INDEX Sr.No. item Description Page Ne. 1 _| Introduetion | 2. | Need and Objectives 3. | core Content | 3ia)__| Terminologies } 3{0) | Concept of Demonetsation { 3) _| Exent of Demonetisation 36) | Expected Berets of Demonetisation 4 | Review of Literature 5. | Empirical Analysis Sia) | Hypothesis Ste) | Methodotogy 6 | Analysisof Data 7, | Relevance ofthe Study in Current Scenario | | & [one major Limitation | | | ceticat analysis of Demonetsation 26 | Recommendations and Suggestions 2, | conctsion 12,__| pibiiography | [ANNEXURE-2: Questionnaire, Data Tables, Graphs and Diagrams T "ANNEXURE-2: Expected questions in oral exarnination (with answers) (NOTE: Annexure-2 is NOT a part of the project file I is just a guide for the oral | examination) 3931, INTRODUCTION November 8, 2016 was the day when & 00 and & 1,000 notes were withdrawn from circulation Ttamounted to withdrawal of 86% currency which was in circulation. People were advised to go to the banks to replace old notes with the new ones. There were serpentine queues inside ang outside the banks. The economy was gripped by the Liquidity crises. But, by and large, the peopie endured it. Because, they believed that demonetisation was a move against the hoarders of blacy money. The people believed that demonetisation was an action against the rich, and a move in favour of the poor. Demonetisation was a major economic event of the year 2016. It led to a deep impact on att sections of the society including households, traders and industrialists. The present paper attempts to examine the good and bad impact of demonetisation along with its overall evaluation as an economic poticy. 2. NEED AND OBJECTIVES The present study contains information about the concept of demonetisation, its extent, expected benefits and impact of the 2016—Demonetisation on the Indian economy. It also includes suggestions and recommendations by common masses regarding ways in which its implementation could have been made more gradual in order to maximize its advantages Suggestions and recommendations have been obtained through empirical investigation of the students and people who are aware about this concept. This project aims to capture this vacuum in literature after reviewing the present literature on this topic. The major objectives of this study are: @ Tohave a descriptive analysis of the concept of demonetisation. @ Tostate the definition, extent and impact of this fiscal move. @ Tounderstand the issues associated with its implementation at grassroot level. . To state its macro and micro economic implications. 3. CORE CONTENT 3(a) Terminologies Demonetisation: It refers to the act of stripping a currency unit of its status as legal tender. t's indeed a radical monetary step in which the status of a currency is declared invalid or vol: occurs when the current form or forms of money is pulled out from circulation and retired oe” to be replaced with new notes or coins. Fiat Money: Fiat money refers to that money which is issued by order/ authority of the government Itincludes all notes and coins which people in a country are legally bound to accept samedi” of exchange. Fiduciary Money: Fiduciary money is that money which is accepted as a medium of ‘exchange because of the trust between the payer and the payee. 394 \ a _ |a eee slack Money: It includes all funds that are earned through illegal activity or otherwise illegal income that is not recorded for tax purposes Counterfeit Money: It refers to that money which is produced without legal sanction of the government. It's mostly floated deliberately in order to imitate the legal currency and trick the recipient. 3(b) Concept of Demonetisation itrefers to the act of stripping a currency unit of its status as legal tender. It is indeed a radical monetary step in which the status of a Currency is declared invalid or void. It occurs when the current form or forms of money is pulled from circulation and retired, often to be replaced with new notes or coins. For instance, a currency note of & 2,000 is just a piece of paper unless the government declares it as a legal tender. It carries an exchange value of 2,000 because the government imparts this value to it. When the government withdraws the value imparted to a currency note, it no longer remains a legal tender. It is reduced to a piece of paper. Withdrawal of the status of ‘legal tender’ to the currency in circulation is called demonetisation. After demonetisation, the exchange value imparted to the currency ceases to exist. Demonetised currency is no longer accepted as a medium of exchange. Its purchasing power is reduced to zero. Thus, the demonetisation of % 1,000 and € 500 notes on Nov. 8, 2016 by the Government of India implied that these notes lost their status of legal tender. These notes were no longer to be accepted as a medium of exchange. Their purchasing power was reduced to zero. These notes were reduced to pieces of paper. 3(c) Extent of Demonetisation Nov. 8, 2016 was the doom’s day for the holders of unaccounted cash, Because, demonetisation of | %500 and? 1,000 notes (high value currency notes) led to. massive loss of liquidity in the economy. Bah Lureney that ostts status asa legal tender Currency which continued to Ti oldies ar ial tender According to the RBI Report, demonetised currency (on Nov, 8, 2016) valued at € 15. trillion. It amounted to 86.9% of the value of total currency in circulation. 