case study on demonetisation class 12

Economics Project On Demonetization – Class 12 CBSE

Table of Contents

DEMONETIZATION:

Demonetisation is the act of stripping a currency unit of its status as legal tender. It occurs whenever there is a change of national currency: The current form of money is pulled from circulation and retired, often to be replaced with new notes and coins. Sometimes, a country completely replaces the old currency with new currency.

The opposite of demonetization is remonetization, in which a form of payment is restored as legal tender.

Dramatic Examples of Demonetisation:

The Coinage Act of 1873 demonetized silver as a legal tender of the United States, in favor of fully adopting the gold standard. Several coins, including two percent price, three percent price, and half dime, were discontinued. The withdrawal of silver forms the economy resulted in a contraction of the money supply, which subsequently led to a five-year economic depression throughout the country. In response to the dire situation and pressure from farmers and silver miners and refiners, the Bland-Allison Act remonetized silver as illegal.

An example of demonetization for trade purposes occurred when the nations of the European Union officially began to use the euro as their everyday currencies in 2002. When the physical euro bills and coins were introduced, the old national currencies, such as the German mark, the French franc, and the Italian lira were demonetized. However, these varied currencies remained convertible into Euros at fixed Exchange rates for a while to ensure a smooth transition.

In 2015, the Zimbabwean Government demonetized its dollar as a way to combat the country’s hyperinflation, which was recorded at 23000000. The three-month process involving expunging the Zimbabwean dollar from the country’s financial system.

India’s Demonetisation:

In 2016, the Indian Government decided to demonetize the 500 and 100 rupee notes, the two biggest demonetizations in its currency system; these notes accounted for 86% of the country’s circulating cash. With little warning, India’s Prime Minister Narendra Modi announced to the citizenry in November & that those notes were worthless, effective immediately, and they had until the end of the year to deposit or exchange them for newly introduced 2000 rupee and 500 rupee bills.

Chaos occurred in the cash-dependent economy; some 98% of fall Indian Customers (transactions are in cash).

Demonetisation Process:

The plan to demonetize the 500 and 1000 banknotes were initiated between six and ten months before it was announced and was kept confidential, with only ten people being completely aware of it. The preparations for printing the new 500 and 2000 banknotes began in early May 2016 in a meeting called by the Indian Prime Minister Narendra Modi.

Public Announcement:

On 8 November 2016, Modi announced the demonetization in an unscheduled line national televised address at 20:15 Indian standard time. Modi declared circulation of all 500 and 1000 banknotes of the Mahatma Gandhi Series as invalid effective immediately from the midnight of the same day.

Exchange of Old Notes:

The Reserve Bank of India stipulated that the demonetized notes could be deposited with banks ones fifty days until 30 December 2016. The banknotes could also be deposited with banks over the counter of all banks.

Withdrawal Limits:

Cash withdrawals from bank account were restricted to 10000 per day and 20000 per week per account from 10 to 13 November. This limit was increased to 24000 per week from 14 November 2016.

Information Leaks:

The foresight of the official announcement, a news report in the Hindi daily Dainik Jagran, is quoting the RBI sources speaking of the planned release of new 200 rupee notes alongside withdrawal of 500 and 100 rupee notes.

Words in Say…

• PM Narendra Modi spoke about currency demonetization in Goa. Here are some statements:
• I was not born to sit on a chair of high affairs. Whatever I had, my family, my home, I left it for the nation.
• Yes, I also feel the pain. These steps taken were not a display of arrogance.
• We took a key step to help the honest citizen of India defeat the menace of Black Money.
• Previous Governments neglected this, did I hide anything? We took a key step, honest citizen, to defeat the menace of black money.
• Why do we put the future of our youth at stake? Those who want to do politics are free to do so.
• This suffering is for 50 days, after cleanliness, not even a mosquito can fly. People in the 2G scam have to stand in queue for RS.4000.
• If I commit any mistake, I am ready to face any punishment the country will give me. But I promise to deliver corruption-free India.
• I know the forces up against me, they may not let me live, they may ruin me because their loot of 70 years is in trouble, but 9 I am prepared.
• The people have chosen a Government, and they expect much from it.
• In 2014, many people noted to free the nation from corruption. If any money that was looted in India and has left Indian shores, we must find out about it.

ALTERNATIVE FUNDS:

Soon after the announcement, people rushed to buy gold, a demand that drove prices up, in some cases even to a 60% premium, prompting the tax authorities to conduct surveys, according to the Business Standard newspaper. The Government emphasized the need to furnish PAN (Indian Permanent Account Number) card details on purchases for accountability purposes, and many jewelry shops that were floating the norms cause under crackdowns.

