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A Study on Effect of Demonetization on Indian Economy

International Journal of Trend in Scientific Research and Development (IJTSRD)
Volume 3 Issue 5, August 2019 Available Online: www.ijtsrd.com e-ISSN: 2456 – 6470
A Study on Effect of Demonetization on Indian Economy
Prof. Babagouda. A. Patil
Associate Professor, Department of Economics, CMM Arts,
Science and Commerce College, Sindagi, Karnataka, India
How to cite this paper: Prof. Babagouda.
A. Patil "A Study on Effect of
Demonetization on Indian Economy"
Journal of Trend in
Scientific Research
and Development
(ijtsrd), ISSN: 24566470, Volume-3 |
Copyright © 2019 by author(s) and
International Journal of Trend in Scientific
Research and Development Journal. This
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Commons Attribution
Pulling back units of cash from dissemination is demonetization; units of cash
are denied the status of legitimate delicate. Demonetization is characterized as
a procedure by which cash units won't stay lawful delicate. The money notes
won't be taken as substantial cash. Demonetization is a step taken by the
administration where money units are stopped of its status as legitimate
delicate. Demonetization is an essential condition to change national money.
As it were, demonetization can be said a difference in money where new units
of cash supplant the old one. It might include the presentation of new notes or
coins of a similar category or totally new division. The cash has been
demonetized thrice in India. The principal demonetization was in 1946, second
in 1978 and the third was on 8th November 2016 (Tuesday). The investigation
endeavors to get importance and reasons for demonetization, the segment
insightful effect of demonetization. This examination likewise gives a
knowledge into the positive and negative effect of demonetization on the
Indian economy. This investigation is of graphic nature so all the required
furthermore, significant information have been taken up from different diaries,
magazines for distributed papers and sites. Books have likewise alluded for
hypothetical data on the theme as required.
KEYWORDS: Demonetization, economy, GDP
On November 8, 2016, the Indian government declared an
emotional strategy measure: "demonetization," that is
withdrawal from flow, of the two most astounding division
charges, the Rs. 1000 and Rs. 500 bills, at that point,
comprising about 86% of the money available for use.
Holders of those bills had until year-end to turn in the bills.
The move was focused at checking "dark cash," cash that is
produced from illicit action or from a movement that is
legitimate yet has sidestepped charges. From that point
forward there has been a furious discussion about what
incited the administration to attempt such an extreme
choice, regardless of whether demonetization was the best
choice, and whether the advantages exceeded the expenses.
Debasement and dark cash had turned into a noteworthy
issue in the number one spot up to the 2014 general
decisions also, uncovering dark cash had turned into a
noteworthy board of the NDA alliance. In his November
eighth discourse declaring the demonetization, Prime
Minister Modi talked about the scourge of debasement and
dark cash and, optionally, about the threat of phony money
and its connection to psychological oppression.
Notwithstanding whether demonetization was the best move
to handle dark cash, it is scarcely a disclosure that high
section money is basic for executing in stores of dark riches.
Exchanges inland are broadly led in dark cash as money. (It
will be a bad dream to take installment in little group cash
and store it inconspicuously furthermore, securely.)
Also, while India has for quite some time been a vigorously
money-based economy, there are valid justifications to
suspect a solid nexus between rising money utilization and
dark cash age in India in the decade before demonetization.
Money utilization has been troublingly ascending in the
course of recent years in India, and the connection to credit
development, land costs, and the swapping scale propose
that the development in dark cash exchanges may have
assumed a job. In a perfect world, the administration ought
to handle debasement—which is the wellspring of a large
portion of dark cash—and going legitimately after the supply
of dark riches. Be that as it may, there are two issues. To
begin with, India's law implementation is frail. Second, and
progressively significant, India's famously late lawful
framework, with many years of case build-up, implies that
bodies of evidence against dark cash holders can be tied up
in courts for quite a long time. Third, over the long haul,
handling dark cash and empowering advanced installments
fortify one another. Be that as it may, as far as momentary
execution and arranging, the two destinations are in a
struggle. Revealing dark cash required mystery and
quickness. Expound arranging and testing would have
traded off mystery and made it simple to wash the dark cash.
Then again, accelerating digitization of the installments
ought to in a perfect world be finished with cautious
arranging, testing of foundation, and broad requesting of
input from banks, dealers, and buyers.
Also, numerous experts have contended that demonetization
bombed in uncovering undeclared dark cash given that
practically the majority of the remarkable demonetized bills
have been saved and "genuine itemized" and almost no of
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the estimated $2 trillion dark cash reserved abroad has been
uncovered. There are a couple of issues with this line of
examination. To begin with, by driving individuals to store
cash, demonetization expelled namelessness and made a
future examination of investors who can't legitimize the
salary. Second, perceive that demonetization without anyone
else's input can't reveal the supply of dark cash, however, it
can absolutely obstruct the progression of dark cash. There
is boundless perplexity about a load of dark cash (that is,
riches) and the age and stream of dark cash. The greater part
of a load of dark cash in India isn't put away in high category
bills however, inland, gold, and in remote money resources.
