs as per the requirements of the
newly issued notes and removing the system of pre-existed notes so that it can dispense the
new notes without any error. Recalibrating all the ATMs in the country is a big challenge for
the authorities.

4. CAUSES LIQUIDITY CRUNCH: The invalidation of existing currency and improper

supply of newly issued currency creates the liquidity crisis in the market. The non-availability
of ample liquidity in the market obstructs economic activities and the common public's living.
In a country where digital transactions are not widely accepted, this becomes the biggest
problem because people can only purchase their bread if they have the money in their bank
accounts. Therefore, a liquidity crisis is a major concern for the public and the government
that comes with demonetization

5. SHORT TERM DOWNFALL IN GDP: The country that decides to demonise has to
bear the curse of downside movement of GDP in the short run. It is due to the disturbance in
the financial position of the businesses and economic activities. It causes disruption in the
financial sector that destabilises the growth vehicle. But after some time, the economy tends
to get back on track when the liquidity recovers in the market. Therefore, even a financially
strong country has to face falling GDP for a short time.

6. PAYMENT CRISIS: Cancelling the legal tender of a country's currency creates a

payment crisis. A country whose payment system is not digital faces the problem of a
payment crisis. The labourers cannot get their payments, the traders do not receive their
payments, and the country's retail business faces difficulties in operation, all due to the non-
availability of legal tender cash among the public. So, all the monetary transactions get
disturbed, from the payment of bills to the retail trade.

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 CONCLUSION

Through the survey and data collected, it is concluded that, demonetization is a bit of a
serious problem. The move by the government to demonetize the old denominations with the
new ones has surprised the country. The move was an effort to handle the threat of illegal
money, corruption, terror funding and counterfeit currency. According to the survey, people
agree that demonetization is a good effort taken by the government of India; it would bring
about a positive impact on the Indian economy as it encourages the digital modes of payment
such as E-wallets and apps, online transactions.

It is a move towards a cashless economy. Demonetization is beneficial for the economy in the
medium to long term. The decision taken by the government of India was quick so some were
against it. However according to the survey, majority of the applicants responded that
demonetization has not reduced corruption in India. In addition, major strengths of Indians
believe that demonetization will help to stabilise the economy.

Demonetization is the process by which the demonetized notes cease to be accepted as legal
currency for any kind of transaction. The objective of demonetization was to stop the
circulation of black money in the market and remove counterfeit notes from the market. After
this exhaustive and logical analysis, demonetization seems to be a different ball game while it
is compared to the other economic reforms initiatives by the government to restore or to
replenish the economy from being ruined by the black money and tax evasion.

Demonetization seems to be a bitter pill and through the various historical evidences
it is clear that the Management of the crisis after the demonetization plays a vital role in
ensuring the success of it. Demonetization will help in curbing the black money, corruption,
terrorism and hence the no. of Tax payer will increase and increase in employment which will
lead to better employment Demonetization will lead to fewer instances of tax avoidance. This
certainly is a massive advantage of demonetization.

Money that is deposited will be taken track of by income tax authorities. Therefore, people
will hesitate to use tax avoidance tactics. Furthermore, the loan transaction will also be under
scrutiny. Consequently, there would be an increase in the flow of taxes. This would certainly
result in the government undertaking more public welfare measures. To sum it up,
demonetization is certainly a revolutionary step in a country’s economic system. It is

73
something that has been practised by countries from time to time. Furthermore, the objectives
for demonetization remain more or less the same the world over. Most noteworthy, the
decision to demonetize should come by keeping the national interests at the forefront.

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