Simultaneously, rumors of a gold ban started to float, which led to agencies ramping up the volume of gold imports – to around 100 metric tons during November, the highest since 2015, the highest. Since 2015, as reported by Reuters.

Many Indians switched to alternative payment avenues – a big deal in a country of 1.2 billion with only 25.9 million credit cards and 697 million ATM cards as of July 2016. The biggest gainers were mobile wallet companies that offer ease of transactions through a large network of partners. Alibaba backed Paytm saw a sevenfold increase in overall traffic and a tenfold jump in money added to Paytm accounts. It also saw the number of transactions double to five million a day. App downloads for Paytm increased by 300%. Paytm vital MobiKwik also saw its app downloads quadruple and a twentyfold increase in money added to the wallets, MobiKwik Founder and CEO Bipin Preet Singh, told CNBC TV 18 on November 13.

Long-term Effects:

Over 3 trillion rupees, or over $44 billion in old currency, was deposited with Indian banks in just the first week after the demonetization. There was concern that the uncertainly and short-term liquidity squeeze would take some momentum off the Indian economy, the fastest growing in the world, in particular, sectors like real estate, notorious as a harbor for cash dialing and black money, were expected to take a bit, with “Luxury property prices dipping as much as 25-30% said Ashwinder Raj Singh, CEO of Residential Services, JLL India.”

The decision met with mixed initial reactions. Several bankers like Arundhati Bhattacharya (Chairperson of State Bank of India) and Chanda Kothhan appreciated the move adding that it would also accelerate e-commerce. Infosys founder NR Narayana Murthy praised the move.

The Indian National Congress spokesperson Randeep Surjewala welcomed the move but remained skeptical of the consequences that would follow. Chief Minister of Bihar Nitish Kumar supported the move. The demonetization also got support from Chief Minister of Andhra Pradesh Nara Chandrababu Naidu. Former Chief Election Commissioner of India SY Quraishi said demonetization.

The Indian Supreme Court while hearing one among a slew of cases filed against the sudden demonetization decision in various courts, observed that it “appears to be carpet bombing and not surgical strike” which government repeatedly claims to be Nobel Laureate Indian economist Amartya Sen, severely criticized the demonetization move calling it a “Despotic Action” among other things.

Former Senior Vice-President and Chief Economist of the World Bank, Kaushik Basu called it a “Major Mistake” and said that the ‘damage’ is likely to be much greater than any possible benefits. Prabhat Patnaik, a former professor of economics at Nehru University.

Opposition:

A Congress-led opposition, which includes 13 political parties, opposed the current Government on the demonetization issue in the Winter Session of the Indian Parliament on 16 November 2016. The Chief Minister of West Bengal Mamata Banerjee also met President Pranab Mukherjee to oppose demonetization. The debate a demonetization is known to be initiated by Indian National Congress.

On 16 November 2016, Banerjee led a rainbow delegation comprising political parties of Trinamool Congress, Aam Aadmi Party, BJP Ally Shiv Seva, Patidar Anwar Andolan Samiti and National Congress, Aam Aadmi Party, BJP Ally Rashtrapati Bhawan to protest against the decision to withdraw the rs.500 and Rs.1000 banknotes and majority is in the form of physical assets like gold, land, and building, demonetization of the rupee 500 and 1000 notes might take out a lot of black money from the economy.

On Inflation:

The Reserve Bank of India (RBI) considers the wholesale price index (WPI) and the consumer price India (CPI) to measure inflation. Demonetisation is expected to reduce inflation as consumers have cut down on spending, and aggregate demand has considerably fallen.

On Terror Funding: Demonetisation was aimed as a clean-up of the economy where fake Indian Currency Notes (FCN) would be checked. It is aimed at rendering all fake notes of rupees 500 and 1000 useless and thus drastically affecting illegal funding of terror groups.

On Political Parties:

Many Political parties use large amounts of understanding cash to campaign for elections and meet other requirements. Due to demonetization, such acts might get restricted to an extent, and parties will have to formulate new strategies.

Towards a Digital Economy:

The absence of liquid cash has led to people making transactions using cheques or amount transfers. They have also switched to virtual wallets like Paytm, which allows electronic transfer of money.

EVASION ATTEMPTS:

Gold Purchases:

In Gujarat, Delhi, and many other major cities, sales of gold increased on 9 November, with an increased 20 to 30 percent premium surging the price as much as Rs.45000 from the ruling price of rs.31900 per 10 grams.

Donations in Temple:

In India, the cash deposited into hundreds, or cash collection boxes in temples and gurudwaras are exempted from the inquiry by the tax department.

Multiple Bank Transactions:

There have been reports of people circumventing the restrictions imposed in exchange by conducting multiple transactions at different bank branches and also sending hired people, employees and followers in groups to exchange large amounts of banned currency at banks.