Along these lines, to anticipate that demonetization should
reveal "$2 trillion dark cash" does not seem significant. By
striking at money, the administration trusts to make those
exchanges harder. In the repercussions of demonetization,
individual selling land is probably going to reconsider before
tolerating bags loaded with money.
As far as overflow benefits, plainly, there has been an
extreme move in the selection and pace of advanced
exchanges since demonetization. A large number of Indians,
even little scale road merchants, are moving to acknowledge
advanced installments. In the interim, banking also is
encountering a flood in support. While the administration's
monetary incorporation conspire—Pradhan Mantri Jan Dhan
Yojana (PMJDY)— had made a ledger for pretty much every
family unit in the course of recent years, the majority of
these records were lying lethargic as of not long ago. Since
demonetization, there has been a huge flood in stores into
these records just as an accent in action and a decrease in
torpid records. Last yet not the least, the ascent in
digitalization is prodding development in the fin-tech space.
The Central Bureau of Intelligence has made a delicate gauge
that dark cash of India is around Rs 25 lakh crore or on the
other hand almost US $ 500 billion. The sum is equivalent to
the size for the Indian government to execute two-year ‟s
spending plan without any duty or obtaining. The greatest
mission of demonetization is depicted as battling dark cash.
India‟s economy truly holds a major parallel economy where
unreported pay is the standard. Dark cash is basically paid
which is produced all the time through corrupt methods or
aggregated unaccounted riches to sidestep charges. The
biggest wellspring of dark cash in the nation is tax avoidance.
The government assesses that just around 3 percent of
Indian pay annual charges. Further avoidance of assessment,
extract, and traditions are too normal.
The term „black money‟ is utilized to allude to three
particular classes dark riches, dark pay and dark money, the
term „black‟ suggesting its „illegal‟ or unaccounted nature.
Plainly „black wealth‟ is a few times more than dark salary.
What's more, dark pay is a few times more than dark money.
Dark salary can be earned even without the utilization of
money, for instance, with gold or precious stones. Despite
the fact that demonetization may demonstrate to be helpful
in decreasing the degree of dark cash in the economy, it
won‟t stop the stream. As indicated by Professor Arun
Kumar, Jawaharlal Nehru College, "government‟s move not
to be a heavy hammer blow to the age of dark cash. Rather, it
would leave the economy in a difficult situation and
individuals bothered". Rajesh Chakrebarti, Jindal Global
University, is of the view that "except if the root reasons for
debasement are expelled, defilement will proceed.
Demonetization is kind of dialysis, to a greater extent a
present moment tidying up than an answer to the issue".
While this move will help in purifying the current supply of
dark cash, there is a need to guarantee that dark cash does
not surface in another structure at the appropriate time of
time. For this stringent measures furthermore, observing
would be required. A few specialists contend that
demonetization may not yield wanted outcomes against
black cash; rather it makes a burden to the overall
population. Raghuram Rajan, the previous RBI Governor
says, "Since numerous individuals don't stack their dark cash
in real money, it is difficult to flush out dark cash. Obviously,
a considerable measure might be in the type of gold, along
these lines considerably harder to get". This money swap
won't have much impact on the age of dark cash through
debasement. This will just assault a piece of dark cash stock
and not the progression of dark cash in the economy. More
extensive approach activity will be required to stop the age
of unaccounted riches.
Impact of demonetization on Indian Economy: Pros and
Cons Pros:
PM Narendra Modi on a solitary stroke has stifled the
dark cash. Out of all-out cash which is Rs 17 lakh crore,
Rs 3 lakh crore is evaluated as dark cash. Administrators
of dark cash run a parallel economy which debilitates
the base of the nation's economy. Modi's demonetization
choice brought about the accumulation of enormous
stores with the bank, all unaccounted cash has either
been saved into the keeps money with the substantial
punishment or been just annihilated.
This demonetization has demonstrated to be a defining
moment for the economy by tidying up the dark cash
which in turn has carried more borrowings to the
treasury, improved swelling viewpoint and expanded
GDP of India. Venture openings have likewise been
resuscitated and gave a lift to the framework and the
assembling segment. A tremendous measure of cash
saved in banks which thus aided decreases loan costs
and lower annual duty rate.
It is said that land is an industry flourish on dark cash.
The measure of illicit cash engaged in this area is
enormous. A gauge discloses to us that in Delhi - NCR at
any rate 40 percent of land arrangements are in dark.
Modi's demonetization move decreased the progression
of unaccounted cash into the land part. This will help in
abridging the utilization of dark cash inland area which
thusly brings about the decrease in the costs of land
also, property.
