DEMONETIZATION IN

INDIA
SUBMITTED BY
Garv Chahar(101404033)
Gurpreet singh nehal (101404036)
Harmanpreet Thind(101404039)
WHAT IS DEMONETIZATION?
 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 or forms of money is
pulled from circulation and retired, often
to be replaced with new notes or coins.
 Sometimes, a country completely replaces
the old currency with new currency.
WHY DEMONETIZATION?
To fight corruption and crime
To combat inflation
To eradicate counterfeit (fake) currency
To encourage cashless or less cash
economy
To stop terrorist funding which is
generally done with black money
Problem of Terror and Fake Currency

A study in 2015 showed that at any given

point of time, ₹ 400 crore worth of fake notes
are in circulation.
It also said that ₹ 70 crore worth of fake
notes are pumped into the economy every
year.
The National Crime Records Bureau (NCRB)
revealed that various enforcement agencies
seized 1,78,022 pieces of ₹1000 and 2,99,524
pieces of ₹ 500 notes in 2015.
 EFFECTS OF DEMONETIZATION
All banks and ATMs across the country were
paralyzed because of cash shortages.
having lengthy waits in long queues to exchange their
old banned notes, and several deaths were reported to
be linked to the difficulty in exchanging cash.
People also ran out of cash only after a few hours of
being operational, and about half of the ATMs in the
country were not functional.
Deaths were also accounted for the lack of medical
facilities or preparations due to denial of old currency
notes by the hospitals.
 WHAT EXPERTS THOUGHT?
 Almost all the stalwarts of the banking sector including
Deepak Parekh, Chanda Kochhar think that the move will
help curb black money in the economy. 
 According to MD & CEO, ICICI Bank BSE 0.18 % Chanda
Kochhar who told ET Now, "this move will definitely bring
about a whole amount of transition to no cash or low cash
kind of transactions,". 
 "A parallel black economy will collapse," one of the leading
lawyers in taxation laws, Harish Salve told ET Now. 
 Narayana Murthy, founder of the Infosys BSE 0.52 %,
welcomed the government's move in its fight against
corruption. Murthy also added that "the dishonest will have to
suffer, absolutely that is the right thing." 
 HDFC Chairman Deepak Parekh anticipated that the Land
will become cheaper and "one expects that real estate price
will come down in medium term." 
What more can be done?
cash, especially black money, is easier to
hoard in ₹ 2,000 notes as notes of lower
denominations need more space 
most people find the note cumbersome as it is
not easy to change
supply of ₹ 2,000 notes from the RBI has
declined.
the government plans to increase supply of
lower denomination notes such as ₹ 500 and
₹ 200 and ₹50
What do you think, was this the first time an Indian currency was banned all
of a sudden?

A VERY BIG NO.

 Demonetization has been implemented
twice - in1946 and in1978 – in the past.
Previous bans of currency in India
The first currency ban:
In 1946, the currency note of ₹1,000 and ₹
10,000 were removed from circulation.
The ban really did not have much impact, as
the currency of such higher denomination
was not accessible to the common people.
The second ban:
That came in 1978; then the Prime Minister
of India Morarji Desai announced the
currency ban taking ₹1000, ₹ 5000 and ₹
10,000 out of circulation.
The sole aim of the ban was to curb black
money generation in the country.
 Similarities in 1978 and 2016 ban:

The note ban by Morarji Desai also aimed

to drive away black money out of
circulation in the economy.
Narendra Modi announced the currency ban
is an address that was broadcasted across all
news channels. Similarly, Desai announced
the ban over the radio after which the banks
were closed the following day.
Both the affairs were kept confidential.
 Differences in the ban:

