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Demonitisation

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Yash Katariya
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Abstract
Demonetisation is described as a process through which units of currency may not remain
legal currency. The currency notes will not be deemed to be a valid currency. Demonetisation
is a step taken by the government in which currency units cease their status as legal tender.
The research seeks to understand the significance and purposes behind demonetisation and
the prudent impact of demonetisation on the economy. And discuss the impact on the
economy and analyze whether the objectives have been achieved or not. This study also
provides enlightenment into the positive and negative impact of demonetisation. This study
includes necessary and appropriate secondary data taken from different journal articles,
magazines, papers, and websites.

What does demonetisation mean, and how many times and when was it implemented in
India? Demonetisation is the method of removing a unit of exchange for its legal tender
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status. In other words, a unit of currency ends up losing its status of legal currency as a new
one enters. Demonetisation, a unit of money is ceased of its status as a legitimate tender. It
was required in order, condition of replacing new units of money with old currency. It
involves the emergence of new currency of the same denomination or new denomination
altogether.[ CITATION Cha20 \l 16393 ] . On January 12, 1946, the first demonetisation occurred,
the second on January 16, 1978, and the third on November 8, 2016.
For four main reasons, the Demonetisation which took place on 8 November,2016 was put
into effect – to stop corruption, to deter cash transactions, to remove counterfeit money and to
control inflation.[ CITATION Kus181 \l 16393 ] The decision was kept confidential so that before
the demonetization's official statement took place the tax dodgers would not be aware of this
clean-up mission. If any amount of black money was found with people and companies they
were forced to take to bank as it was required by law to obtain tax information. A penalty of
200% of the amount collected was imposed if the individual was unable to provide evidence
of making any tax payments. The research aims to explain the nature and purposes of
demonetisation, the effect of demonetisation on the industry and people and provide insight
into the positive and negative impact on the Indian economy of demonetisation.

Positive Impact of Demonetisation

Increase in Digital Payment


The government's big currency suppression exercise has given a boost to digital
payments. Despite less cash in hand, after demonetization, debit cards were used for the
purchasing of products as prior to demonetization, were only used for
money withdrawal from ATMs. At this point in time, several start-ups, such as Paytm and
Mobikwik, entered the market and played a major role in transferring money from person to
person. UPI and mobile banking have grown for instant cash transfer. India has been
introduced to make payments fast, trouble-free and on the hand tips. [ CITATION Mis19 \l
16393 ]

Increase in Income-tax Return


In 2016, in the year when demonetisation was implemented, there was an increase in income
tax return filings due to the amnesty scheme in June and subsequent in November due to
demonetization. There was an increase in income-tax returns filed, an increase of 14.5
percent in 2016 and an increase of 20.5 percent in 2017 and an increase of 23.1 percent in
2018 which was approximately 68.7 million. In 2019, return filings were unable to maintain
momentum and there was a decline of 2 percent, which came down to 67.4 million.
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Inflation rate falls


The price of putrescence food items felled post demonetisation as there was a shortage of
cash that curtailed transportation and was a constraint on sellers who were selling perishable
goods due to lack of cash availability so it was sold at a lower price which brought down the
rate of inflation after demonetisation.

Negative Impact of Demonetisation

99% currency laundered back in the Market

RBI's report on demonetization published on 30 August 2018 states that almost 99.3 percent
of demonetized money is back in the market. Government has taken the step to curb
corruption and black money but doesn’t seem that it was successful as approximately
Rs15.41 lakh crore notes of 500 and 100 which were in circulation in the market until 8
November 2016, out of which 15.31 lakh crore were returned, RBI said it in an annual report
of 2017-18 and only a minuscule of the currency had been left out, Rs10.720 crore of the
junked currency had not returned to the system. [ CITATION PTI18 \l 16393 ]  The report
contradicts the Government’s claim that black money would be flushed out and the duplicate
currency by Demonetisation as 99 percent of the money is back in the system and it seems it
was a wrong decision taken.

Less Black money stored in Cash


Demonetisation was a step taken by India's government to curb black money and one that
will have a profound effect on the country's parallel economy. Prime Minister claimed that
“the tax evaders can be identified, a several business owners like real estate, dealers,
jewellery stores, foreign exchange dealers, private money lenders usually hold huge amounts
of unrecorded money in the form of currency notes. In the country, such uncounted cash had
formed a parallel economy. Such illegal money will come across direct or indirect channels
to bank accounts.” [ CITATION Kum18 \l 16393 ] The major reason underneath demonetisation
was to tamp down black money, but in fact only a small amount of black money is stored in
cash form. Plenty of illegal money is maintained in the form of property, gold, big buildings
etc. Therefore, the amount of uncounted money deposited with the banks was only up to the
cash collected.
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Loss of income
The Chaos was ensured when demonetisation was implemented as 78% of consumers are
dependent on cash transactions. The long queue formed outside ATM and Banks. The new
currency was different in size and thickness which needed re-calibration of ATM machine,
40% ATMs were not operating. The hardship was added by the government by restricting
withdrawal amount but rejection on transaction fees assist. Lower middle, lower class daily
wage labourers, small traders and other marginal section of the society struggled to find cash
and not receiving their dues. The scarcity of Cash and Cash crunch made by firms, made a
loss of income and economy as well and which lead to the fell of rupee against dollar.