3(d) Expected Benefits of Demonetisation Demonetisation was expected to generate the following benefits: (1) Elimination of Black Money: Black money is a household name in India. It refers to unaccounted money. Holders of black money avoid payment of tax on this money. By demonetising high value currency notes, the government wanted to eliminate the 395stock of black money in the economy. Following demonetisation, people were forced to declare their unaccounted cash balances. Otherwise, these balances would be reduceg to pieces of paper. Eradication of Corruption: High value currency notes are the commonly accepteg medium of bribery. The government wanted to strike at the root of corruption by banning these notes. Elimination of Counterfeit Currency: Note ban would have implied the elimination fof counterfeit currency. Counterfeit currency enhances money in circulation ang contributes to inflationary spiral. It destabilised the economy. @ (4) Elimination of Terror Funding: Note ban also aimed at the elimination of terror funding Itis largely in high value currency notes that the terrorists receive funds through hidden sources, (5) Money Laundering: Demonetisation was expected to check money laundering. It refers to hidden transfer of funds across different regions of the country. With cash transactions coming to a grinding halt, demonetisation would have hurt money laundering in a big way, (G Rise in Government Revenue: Demonetisation was expected to force many people to convert their black money into white by paying taxes and penalty to the government Accordingly, government revenue was expected to rise. Financial Inclusion: The government expected poor people to deposit their cash in Jan Dhan Accounts. This would increase financial inclusion in the economy, The poor people could avail loans from the banks on the basis of their bank deposits. Cashless (or Low Cash) Economy: Demonetisation was expected to promote digital transactions or e-transactions in the economy. Higher level of e-transactions (implying lower level of cash transactions) would mean a shift from cash economy to cashless economy. Cash economies are breeding centres of corruption. If transaction are affected through banks, the corruption would get a big jolt. Developed economies are cashless economies and almost free from corruption. 4, REVIEW OF LITERATURE (a) Nikhat Khalid, Saba Ismail, Demonetisation in Indi: A Push for Digitalisation, 2019 Various countries have adopted the strategy of demonetisation because of controlling inflationary situations, boosting the economy etc. This paper tries to explore the preparedness of our count'Y before launching this measure. This paper is essential as it analyses the success and failures of demonetisation as a tool to digitalise the economy. The major findings of this study necessitate the role of digital infrastructure in fulfilling the aim of making India a cashless economy 2nd doing away with issues like counterfeit currency, which were the principal aims of the 2016 demonetisation. The sudden demonetisation which took place in our country showed us that neither the public nor the banks were ready for such a move, 396(b) Virender Koundal, Demonetisation in india: Advantages and Challenges, indian Journal of Applied Research This paper focuses on the demonetisation of all & 500 and % 1,000 banknotes in India. It centres around finding better route for the implementation of demonetisation so as to minimise the demerits associated with the same. It suggests shifting towards a less cash society in the initial stage before achieving the goal of a completely cashless economy. The concept of a cashless economy cannot be imposed on the people, it can only be gradually adopted by the people of the economy. (o) Krishn A Goyal, Vijay Singh, Demonetization in India— The Journey So Far, Productivity, 2019 This paper analyses the main goals of demonetization that is to address the critical issue of black money and to gauge the problem of counterfeit currency. The major aim of this study is to figure out the possible impact of shortage of cash on the growth of the economy. It clearly states the numerous adversities that people were subjected to due to demonetization but at the same time it highlights that a vast majority of people stand firmly with the government on this move of note- bandi as they are highly keen to have a secure, prosperous, developed and corruption free nation. (@) Priyanka Sharma, Demonetisation: Its impact on Indian Economy, European Journal of Molecular & Clinical Medicine, Volume 05, Issue 01, 2018 This study based on secondary sources, tries to understand the concept of demonetisation, its extent and impact. It talks about the need for spreading awareness amongst people regarding demonetisation and its progress. This study concludes that note ban in India was a good measure but further stresses on governmental intervention to minimize the hardships being faced by the public. 5. EMPIRICAL ANALYSIS 5(a) Hypothesis Demonetisation—An Essential move to Combat Black Money The principal hypothesis underlying the empirical investigation of our project is to understand the concept of Deronetisation and evaiuate its impact on our economy. This project seeks to assess the efficacy, and effectiveness of demonetisation. 