Railway Booking:

As soon as the demonetization was announced, it was observed by the Indian Railways authorities that a large number of people started booking tickets, particularly in classes 1A and 2A for the longest distance.

Backdated Accounting:

The Enforcement Directorate raided several forex establishments making backdated entries. Money laundering using backdated accounting was carried out by banks, jewelers, etc.

Demonetisation has been praised as well as criticized various grounds. There has been a lot of opposition regarding the implementation of this policy. In the short run, there have been problems related to liquidity crunch, unemployment, loss of growth momentum, and a temporary halt to major economic activities. All this is evident from the data provided by the RBI. The long term effects of Demonetisation are yet to be ascertained. It is expected that it can improve the Indian economy in the long sum by increases tax compliance, financial inclusion, consequently improving the state of the economy.

CONCLUSION:

Economists are busy listing out many more merits and demerits of this policy. The Government is saying that there are only advantages of demonetization policy, and this will be seen in the long term. Former Prime Minister Manmohan Singh, who is a noted economist, former RBI Governor and former Finance Minister of the Country, dubs the demonetization move as an ‘organized loot and legalized plunder.’ However, if we compare the merits verses demerits, it will be safe to conclude that the former out-weigh the latter.

ACKNOWLEDGMENT:

I would like to express my special thanks of gratitude to my principal as well as our teachers who gave me the golden opportunity to do this wonderful project on the topic – Demonetisation, which also helped me in doing a lot of research and I value to know about so many new things, and I am thankful to them. Secondly, I should also like to thank my parents and friends who helped me a lot in doing this project.

CERTIFICATE:

This is to certify that _____________ of class XII of school ___________________ has completed this project under my supervision. He/She has taken proper care and shown the utmost sincerity in the completion of this project. I certify that this project is up to my expectations and as per the guidance issued by CBSE.

Teacher’s Signature,

BIBLIOGRAPHY:

• http://bsmedia.business-standard.com/media/bs/img/article/2016-11/09/full/14789233-1616.jpg
• http://www.google.co.in/search?biw=13668&bin=613&tbm=isch&sa=l&ei=WsKCW
• https://www.google.com/search?q=demonetisation&oq=demonetisatio&aqs=chrome.0.0j69i57j0l2j69i61l2.1669j0j7&sourceid=chrome&ie=UTF-8
• https://timesofindia.indiatimes.com/topic/demonetisation

DOWNLOAD PDF OF THE PROJECT

Password : hscprojects.com

DOWNLOAD NOW

In order to download the PDF, You must follow on Youtube. Once done, Click on Submit

Subscribed? Click on Confirm

Download Economics Project On Demonetization – Class 12 CBSE PDF

Related articles.

Social Science Project Topics For Class 10 CBSE

Solar Vacuum Cleaner & Floor Cleaner Robot Project

Cam Shaft Mechanism DIY Ventilator Project

Android Hostel Management System

Leave a reply cancel reply.

Your email address will not be published. Required fields are marked *

Notify me of follow-up comments by email.

Please Enable JavaScript in your Browser to Visit this Site.

• IAS Preparation
• UPSC Preparation Strategy
• Demonetization Of Rs 500 And Rs 1000

Demonetisation Essay - Download Demonetisation Essay PDF for UPSC Preparation

On the heels of The Undisclosed Foreign Income and Assets (Imposition of Tax) act of 2015; and the Income Disclosure Scheme of 2016, the Narendra Modi government had announced demonetization of Rs 500 and Rs 1000 currency, which has been referred to as a masterstroke by many experts.

This article is an essay on demonetisation. It elaborates on the concept, merit and demerits, and the effect of demonetisation in India. It also showcases the critical analysis of demonetisation in India.

The essay on Demonetisation holds relevance for both Prelims and Mains examination of various competitive exams. It is an important topic for the UPSC civil services exam as well.

Table of Contents:

Essay On Demonetisation in India

Concept of demonetisation .

The withdrawal of currencies or other valuables by the central bank to be used as the legal tender in the nation. Such currencies either turn into scrap or a deposited in the banks and replaced by the new currencies. 

Governments of many countries across the world have taken this drastic measure to curb black money and stop the counterfeiting of currency notes. Some countries failed miserably while others were successful in their goals behind demonetization. Let’s take a glance at the countries that underwent demonetisation and the impacts they had to face. 

The Decimal System in the United Kingdom in 1971: The biggest change to the currency of Britain for more than a thousand years took place in 1971 when the British adopted the decimal system. As per this system the pound was divided into 100 pence. The transition of Britain’s currency to decimal was a success as it was done after spreading awareness and doing education campaigns for three years.

African countries:

In the year 1984 during the government of Muhammadu Buhari, Nigeria banned old notes and introduced a new currency. However, the inflation hit, and the debt-ridden country did not make the change well and the economy collapsed. 