Unlike Modi, Desai didn’t have the backing

of the RBI Governor. The Governor I.G.
Patel believed that the ban was implemented
simply to immobilize the funds of the
opposition party. Patel also believed that
people never store black money in the form
of currency for too long.
It didn’t have much effect on the people and
affected only the privilege few. While the
recent ban had shaken the whole country.
 Role of RBI in Demonetization
• In every country there is one organization which works as the central bank.
• The function of the central bank of a country is to control and monitor the
banking and financial system of the country.
• In India, the Reserve Bank of India (RBI) is the Central Bank.
• The RBI was established in 1935.
• It was nationalized in 1949.
 One question that is central to the demonetization strike is “What gives
government the powers to declare it?”
 These powers come from RBI Act. They ensured that amidst all this legal
language which shows an independent central bank, the power to make a
currency legitimate or illegitimate remains with the government.
 Section 26 (2) of RBI Act gives these powers:
 On recommendation of the Central Board the [Central Government] may,
by notification in the Gazette of India, declare that, with effect from such
date as may be specified in the notification, any series of bank notes of any
denomination shall cease to be legal tender.
 it says on recommendation of the Central Board government may declare
a currency as illegal tender by issuing a notification in the Gazette of India
 Central board:

It is the main body of RBI which governs the central bank and has
21 members . These directors are divided into official and non-official.
Official Directors
Full-time : Governor and not more than four Deputy Governors (which means
5 members)
Non-Official Directors
Nominated by Government: ten Directors from various fields and two
government Official (10 + 2) Others: four Directors – one each from four
local boards (4)

Local boards
It represents the four zones – North, South, East and West. Each of these
boards have 5 members nominated by the government. Each of these local
boards nominate 1 from the 5 members to the  Central Board by
themselves. This whole thing is to give that regional diversity. So, we have
some regional diversity at Central board level .
 Roles of central board

So, all major decisions happen through the Central board.

Section 13 of the Act says:
(1)Meetings of the Central Board shall be convened by the
Governor at least six times in each year and at least once in each
quarter.
(2) Any [four Directors] may require the Governor to convene a
meeting of the Central Board at any time and the Governor shall
forthwith convene a meeting accordingly.
(3) The Governor, or [if for any reason, he is unable to attend,]
the Deputy Governor authorized by the Governor under the
proviso to subsection (3) of section 8 to vote for him, shall
preside at meetings of the Central Board, and, in the event of an
equality of votes, shall have a second or casting vote.

The last meeting was held in Kanpur on Oct 20, 2016

One is not sure how effective the Central Board is in
RBI as there is hardly any discussion on this matter.
Most attention remains on the official directors and the
governor.
But in the case of demonetization Central Board played
a crucial role as demonetization happened on their
recommendation.
Just 2 persons from RBI (Governor and 1 DG) knew
of the exercise. They were part of the Central Board
The Full Board was informed by the government at
6 PM on 8 Nov 2016. So one can say: “The Central
Board based on government orders recommended
the government to declare that ₹ 500 and ₹ 1000
currency have ceased to be legal tender….”.
 WHAT IS GDP?
The gross domestic product (GDP) is one of the
primary indicators used to gauge the health of a
country's economy. It represents the total dollar
value of all goods and services produced over a
specific time period; we can think of it as the size
of the economy.
GDP is expressed as a comparison to the previous
quarter or year. For example: If the GDP of a
nation has is 3%, it means that the economy of
the country has grown by 3% in that particular
quarter.
Effect of Demonetization on GDP of
INDIA 
Effect of Demonetization on the GVA
Effect of Demonetization on the Inflation

Inflation can be classified on the basis of

demand and supply. There are two points to
be considered
• Demand for and supply of money or
demand pull
• Demand for and supply of goods and
services or cost push.
• Rs 14000 crore of black money in market
before demonitization.
• this money is either destroyed or in deposited
in bank
• the cash in the market goes down due to lack
of infrastructure to regulate the supply of
cash in market
• thus demand of goods decrease and thus
there price also goes down and the profit is
made by bulk selling
e-commerce is benifited by
demonitization and was seen as the
alternate option for cash but still it was
not enough to cover the market need
example-paytm
• the real estate sector had the worst effect
as this sector had a lot of black money
The headline Consumer Price Index hit a
two-year low of 3.63% for November
2016, it was 5.41% in November 2015.
The major contributor to the slowdown in
price gains was the food and beverages
group, where inflation eased to 2.56%
largely on the back of a slump in the
prices of vegetables, a highly perishable
commodity.