Demonetisation was a powerful hit to the fake Indian
money. Money with syndicate administrator working
both inside and outside the nation has been squandered.
Fake cash is one of the primary reasons behind the
degrading of the genuine worth of Indian money. Indian
Statistical Institute announced that at any given purpose
of time counterfeit cash notes adding up to Rs 400 crore
were available for use in the economy and around Rs 70
crore phony money notes are pushed into the nation
consistently. Be that as it may, the genuine number
could be a lot bigger. With Prime Minister Modi's
demonetization choice to boycott old money notes of Rs
500 and Rs 1,000 notes, what's more, supplanting them
with new one totally sucked the course of phony cash.
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As new money notes have accompanied profoundly
propelled security highlights which are scarcely
conceivable to repeat.
The primary wellspring of Terror financing is through
fake cash and hawala. This is the manner in which it
works. Counterfeit money is coursed by the system of
hawala administrators. These hawala administrators
have a connection with players also, runners of arms
and medications. By implication, they all wind up
financing fear based oppression. Moreover, the fear
mongers get tremendous cash by gifts steering such as
cash through hawala exchanges. All channels of dread
financing are currently shut with control in the course of
fake cash and hawala administrators.
Stone pelting has decreased in Kashmir in view of note
boycott. No stone pelting has been accounted for in
Kashmir since the withdrawal of most noteworthy cash
notes from the economy. As revealed by. Insight
organizations 1,000 crores are sent every year by
Pakistan to the separatists for making disorder in
Kashmir. The cash to the separatists is moved through
hawala. With hawala exchanges totally diminished left
separatists carelessly. Modi totally disassembled the
Kashmir turmoil with his careful strike called
Demonetisation offered to ascend to liquidity issue as
individuals thought that it was hard to get an adequate
measure of money to satisfy their fundamental needs.
Minimal area of the general public primarily relies upon
money to meet their day by day exchanges. Out of
complete money available for use 500 rupee notes
comprised about 49% as far as worth. More the time is
required to resupply Rs 500 notes, the more will be the
span of the liquidity emergency.
Item and general money advertise exchanges felt a
prompt effect. There is a disturbance in current liquidity
circumstance, as family units are probably going to get
influenced by the noted trade and money withdrawals
terms laid by the administration. The economy has as of
now borne transient costs, for example, the time
individuals squandered in long ques, liquidity
emergency in the casual economy, the laborer cutbacks
and numerous appalling passings. Certain segments of
the general public in particular farming segment, little
merchants, family units, day by day workers and so on
confronted transient disturbances because of
nonappearance of fluid money.
Gross domestic product arrangement will be influenced
by the decrease in utilization request and negative effect
on dispensable income. Land bundles are normally paid
in real money. With confinements on money exchanges,
land costs would fall. As littler/sloppy players get
influenced, interest no doubts bequest may decline.
There would be a negative effect on NBFC‟s that make
disbursements in real money and do the vast majority of
their accumulations in money. These incorporate gold
financing organizations, small scale money
organizations and so on.
There will be included substitution expenses of cash.
The expanded expense of working ATM‟s should be
refilled all the more frequently and furthermore, it will
be a colossal weight on banks. Besides disturbance of
old money units and printing of new cash will include
costs, which must be borne by the government and on
the off chance that expenses are higher than the
advantages, at that point, there is no utilization of
demonetization. Demonetization itself won't battle dark
salary. The most significant strategy ought to be charge
organization where the charge experts can screen
consumption and coordinating it with a salary of the
particular people.
Though Digitization may be a positive effect of
demonetization, India to become a cashless economy will
take time. Bloomberg data shows the share of cash in the
volume of consumer transactions is 98% and much of the
cash transactions are in rural India. PwC Report showed that
India‟s unbanked population still stood at 233 million,
suggesting that much remains to be done before people can
be on-boarded on to the digital bandwagon.
It might be on the whole correct to state that demonetization
will demonstrate to be helpful for the Indian economy in the
long run. The effect of cash swap on the country‟s duty
structure would be felt in a long time to come. Government
income will increment in the structure of expanded expense
gathering, bank stores will build driving to lower financing
costs on credits, and government can channelize this
expanded income towards the usage of tasks of National
Further, the subsidizing to unlawful or on the other hand
unlawful exercises which emerge due to unaccounted money
stream will diminish. The government can now effectively
follow unreported salary bringing about decreasing of
degenerate practices and cash washing. Be that as it may, it
is additionally to be noticed that a definitive goal of
demonetization to flush out dark cash from the economy
may not be accomplished, until the genuine individuals
behind dark cash are focused on. Also, individuals have
contributed their dark cash in resources like land and gold;
in this way, it winds up troublesome on government‟s part
to track dark cash. The accomplishment of demonetization
relies on the formalization by the administration which will
ideally change the outlook of individuals to cease from
unlawful exercises and dark cash.
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