Similar is the case with Ghana, another African country that underwent Demonetisation in the year 1982. Ghana wanted to curb tax evasion and empty excess liquidity so they ditched their 50 cedis note. This made the nationalists support the black market and they started investing in physical assets which resulted in further weakening of the economy.

The Government of Zimbabwe in 2015 replaced the Zimbabwe dollar with the American dollar. Before this, Zimbabwe had a currency denomination of 100 trillion Zimbabwean dollars. Now, the multiple currency system is abolished by the Reserve Bank of Zimbabwe and replaced with a new Zimbabwe dollar known as the RTGS Dollar. 

In 1987 the military government in Myanmar invalidated eighty percent of the Myanmar kyat to curb black-marketeering and smuggling.  This demonetisation drive caused terrible economic unease as it had no provision for any exchange of the scrapped denominations. There were mass protests and resulted in the ruthless killing of around a thousand people. 

Soviet Union Monetary Reform 1991: 

In 1991 Mikhail Gorbachev decided to withdraw 50 and 100 ruble notes. It was also known as Pavlov Reform on the name of  Minister of Finance Valentin Pavlov. Due to this reform, the economy collapsed and even resulted in the dissolution of the Soviet Union .

The Australian government was the first to introduce polymer-based plastic notes in 1992. To curb black money and improve the security features, Australia underwent Demonetisation and replaced all paper notes by plastic currency in 1996. As polymer-based notes were already in use for four years, the transition was smooth and didn’t have any impact on the economy.

Pakistan’s central bank, in 2016 decided to phase out banknotes of older design to curb black money and gave the general public six years to exchange their currency. People were notified regarding the change and there wasn’t any chaos in the process. But field officers of the central bank will continue to accept the notes of older design till December 31, 2021.

Demonetisation In India

Basic meaning

• It refers to the decision of RBI/Government to recall the status of a currency note to be used as a legal tender. Usually, all the currencies issued by RBI can be used as a legal tender as the value they carry is promised by RBI and once the value has been demonetized/recalled/revoked, the currency note cannot be used. Globally the central banks follow a practice wherein older currency notes are recalled and new currency notes with enhanced security features are issued to overcome the menace of counterfeit currency.

Why was demonetization done (as per the reasons given by the government in the present case )

• To tackle the menace of black money/parallel economy/shadow economy
• The cash circulation in India is directly connected to corruption hence we want to reduce the cash transactions and also control corruption and thereby move towards cashless transactions.
• To counter the menace of counterfeit currency
• To prevent the cash being used for terrorist activities/terror funding
• It was an ineffective move as only 15% of the high denominations were exchanged
• The rest never surfaced for the fear of stringent penalties by the government. As per the High Denomination Bank Notes (Demonetization) Act, 1978, it barred the transfer and receipt of high denomination banknotes and made any contravention including a false declaration by depositors and others punishable — with a fine or a three-year prison term
• The report concluded that demonetization may not be a solution as black money was largely held in the form of benami properties, bullion, and jewellery. Such a measure would only increase the cost as more currency notes which have to be printed. It could also harm the banking logistics

(In the present age the European Central Bank has announced that it would demonetize €500 note)

• India has one of the highest levels of currencies in circulation which is more than 12% of its GDP value, and the 1000 and 500 rupee notes account for 24.4% (around 2300 crore pieces) of currencies in circulation but over 85% in terms of the value of the currency in circulation Having said so it has to be kept in mind that India is not an outlier in this segment as there are various other countries such as USA’s $100 note and Japan’s ‎¥10000 account for over 80% of currencies under circulation.

Cash is the king – In India majority of the transactions are done in the form of cash

• As per RBI, 87% of the transactions in India are cash transactions
• As per the RBI report, debit cards at ATMs account for 88% and 94% (by volume and value respectively) of the debit card transactions, and 12% and 6% account for POS transactions.
• The infrastructure growth is slow – The POS machines and ATMs are 1.2 million (and there are around 14 million merchants in India, in essence, more than 90% of the merchants are not using the POS machines) and 0.19 million respectively. (From 2013 to 2015, ATMs increased by 43% and POS machines by 28%)
• ATMs and POS machines are concentrated in an urban area
• Penetration in non-urban areas is very poor add to this, the connectivity issues
• Even if the POS machines are installed, low-value transactions are discouraged by the merchants
• The number of cards issued is on the rise
• The acceptance infrastructure has to be placed
• Increasing trade on e-commerce (provided it promotes online payments/transactions)
• The increasing number of digital wallets-Paytm, Pockets, etc
• The government has implemented Jan Dhan Yojana and under this, a large population has been able to open their accounts which will be helpful (in the sense the debit cards issued have increased)

