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| Demonetization and its Effects in Indian Economy | |||||||
| Paper Id :
17375 Submission Date :
16/03/2023 Acceptance Date :
22/03/2023 Publication Date :
25/03/2023
This is an open-access research paper/article distributed under the terms of the Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited. For verification of this paper, please visit on
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| Abstract | On November 8, 2016, the Indian government made a daring decision to eliminate notes. Whether the central government would successfully erase all of the current black money is debatable, but it was a wise, well-planned, and well-executed move. Here, I've drawn on the insights of a top economist, a financial economist, and smart politicians. We shall learn about the benefits and drawbacks of the note ban decision by the Indian government thanks to this study. This study solely relies on secondary data that was gathered from publications like newspapers, periodicals, websites, helpful books about the subject, etc. | ||||||
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| Keywords | Indian Government, Note Ban, economist, expert, Opinion. | ||||||
| Introduction |
Demonetization is the process of converting current currency into a different form. The new currency should be introduced and the old units discarded. Demonetization, then, refers to either the introduction of new coins or notes in the same currency or the complete replacement of the old money with the new. Remonetisation, or the restoration of payment methods as legal tender, is one significant concept in economics. Governments demonetized their nation's money for a variety of reasons. Some of these include preventing inflation, preventing corruption, and preventing the use of cash in the nation. The Indian government demonetized the 500 and 1000 rupee notes in November 2016. (fully bannedThese two largest denominated notes made up 80% of the available currency in the form of banknotes. The government wants to eliminate fake money, stop tax fraud, remove black money, stop terrorist financing, and move the nation towards a cashless economy. These are the key goals of the note ban, according to the administration. Although the government's move is for the good of the country, there are numerous uncertainties that arise, including whether the ban would genuinely eradicate black money and how much of it will emerge if it does. What should this decision mean for the Indian economy? Whether or not the Indian economy would be wealthy. |
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| Aim of study | 1. To know about actual present outcomes of the note banned decision. 2. To know the potential of the note ban decision. 3. To estimate the consequences for future of the note ban decision. 4. To know the impact of note ban decision on the Indian economy. Scope of the study The people of India, the Indian government, businesspeople, and consumers will all benefit from this study. The government will be able to learn more about the state of the economy in the future thanks to this study. Government policy-making will be aided by the findings of this study. Indian citizens would also benefit from this study since they will be able to make informed decisions about their income and spending because they will be aware of the current and future state of the economy. Any businessperson can make a sensible choice in order to increase income and make a profit in the real world of the market. Finally, everyone would be able to understand how a decision to ban notes would affect. Objectives of Paper 1. To work out the probable consequences Of the Demonetisation. 2. To know the positive and negative impact of Demonetization on India. | ||||||
| Review of Literature | Literature review as per the name show it is process of
reviewing of research literature which is done by any researchers in past. A
literature review is an exploration to identify the related research to make or
set relation with current research project with a conceptual and theoretical
context: K.SumaVelly and K.Hema Divya-(2018): In
their study on “Digital Payment in India with Perspective of Consumer Adoption”
they said that due to demonetization it’s resulted tremendous growth in digital
payments. These transformations make a great change toward digital payments and
make a more transparency in transactions which empowers the economy of the
country. The purpose of this study is to get a research the impact of
demonetization on adoption of online payments and digitization of payment
system to analyses the level of adoption of digital payment system by the
customers’ E-payment system are important mechanism used by the individual and
organization as a convenient way of making payments over the internet and at a
same time a gateway to technological advancement. RaghvendraNayak (2018): It was a conceptual study on
“Digitalisation of Banking-Issues and Challenges in Rural India”. He studied
that the campaign of digital India made a noticeable effect on banking sector
of India. Even the development in digitalization still India lagging behind in
the implementation of digitalization to banking sector and It is true the
digitalization of banking will bring revolution in the Indian economy but it is
still needed to implement digital services in rural areas also. It’s related
with many conceptual issues and challenges in implementing digitalization of