Increase in Fake Currency


The government’s decision to ban old currency notes of Rs500 and Rs1000 and replacing
them with new one claimed that new currency notes have come with highly advanced
security features which would blow out Counterfeit currency but the value of the fake
currency has shown a rise in 2017 compared to the last four years. Notes seized in the year
was approximately Rs 28.1 crore and as per the data, Rs 14.98 crore was accounted for Rs
2000 which is more than half of the total value.[ CITATION Sam19 \l 16393 ]

[Source: News18 India]


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Increase of fake currency and 99 percent of the money was back in the market shows that the
goal of demonetisation was not achieved, the reason for the failure could be that it was not
implemented efficiently because all money is back in the market or that black money has
been kept very low in cash. However, Demonetisation led to an increase in digital payments
and people belonging to the low-income sector also opened bank accounts that helped them.
After demonetisation, most of the people used UPI and Net banking which helped keep track
of transactions and India moved to the digital platform. The government's subsidy money
directly reached to individual bank account curbed corruption. There was an increase in
income tax return after the demonetisation which is beneficial for the country's economy.

Conclusion
The step was an attempt to tackle the problem of unauthorized money, corruption, terror
financing and fake currency. The course of action to demonize the old currency has been
regarded as a surgical strike against the undeclared money in the history of the Indian
economy. Demonetisation is abided by a countrywide money crisis, with banks and ATMs
facing severe money scarcity with negative effects on numerous small businesses, farming,
and transport. The currency boycott by India's government caused chaos in the short term, as
most individuals with old currency notes were struggling to exchange them in long queues at
the front of banks and ATMs across India. The overall value in the market of old currency
notes was at Rs 14.2 trillion, which represents about 86% of the total circulating value. The
black money was either compensated for by paying high 200% penalties of money owed, or
through direct or indirect channels reached the bank accounts. Demonetisation had a positive
effect on the Indian economy as it encourages online payment methods such as e-wallets and
applications, online payments using e-banking, plastic cards use, etc. Demonetisation is
beneficial to the medium to long-term economic system.
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References
Ashwani, K. (April 2018). Impact of Demonetisation on Indian Economy: A Critical Study.
International Journal of Management Studies, https://doi.org/10.18843/ijms
%2Fv5i2%287%29%2F04.

Himanshu, K. (April 2018). Impact of Demonetisation on Indian Economy: A Critical Study.


International Journal of Management Studies, https://doi.org/10.18843/ijms
%2Fv5i2%287%29%2F04.

Jim, C. (March 2020). Demonetization. Investopedia,


https://www.investopedia.com/terms/d/demonetization.asp .

Mishra, A. (December 2019). India is still recovering from the demonetization shock. Live Mint,
https://www.livemint.com/news/india/india-is-still-recovering-from-the-demonetization-
shock-11577208506857.html.

PTI, T. E. (August 2018). 99.30% of demonetised money back in the system, says RBI report. The
Economic Times, https://economictimes.indiatimes.com/news/economy/finance/after-
almost-two-years-of-counting-rbi-says-99-3-of-demonetised-notes-
returned/articleshow/65589904.cmshttps://economictimes.indiatimes.com/news/economy
/finance/after-almost-two-years-of-counting-r.

Sharma, S. (August 2019). More Rs 500, Rs 2000 fake notes since demonetisation; counterfeit
instances shot up 43 folds . Financial Express,
https://www.financialexpress.com/economy/more-rs-500-rs-2000-fake-notes-since-
demonetisation-counterfeit-instances-shot-up-to-43-folds/1691029/.
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PEER REVIEW

Author’s Name: Parmik Patel

Roll Number: 1910588

Title:  Nutrition

Section: 12

The introductory paragraphs are really catchy. The liked specific details are well written, about how
the nutrients play important roles in our lives and in addition to it there was a story of Hippocrates
which was very vivid and memorable. And it also sets the tone and base of the entire essay. In the
beginning the author made the topic clear and all the paragraphs contain topic  sentences and are
well developed and correlated. The research seems to have some sound ideas, the language and the
words are rather unclear, so maybe hard to follow. All the details serve the essay's development and
the essay has a clear start and middle, but the conclusive paragraphs or statements are losing. I
found some comma flaws and some other minor punctuation missteps.

Overall, the pitch of the research essay is consistent and matches the guidelines adequately but it
also does sound a bit common while entering the middle passage.

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