Related links:

• As per the statements given in RS by Arjun Ram Meghawal (Minister of State for Finance), the total FICN is to the tune of Rs 400 Cr
• As per the Lok Sabha Website between 2011 and 2015, the RBI has seized around 26 lakh counterfeit notes of denomination Rs 500 and Rs 1000 amounting to Rs 167 Cr
• Amongst the two, the FICN of Rs 500 currency notes were higher (both in numbers and in value)
• As per a study done by ISI (Indian Statistical Institute), at any given point of time, the FICN is to the tune of Rs400 Cr and annually the FICN pumped into the economy is Rs 70 Cr

Measures taken

• FCORD (FICN Co-Ordination) group has been set up by MHA (Ministry of Home Affairs) to share the information with other security agencies regarding controlling FICN
• The MHA (Ministry of Home Affairs) has set up CCT Cell (Combating Financing of Terrorism Cell) to co-ordinate with FATF (Financial Action Task Force- it’s an intergovernmental body has remarked that high-value bills are used in money laundering schemes, racketeering, and drug and people trafficking)
• TFFC (Terror Funding and Fake Currency Cell) has been set up under NIA ( National Investigation Agency ) to investigate the terror financing using FICN
• MoU (Memorandum of Understanding) has been signed between India and Bangladesh to prevent circulation and smuggling of FICN (the majority of the inflows of FICN is done through Pakistan, Nepal, and Bangladesh)
• Less cash Vs Cashless

The debate has been raging in India over the need for the country to become a cashless economy but the fact of the matter is that a sudden shift from cash-based to cashless will have huge repercussions and not to forget that cash facilitates trade, hence there is a need for India to first move into the less-cash economy (one of the aims in introducing Rs 2000 note) and then move towards becoming a cashless economy

• The intelligent always find a way around when the currency is demonetized
• It becomes much more difficult if they have stored the black money in other forms-gold, asset, etc
• So the way out is that rather than running behind these measures, we must implement the systems, procedures which will bring all those who are supposed to pay the tax, under the tax bracket and we can collect the appropriate taxes from them (as in India, the highest rate of taxation is around 33%, whereas in America, after including the federal and state taxes the tax rates are around 50% and in case of UK it is hovering around 45%)

Analysis of Demonetisation in India

• The menace of black money can be controlled to some extent
• Terror financing, using black money for illegal activities, etc will all take a hit
• The counterfeit currencies which have an impact on the real economy will be rooted out
• The mobilization of deposits in the banks will increase, which may lead to increased credit flow and lowering of lending rates
• The black money adds to the inconspicuous demand and hence the inflation to some extent will be under control
• The government is also aiming to raise its revenue collection (eg- by taxing exorbitant IT rates over certain deposits, the tax collection in other forms will also increase, etc)
• Real estate is one of the major sources of black money generation. With this move, it is expected that the property market rates may bottom out or moderate
• It’s a major step by the government towards forming a cashless economy
• The honest workers will be rewarded under such a scenario
• The elections are usually associated with black money generation and circulation, with this scheme the funding of elections through nefarious ways will be hit
• It is expected that with this move the Fiscal Deficit of the government may come down
• For one all the black money is not stored in the form of cash only and secondly, the measure takes care of the result but not the cause-black money is generated mainly because of corruption and tax evasion. This measure controls the usage of black money but cannot control the causes
• Sudden and huge demand for the new currencies
• Panic amongst the common man (already we have seen the case wherein people have looted fair price shop in MP, Cash Carrying companies seeking higher insurance, etc). already the panic has led to people hoarding currencies which have further reduced the liquidity in the market
• The small trade/shopkeepers are facing difficulties
• Black marketing of the new notes/currencies is on the rise
• The establishments such as banks, hospitals, etc are under a lot of stress
• Another area that is a cause of worry is the likely drop in the rural demand as the cash usage will become restricted. Apart from this, the experts are also expecting an impact on the SME sector, agricultural production (the economy was expected to perform well as there was an expectation of a good rabi crop after two bad monsoons but a prominent economist, Pronab Sen has said that demonetization is akin to third bad monsoon year as it will have an impact on agricultural production, but the more dangerous situation is this having a spillover effect on to fertilizer, tractor sectors)
• Only 27% of the villages have a bank within 5 Kms (as per Economic Survey 2015-16)
• Despite recording breaking implementation of JDY, the banking penetration is low-on an average 46% in all the states (as per Economic Survey 2015-16)
• Another challenge in implementing and eradicating black money would be the presence of the informal economy. It accounts for 45% of GDP and 80% of employment hence this move may have a greater impact on the informal economy
• Logistics and cost challenges of replacing all the Rs 500 and Rs 1000 notes – as per the RBI documents this measure would cost at least Rs 12000 crore as it has to replace over 2300 crore pieces of these currencies
• The decision to issue Rs 2000 denomination currency and withdrawal of Rs 500 and Rs 1000 currency will lead to huge challenge as most of the day to day transactions in India are centered around Rs 500 note (more than 47% of the value of notes in circulation is in Rs 500 note form)
• The availability of Rs 500 and Rs 1000 notes will be the biggest challenge as both of them covered over 85% in terms of the value of total currencies issued
• The process has led to huge rush and long queues of the people in front of ATMs and as per the statement of the finance minister the ATM recalibration would take around 2 to 3 weeks
• As per data furnished by the Finance Ministry, Rs 17,50,000 crore worth of currency notes were in circulation in October-end, out of which over 85% percent or Rs 14,50,000 crore is in the now-defunct Rs 500 and Rs 1,000 notes. So far for the first four days, the government has been able to pump in Rs 50000 cr (on an average 12500 Cr). Going by these numbers it would take around 4 months to replace these notes as against the 50 days promised by the PM