rural banking areas. It studied about the efficiency of banking and enable
smoother transactions. It helps to found the factors which enable fast and
furious changes in banking sector in adopting digitalization special references
to rural are. Rajiv Ranjan Singh and AnanditaBagchi (2018): They
publish a paper no-351 on demonetization “A golden opportunity for widening the
taxpayer base”. In their paper they recommended to department act with a focus
on the customer and in a non instructive and tax payer friendly manner with the
effect of demonetization wider the area of tax payer. All transactional data
received since 201 the large amount of historical data and third party
available helps to action by government should be based on proper data analysis
since six year after March 2017. RenitaD’souza (2018): He publish his paper on
“digitalIndia Getting Incentives Rights” He publish a key chapter in fourth
industrial revolution (4IR) such as production and management, which is an
outcome of leveraging technology and digital innovation in consider the case of
virtual or digital markets. These markets have made physical space constraints
redundant and eliminated the need to visit sops on ground. Today it is the time
for digital transactions. Digital transaction is positively correlated with The
level of education and consumer income. The size of the informal economy of a
nation reflects the productivity of cash use lock in persistent cash as the
inevitable status queue. There are no shortcuts to becoming irrelevant in this
economy banks and other financial institutions will have to consider
reconfiguring their business processes and functioning with Smartphone’s. Dr.S.Manikandan And J.MaryJayakodi (2017): In
their research paper An Empirical Study On Consumer Adoption Of Mobile Wallet
With Special Reference To Chennai City’ they found that in present world smart
phones play an important role in the daily life of people. He found smart
phones are made as devices with advancement of technological which were used as
money transactions or payments by using application installed in phones by the
users of mobile. For this they prepared a structural questionnaire collect data
from 150 respondents for finding the factors affecting the consumer for the
adoption and usage of mobile wallet to analyses to get the result for their
research. After the results finding they clear the online payments were altered
by mobile wallet.
Naincy Prajapati and Sanjeev Kumar Singh (2017): The
research scholars describe in their study on ‘Impact of Demonetization on
Online Transactions. That move of demonetization gives a new path to the Indian
economy going towards the digitaleconomy. India becomes a growth country after
demonetization with a potential for the companies deals in E-Commerce. The cash
crunch in the economy cut down the cash on delivery order in the country and
increase the online payments. After all this positive effects people are facing
many problems during the cash crunch. This study finds out the effects of
online transactions during the period of demonetization. India is country which
is a cash dominant country, demonetization is great cause of facing problems in
India due to suddenly a huge transformation from cash to non cash.P.PaniBhaskar
and D.Prasanna Kumar (2017): In his paper ‘Affect of Demonetization on
E- Commerce’. The authors clear about the E-Commerce ecosystem. Before the
demonetization in India situation of E-Commerce is the accurate flat form for
the development for online business but the situation of demonetization leads
the people to adopt the online transactions or net banking in their day to day
life. For urban areas E-Commerce is not a new technology but in urban it’s
necessary of loyalty towards online business. According to the authors the
demonetization in India encourage and insist the Indian people to increase or start
the online transaction instead of using traditional method of payment trough
cash. Before demonetization E-Commerce companies have huge payment on cash on
delivery which decrease after demonetization it will provide a positive change
in E-Commerce. |
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| Main Text | Data Collection Secondary data has used for the study. Secondary
data is collected from library, text books, and journals, articles from news
papers and from relevant websites available on internet. Measurement Based on
situation specific scenarios, expert opinions, and use of the
internet for information searches. Theoretical FrameworkExperts and Economists views
about demonetization in India. 1. Amartya Sen(Leading
economist; NobleLaureate; recipient of the Bharat Ratna) According to Indian express, Professor Amartya Sen
said that millions of innocent people have deprived from their money and being
suffered to get their own money back. 2. Dr. Manmohan Singh (Former Prime
Minister; eminent economist; former RBI governor) Manmohan Singh, former primeminister, RBI governor
and economist said this in Rajya sabha demonization was organized prey,
according to the Indian Express. In his speech, he said the way the program was
implemented would harm India's agricultural sector, which would also harms mall
industries and the informal sector of the economy. He also said India's GDP
could drop by around 2% as a result of the bank not eban policy. Co-operative
banks serving rural areas are non-functional and have limited access to cash.