5(b) Methodology Collection of Data The study is based upon both primary and secondary data, Primary data refers to first-hand data collected from the source of origin. Although it is more time consuming and costly, it is the ‘ost reliable form of data. The primary data for this study has been collected from a sample f 10 individuals selected via random, purposive and convenience sampling through structured 397questionnaires and interviews. Random sampling is preferred with a view to avoiding biases Convenience sampling is preferred owing to time and cost constraints, purposive sampling (oy tan expert opinion through a middleman who jg indirect oral investigation) is preferred to get ‘ces mentioned in the references expected to possess the requited information, The secondary sour have been used for rendering a theoretical explanation to our hypothes's Presentation and Analysis of Data The analysis of primary data is done through quantitative methods like Measures of central tendency (Mean, median, mode). After coding the primary data their economics is worked out Tabulation, graphical presentation, ie, bar diagrams and pie charts are used to reach a Logica, conclusion and explore some valuable suggestions for the road ahead 6. ANALYSIS OF DATA ‘The methods of Percentage and Measures of Central Tendency have been used to analyse the data as collected from the respondents. As stated earlier, the analysis of this project focuses on gauging the impact of demonetisation and tries to gauge its impact on all economic agents. The results of the study highlight that 80% of the respondents consider demonetisation of 2016 as 2 necessary economic move. The remaining 20% of the respondents doubt its efficacy owing to loopholes in the implementation of this measure and the inconvenience caused to the people Diagrammatic Illustration ‘The diagrammatic presentation ofthe data (as under) is based on the questionsin the questionnaire (1) Need for initiating Demonetisation 80% of the total respondents consider demonetisation as a necessary tax reform while the remaining 20% negate its effectiveness. This clearly highlights the fact that the majority of people are well aware of the benefits associated with this move. Title: Need for demonetisation—an economic measure 9% of respondents 39890% of those who are in favour of the 2016 demonetisation consider promotion of digitisation as its principal merit , while 10% consider elimination of fake currency as its major reason. Title: Reasons for favouring 2016-demonetisation 100. a °% ot respondents Promotion Elimination of x of digestion fake currency Among those who negate its role, 30% say that it has brought a cut in the monetary base of the country, while 70% consider harm caused to the cash dependent and cash sensitive segment of the society as its major fallout. Title: Causes of dislike towards demonetisation 8< 60. 40. 20: Harms the Farms the cash monetary base sensitive & cash dependent segment 399LLL The precent study highlights the concept of Demanetisation, its extent along with a detaiteg analysis of its impact on the people of our country. This study tries to fill the gaps in Literature by vel on better implementation for such a measure, gathering suggestions from grass root le 8. ONE MAJOR LIMITATION ‘The present study, despite its comprehensibility, suffers from ys limited in its approach. Nevertheless, the conclusions of ‘ari, Moreover, the data is collected exclusively 1 one major limitation. Owing ta its small sample size, the study sta this study are in syne with the general scen for this study and hence ate related to the principle objectives of the study, enhancing its relevance 9. CRITICAL ANALYSIS OF DEMONETISATION Good Impact of Demonetisation Qa) che ‘Owing to a substantial withdrawal of currency in circulation, demonetisation led to a check on food inflation in the economy. Liquidity crunch led to a substantial fall in stock-piling of food grains. Accordingly, there was a sharp fall in food inflation by about 240 basic points between November 2016—January 2017, on Food iflat (2) Elimination of Fake Currency There was 100% elimination of fake currency (counterfeit currency) from the economy. The racketeers of fake currency were badly hurt just with one stroke of the government. (3) Surge in Cash Deposits ‘There was a surge in cash deposits in Jan Dhan Accounts. This promoted financial inclusion to its top gear According to the RBI estimate, & 115 lakh crore money was deposited in the banks following demonetisation, (4) Attack on Hawala Transactions Hawala transactions (hidden transactions and transfers of money) were deeply hurt as cash almost evaporated from the economy. (5) Realisation of Overdues People rushed to clear their overdues related to bank loans, property tax, electricity bils etc. Because, the government provided a window of clearing the old dues by using the ol@ (demonetised) currency. 