• The rural demand even after a good monsoon is unlikely to pick up and agriculture production is unlikely to achieve a 3.5 to 4% GDP growth rate
• As per Prof Bhanumurthy (NIPFP), all the black money may not find its way to the banks hence GDP growth rate may come down by 1.1% (the professor has also remarked that the money which was not there in the system is being pumped in and add to this if the online transactions are promoted then the GDP growth may pick up rather than declining)
• As per economist Pronab Sen, this may lead to a lowering of GDP by 0.2 to 0.3%, and in extreme cases, we may end up achieving 7% (targeted is 8%)
• The opportunists

The online service providers have up their ante when there is a shortage of currency notes, pushing their products/services by providing discounts, coupons, credit, etc. For example, Paytm, which is the largest mobile wallet company, has said that it (since the ban kicked in)

• Has seen a 700% increase in overall traffic on the platform
• 1000% growth in the value of money added to the Paytm accounts
• The average transaction value has increased by 200%
• Mobile app downloads have increased by 300%
• Has processed around 5 million transactions each on 12 th and 13 th (Saturday and Sunday respectively) of this month

There is no doubt that the coming months will be painful for the common man, small businesses, housewives, etc as there will be some shortage of legal tender/currency that will have an impact on them. Another rising issue will be that the demand for POS machines, Debit Cards which has to be resolved lest the measures will become an obstacle rather than the solution.

If these measures are implemented efficiently then we can expect a higher collection of taxes, higher investments in the market, price corrections, improvement of India in some of the international rankings, prevent corruption practices, etc and these are some of the reasons why people, although are going through difficulties, are lauding this measure of the government

But after having discussed so much, will this measure eliminate all the black money in the economy? The answer simply would be a confirmative NO as it has been seen that the black money is stored in various forms other than cash (such as gold, jewellery, assets, etc) and as per A 2012 report prepared by the National Institute of Financial Management – on unaccounted income – found that cash was the least preferred option for storing unaccounted wealth

Measures by the Government to control black money

• One of the first cabinet decisions taken by the government was to set up SIT (Special Investigation Team) on Black Money
• The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, came into force on July 1, 2015, under which the tax rate imposed was 60%
• Further upon the leaks of the Panama Papers, the government constituted a Multi-Agency Group (MAG) comprising officers of the Central Board of Direct Taxes , Reserve Bank of India, Enforcement Directorate, and Financial Intelligence Unit.
• Lok Sabha recently has passed the Benami Transaction Bill, 2015 which is an anti-black money measure that aims to seize unknown property and prosecute those indulging in such activities.
• This year the government has amended its DTAA’s and is in negotiations with some other countries
• It is also under negotiations with the authorities in Switzerland in signing Automatic Exchange of Information (AEOI)
• In this year’s budget government had announced IDS (Income Declaration Scheme) under which it has successfully collected Rs 65,250 crore in the form of taxes .

Aspirants can download the Demonetisation PDF from the link provided below:

Demonetisation Essay PDF:- Download PDF Here

Frequently Asked Questions about Demonetisation

What do you mean by demonetisation, what is the main aim of demonetisation.

The topic ‘ Demonetisation’ can be asked in either prelims or in Mains (GS 3, or Essay) exams. It makes a good topic for Indian Economy preparation that comes under Mains GS III. Aspirants can refer to UPSC Mains GS 3 Strategy and Syllabus article for more information on GS III preparation.

Aspirants can also practise answer writing for important topics other than Demonetisation Essay, from previous year Indian Economy Questions from Mains GS 3 .

Indian Economy Related Articles:

Leave a Comment Cancel reply

Your Mobile number and Email id will not be published. Required fields are marked *

Request OTP on Voice Call

Post My Comment

IAS 2024 - Your dream can come true!