The former prime minister also said the bank note policy was a colossal is
management 3. Kaushik Basu (Leading
economist; Senior Vice-President and Chief Economist at The World Bank) KaushikBasu said the Indian government has a policy
that anyone depositing money over the 250,000 limit will have to pay heavy
fines, according to Indian Express. This policy has created a new black market
where large amounts of illicit cash are broken up into pieces and deposited by
members of the team. This is a legal way of doing illegal things. Bass said the
move hurts innocent people who don't have illegal money but have accumulated
cash reserves over a long period of time. 4. Arun Shourie (Former
economist at the World Bank; recipient of the Padma Bhushan and Union Minister) In an interview with NDTV, ArunShury said that the
current Indian government's ban policy is not a black money game, but that
black money holders have turned their money into tangible and intangible
assets, according to Indian Express. I was. People with a lot of black money
don't store their money in cash, under mattresses or in burlap bags. They
invested black money in real estate, jewelry, the stock market, or other assets
5. Arun Jaitley (Current
Finance Minister of India; Senior Advocate, Delhi High Court) According to Indian Express Mr. Arun Jaitley gives
his opinion that the demonetization is good for economy, Indian banks were
facing NPA problem since last many years, now banks will have more money to
lend for many sectors of the economy. 6. Arvind Virmani (Leading
economist; Former India's representative at IMF; Former Chief Economic Adviser,
GOI) According to ArvindVirmanidemonetization is a
useful technique to solve the problem of black money, but he also said that it
need the deeper study to check the effectiveness of demonetization. Immediate
effects of demonetization is negative impact in retail trade in goods and
services. Currency for everyday transaction have to be replace soon. 7. Surjit Bhalla (Chairman, Oxus
Investments, a Delhi-based economic esearch/advisory firm; Former Professor at
Delhi School of Economics; Previously worked at the World Bank) According to Mr. Surjeet Bhalla BJP government take
a Courageous step, and the credit goes to our prime minister Mr. Narendra Modi.
If this step would be successful then it will be biggest reform in india. This
policy will silently create the money for the economy. Some other aspects to know the effectiveness of demonetization 1. Why India only canceled 500
and 1000 notes According to RBF report, the circulation value of
500 rupee and 1000 rupee notes is around 86%. So the government decided to remove
this huge amount of money from the market. Also, the maximum number of
counterfeit notes is 500 and 1000. 2. The effects of demonization on
the Indian economy Demonetization has somehow reduced consumption
activity in the Indian economy. But it made more money in the bank. Consumption
was depressed and the market was sluggish at the time of the abolition, but the
surge in deposits after the announcement of the abolition at Bank of India has
recovered. According to the Reserve Bank of India, deposits exceeded 5 trillion
rupees from Nov. 10 to Nov. 18. Because of this, many banks such as SBI, ICICI,
HDFC PNB will cut their deposits and be better for the future economy.
Percentage Share of Denominations in Circulation by Value in FY 2015-16
5. Impact of demonetization on
next financial year (Hindustan times, 2 feb.2017)According to pranabsen
(India's First Chief Statistician) said that, the targeted economic growth
rates about 7.5% presented by Indian government for upcoming financial year is
over optimistic. He said that the decision about ban on currency note has
adversely affected the industrial sector. It affected the IT sector which is
45% of the India's Gross Domestic Product, and approximately 80% of India's
employment depends upon IT sector. 6. Impact of note ban on Auto
Assets Backed Loan(Business standard, 13 feb 2017) According to Moddy's investor service
demonetization has negatively impacted on Indian auto-asets backed loans in the
short term and this will continue till the march end. 7. Impact of demonetization on
Real estate (Business standard, 12 feb 2017) During November
December 2016, the mothly average housing sales fell about 40% in the top nine
cities like Gurgaon, Ahmadabaad,Kolkata, Chennai, Hydrabaad, Bengaluru, Pune,
Mumbai and Noida. Before demonetization the monthly average house sales was
19000 units in July month and 18000 units in October month. Average monthly sales declined significantly by 40%
and 49% respectively from November to December. The government announced the abolition on November
8, raising hopes of a plunge in property prices, especially in the secondary or
resale segment. At the beginning of the third quarter, he had October's best
performance, but November and December were both impacted by eliminations,
taking 50% of his total sales for the third quarter through October. occupied. Property developers have worked hard to attract
customers by offering additional complimentary perks such as jewelry,
electronics, automobiles, vacation packages and appliances with the purchase of
a residential unit. Builders also offer price guarantees, rental
insurance and buyback programs to increase confidence in the sector. 8. Impact of
demonetization on FMCG industry(Economictimes 24 dec.016) FMCC industry had gone down by 1-1.5% or Rs 3,840
crore in November, compared to October. The purchase in November had gone down
by 6.4% compared to October. Purchase of personal care items such as toilet
soaps, toothpaste and shampoo had seen the greatest fall by retailers.