402(6) Push towards D rigitisation i ig transac tions led anoticeable rise in tax to GDP rat ed © beter tax compliance, The government recorded society, Bad Impact of Demonetisation (2) A Deep Hurt to Economic Sentiment ‘The idea of banning nearly 86% of the currency in circulation led toa serious cutin monetary base of the country: the monetary base declined from ¥ 225 trilion to 8137 trillion. This caused a deep hurt to economic sentiment in the domestic economy. Economic a ity is driven by economic sentiment. If economic sentiment is hurt, economic activity must suffer. Consequently, following demonetisation, all parameters of economic activity (production, consumption, investment and exchange) received a big jolt. The producers planned lesser output, consumers planned lesser consumption, investors planned lesser investment and exchange (sale and purchase of goods and services) starting shrinking. There was an environment of economic slowdown. (2) Large-Scale Lay-off in Unorganised Sector (Informal Economy) Nearly 90 per cent of the workforce in India is engaged in informal economy (or unorganised sector of the economy) for their livelihood, And this segment of the economy is highly cash dependent and cash-sensitive. A huge cut in liquidity (following note ban) implied that cash purchase of inputs and cash payment of wages became impossible. These led to an instantaneous Cut in production activity. Consequently, there was a large-scale lay-off. Daily wagers lost their employment from day-1 of demonetisation. (3) Dent in GDP Growth Massive lay-off and declining economic sentiment implied a significant dent in GOP growth, 403‘According to most estimates (including the one by Prof. Manmohan Singh, the former Prime Minister of the country), there was nearly a 2 per cent decline in country’s GDP growth as a consequence of demonetisation. Once GDP growth takes a hit, it leads to a spiral effect (snowball effect). Because, declining level, of production activity (as indicated by a dectining GDP growth) leads to a chain-effect in the ‘economy. So, the decline (the downward trend) become self-perpetuating over the years, Unless, ‘of course, some drastic measures are initiated by the government to arrest the down-trend, The following flow chart reveals how once a decline in GDP growth is triggered, it tends to become repetitive in nature FSET wor pom tou SIE DG et eg TO This cycle continues to repeat itself, and may drive the economy from slowdown to stagnation, It is in view of such possibilities that various agencies have had revised their estimates of GDP growth in india as indicated in the Table 1. Table 1, Original and Revised Estimates of GDP Growth for the Year 2017 (Figures in percentage) Name of the Estimating Institution Original Estimate Revised Estimate ] RBI 76 m | World Bank 16 70 Me 16 66 | Actual estimates of GDP growth (for the year 2017), as presented in Economic Survey (2017-18) have indeed recorded a slowdown in GDP growth to 6.5%. The rate of GDP growth has further reduced to 4.2 per cent in 2019-20 (Economic Survey, 2020-21). (4) Stump in Real Estate Demonetisation has led to slump in real estate sector of the economy, This sector has been one of the prime GDP drivers in the Indian economy. Undoubtedly, demonetisation has significantly Cleansed this sector of black money transactions. But, at the same time, sale and purchase in this sector has touched the rock-button, Construction activity has been severely hit, while inventory has piled up. Opportunities of employment have dried up. The hope of revival of this sector is rather bleak and remote. Stagnation of real estate sector is bound to be a serious bottleneck in the overall growth process of the Indian economy. 10. RECOMMENDATIONS AND SUGGESTIONS ‘* The issue of ineffective implementation of demonetisation should be dealt with in 2” appropriate manner. # People must be made aware of the benefits of this move. 404@ Maximisation of gain of all economic ag government) centers around this concept @ A transparent and easy mechani chanism sh 0 ’ adaptability to measures like these. ‘ould be developed for quick and hassle free 11. CONCLUSION itis a general belief that the dent in GOP growth may be larger than anticipated and may last onger than expected. Once the economic sentiment is negatively hurt, it turns into a momenturn of economic pessimism. itis, therefore, believed that the recovery process is much longer, even when the supply of money is fully restored in the economy. Undoubtedly, there is a lingering liquidity crunch in the economy. The government desires that the people shift to digital mode of transactions. But adoption of digital devices is not so easy in a country where even the literacy rate is not so encouraging. The Indian economy is driven by cash transactions, not entirely because wech transactions facilitate corruption, but also because cash transactions are 2 convenient rode of exchange for the bulk of the population in India which is highly cash sensitive OWiNE to their poverty and limited survival-needs. Not that digitisation is not desired, But its typical characteristic of advanced economies where people have diverse needs and sound banking habits. Digitisation of transactions is perhaps a far cry for a nation which is still grappling with the problem of financial inclusion. Let financial inclusion be achieved before we look for digitisation ep transactions. Summing up, we can say that while Note Ban in India has shown good results in the elimination of black money and eradication of corruption, it has certainly dented our GDP growth. Moreover, we have failed to realise our dream of turning a cash-sensitive economy into = cashless economy. This transition seems to be a long drawn process and perhaps could not be achieved with a single act of demonetisation. 12. BIBLIOGRAPHY @ Nikhat Khalid, Saba Ismail, Demor Virender Koundal, Demonetisation of Applied Research @ Krishn A Goyal, Vijay 2019 © Priyanka Sharma, Demonetisation: Is impact on indian Economy, European Journal of Motecular & Clinical Medicine, Volume 05, Issue 01, 2018 snetisation in India: A Push for Digitalisation, 2019 in india: Advantages and Challenges, Indian Journal singh, Demonetization in India-The Journey So Far. Productivity, 405