Download the ultimate guide to upsc cse preparation.

• Share Share

Register with BYJU'S & Download Free PDFs

Register with byju's & watch live videos.

• Class 6 Maths
• Class 6 Science
• Class 6 Social Science
• Class 6 English
• Class 7 Maths
• Class 7 Science
• Class 7 Social Science
• Class 7 English
• Class 8 Maths
• Class 8 Science
• Class 8 Social Science
• Class 8 English
• Class 9 Maths
• Class 9 Science
• Class 9 Social Science
• Class 9 English
• Class 10 Maths
• Class 10 Science
• Class 10 Social Science
• Class 10 English
• Class 11 Maths
• Class 11 Computer Science (Python)
• Class 11 English
• Class 12 Maths
• Class 12 English
• Class 12 Economics
• Class 12 Accountancy
• Class 12 Physics
• Class 12 Chemistry
• Class 12 Biology
• Class 12 Computer Science (Python)
• Class 12 Physical Education
• GST and Accounting Course
• Excel Course
• Tally Course
• Finance and CMA Data Course
• Payroll Course

Interesting

• Learn English
• Learn Excel
• Learn Tally
• Learn GST (Goods and Services Tax)
• Learn Accounting and Finance
• GST Tax Invoice Format
• Accounts Tax Practical
• Tally Ledger List
• GSTR 2A - JSON to Excel

Are you in school ? Do you love Teachoo?

We would love to talk to you! Please fill this form so that we can contact you

Chapter 3 IED Liberalisation, Privatisation And Globalisation

• Chapter 1 IED Indian Economy On The Eve Of Independence
• Chapter 2 IED Indian Economy 1950-1990
• Chapter 4 IED Poverty
• Chapter 5 IED Human Capital Formation In India
• Chapter 6 IED Rural Development
• Chapter 7 IED Employment: Growth Informalisation Other Issues
• Chapter 8 IED Infrastructure
• Chapter 9 IED Environment And Sustainable Development
• Chapter 10 IED Comparative Development Experiences of India

Demonetisation

Last updated at May 29, 2023 by Teachoo

Demonetisation is the act of removing a currency unit of its status of a Legal Tender.

It was done on 8th November, 2016

Government announced that the currency notes of Rs500 and Rs1000 were demonetised

and were no longer legal tender

Objectives of Demonetisation

1 The main objective was to curb black money.

2 To reduce tax evasion

3 To bring back black money into the banking system

4 To stop circulation of fake currency

5 To curb terrorism

6 To Tackle problem of corruption

Features of Demonetisation

1 It was a 'Tax Administration Measure'

People who had black money had to declare their unaccounted wealth and pay taxes for the same

2 Government indicated that Tax Evasion will not be tolerated

3 Channelizing savings into formal financial system

Withdrawing amount from banks will go on

Banks will also continue to provide loans in some new schemes, with lower interest rate.

4 It aims to create a Cash-less or Cash-lite economy

By channeling more savings into formal financial systems

Improving tax compliance

Promoting digital transactions wherever possible

Impact of Demontisation

1 Money/ Interest Rates

Cash transactions decreased

Bank deposits increased

Financial savings also increased

2 Private wealth

Real estate prices fell, so private wealth declined

3 Public sector wealth

4 Digitisation

Digital transactions increased as new services like RuPay cards, Paytm were on a boom

5 Real Estate

Prices declined

6 Tax Collection

Rise in income tax collection because of increased income disclosure

MCQ Other Books

In the following questions, select the correct answers:

1 Which of the following is not a benefit of Demonestisation in India?

A Control over corruption

B Counterfeiting use of high demonestisation notes for illegal activites

C Control on black money

D More demanding customers

Explanation

The demands of customer have no relation with the implication of Demonetisation in India

All the other points mentioned are benefits of Demonestisation

Which of the following was not a feature of Demonetisation?

A Channelizing savings into formal financial system

B Tax administration

C Cash less economy

D Promotion of black money

This is not a feature of Demonetisation

Rather, one of the objective of Demonetisation was to bring back black money into the banking system

____ and ____ currency notes of old Mahatma Gandhi series were banned as legal tender money on 8th

November, 2016.

A Rs50 and Rs100

B Rs500 and Rs1000

C Rs100 and Rs500

D Rs500 and Rs2000

What kind of Tax is GST?

A Direct Tax

B Indirect Tax

C Depends on the type of goods and services

D None of the above

Goods and Services Tax is an indirect tax used in India on the supply of goods and services.

Learn in your speed, with individual attention - Teachoo Maths 1-on-1 Class

Maninder Singh

CA Maninder Singh is a Chartered Accountant for the past 13 years and a teacher from the past 17 years. He teaches Science, Economics, Accounting and English at Teachoo

Hi, it looks like you're using AdBlock :(

Please login to view more pages. it's free :), solve all your doubts with teachoo black.