According to consumer point of view, oneout of five housewives had reduced
spending by 50% or more. They had cut spends across categories for impulse
categories such as biscuits, salty snacks compared to everyday essentials like
atta, rice, pulse, sugar. 9. Demonetization will help to
fight with black money and reduce corruption.(dnaindia 13 dec.2016)
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| Conclusion | Demonetization in India is a major effort by the Indian government to combat black money and corruption. This is a bold decision by the government. The main purpose of demonization is to eradicate black money and reduce corruption. The Indian government has succeeded to some extent. Most of the black gold was destroyed. The amount of cash in the bank increased day by day. And we all know that more deposits make a bank stronger. Countries with strong banks are financially strong. In the future, banks will be able to give more and more credit to individuals and the industrial sector, which will allow our country's production to grow, jobs to be created, and our country to develop very rapidly. will be But these are only future completions. The next few months will show the real economic situation in our country. Demonetization has created so many hurdles for Indian citizens, but Indian citizens have faced so many problems because of their willingness to demonstrate. They faced the problem of queuing to deposit and withdraw money at banks and ATMs. Citizens of India faced the problem of reduced consumption of goods due to lack of cash. With several businesses suspended due to lack of liquidity, business owners and consumers face so many problems. When the government made this bold decision to demonize in India, the government did not know that the Indian people would face this kind of problem for a long time. However, the government has occasionally provided Indian citizens with a great many relief measures . Meanwhile, India's financial markets, real estate markets, fast-moving consumer goods sector and auto asset-backed loans all suffered temporary declines. Some economists said the positive effects of the demonstration could be seen in the future. The government has also increased withdrawal limits. There are fewer lines in front of banks and ATMs. Somehow the black money will also come out. Now wait for the overall effect of de-monetization. | ||||||
| References | 1. http://indianexpress.com/article/india/india-news-india/both-sides-of-the-coin-what-top-economists-think-about-demonetisation/
2. http://www. economist, com/ news/finance-and-economics/21711035-withdrawing-86-value-cash-circulation-india-was-bad-idea-badly
3. http://www.forbes.eom/sites/timworstall/2016/l 1/19/effects-of-demonetisation-on-indias-gdp-difficult-to-calculate-we-dont-even-know-the-sign/#46a52f 184a 1 a
4. http://www.moneycontrol.com/news/economy/impact- analysisdemonetizationindia_8044821 .html
5. http://www.investopedia.eom/terms/d/demonetization.asp
6. http://marketrealist.eom/2016/l 1/great-indian-demonetization/
7.http://www.hindustantimes.com/india-news/india-will-feel-the-effects-of-demonetisation-till-next-financial-year/story-J3wUq2ULS5CuLXlrVQyHaK.html
8.http://www.business-standard.com/article/economy-policy/note-ban-has-negatively-impacted-auto-asset-backed-loan-moody-s-117021300217_1 .html
9. http://www.business-standard.com/article/companies/housing-sales-fell-40-in-nov-dec-on-demonetisation-proptiger-117021200188_l.html
10.http://economictimes.indiatimes.com/industry/cons-products/fmcg/demonetisation-erodes-over-rs-3-8k-crore-fmcg-sales/articleshow/56155024.cms
11. http ://www. dnaindia.com/ money/report-demonetisation-to-have-positive-impact-on-economy-godrej-2282372 |
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