General Studies

All Programmes

Study Material

Demonetisation Case Verdict

What’s in today’s article?

Why in news, what is demonetisation, why countries opt for demonetisation, what are the advantages and disadvantages of demonetization, demonetisation in india.

• What was the verdict of SC in demonetisation case?
• The Supreme Court upheld the government’s 2016 decision to demonetise currency notes of Rs 500 and Rs 1,000 by a 4:1 majority.
• Demonetization is the process through which a nation's economic unit of exchange loses its legally enforceable validity.
• It is a drastic intervention into the economy that involves removing the legal tender status of a currency.
• To address issues like hyperinflation and to stabilize the currency
• To eliminate negative situations or actions like counterfeit currency, terror, and tax fraud
• To introduce a new monetary system in some circumstances
• To facilitate trade and access to markets, 
• To push informal economic activity into more transparency

Image caption: Advantages and disadvantages of demonetisation

• In 1946, RBI demonetized 1000- and 10000-rupee notes.
• In 1978, the government demonetized 1000-, 5000-, and 10000-rupee notes in order to curb the menace of black money.
• On November 8, 2016, PM Modi announced the decision of the government to demonetise currency notes of Rs 500 and Rs 1,000 in a bid to tackle corruption.

News Summary

Why was demonetisation challenged.

• 58 petitions challenging various aspects of the government’s note ban decision was filed in the SC.
• Section 26(2) of the RBI Act states that on recommendation of the Central Board of the RBI, the Central Government may declare that any series of bank notes of any denomination shall cease to be legal tender.
• I.e., RBI has power only to recommend “a particular series” of notes. It does not have powers to demonetise “all series” of a particular denomination.
• legitimate purpose; rational connection with the purpose; necessity; whether the action taken is proportional or balanced.
• They also contended that the entire decision-making process was flawed in law as the proposal should have been emanated from RBI Board, not from the Centre.

What is the Supreme Court’s verdict on demonetisation?

• In its majority 4:1 judgment, it was held that the Centre’s notification dated November 8, 2016, was valid and satisfied the test of proportionality .
• The Centre is required to take the action after the consultation with the Central Board and there is an inbuilt safeguard.
• Decision-making process cannot be faulted merely because the proposal emanated from the centre.
• The individual interests must yield to the larger public interest sought to be achieved by the impugned notification.
• On creating a fresh window for return of demonetised currency, the majority verdict said it did not have the expertise to frame such a scheme.

Image caption: SC Verdict on demonetisation

Q1) What is the history of Demonetisation in India?

The Indian government had demonetised banknotes on two prior occasions—once in 1946 and once in 1978.

Q2) What are the benefits of Demonetisation?

Demonetization is important for fighting various evils like corruption, counterfeit currency racket, tax evasion, etc. It helps in tracing and restricting illegal economic activities.

Source:  Two views on six issues: What the Supreme Court’s demonetisation verdict says    |     Economic times   |    Indian Express

© 2024 Vajiram & Ravi. All rights reserved

• SUGGESTED TOPICS
• The Magazine
• Newsletters
• Managing Yourself
• Managing Teams
• Work-life Balance
• The Big Idea
• Data & Visuals
• Reading Lists
• Case Selections
• HBR Learning
• Topic Feeds
• Account Settings
• Email Preferences

Early Lessons from India’s Demonetization Experiment

• Bhaskar Chakravorti

A good narrative can override the data.

India’s government took drastic demonetization action in November 2016 to expose the so-called “black” market, fueled by money that is illegally gained and undeclared for tax purposes. Reactions to the move to demonetize 500- and 1,000-note rupee notes have been mixed, but Prime Minister Narendra Modi’s government was recently rewarded with victory in midterm state-level elections , seen as a referendum on its unprecedented action. There are some updated takeaways to consider from this risky political and monetary move: First, public policy for rooting out corruption calls for a systemic approach, with carrots and sticks to motivate cultural, institutional, and behavioral change in the long term. Silver bullets, such as drastic demonetization, don’t work. Second, innovation and creativity emerged around the digital payments ecosystem in the wake of the sudden voiding of some currencies. Next, data quality and context still matter. In India’s case, relying on official GDP growth figures may not be the best measure of monetary policy success. And finally, having a “big narrative” about a controversial policy move may still matter more to public opinion than having a data story to prove whether something is worthwhile.

Did India just pull off a monetary and political miracle?

• Bhaskar Chakravorti is the Dean of Global Business at The Fletcher School at Tufts University and founding Executive Director of Fletcher’s Institute for Business in the Global Context . He is the author of The Slow Pace of Fast Change .

Partner Center