Demonitisation in India ppt

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Demonetisation
AJEENKYA DY PATIL UNIVERSITY PUNE

• A Project by
• Sunil jore
• Divya singh

Presented to Snehashish bhattacharya sir
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Definition of demonetization

• Demonetization of Currency -
• Demonetization is a process by which a series of
  currency will not be a legal tender. The series
  of currency will not acceptable as valid
  currency. The same thing happened with the Rs.
  500 and Rs. 1000 note demonetization.The old unit
  of currency must be retired and replaced with a
  new currency unit.

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What Happened on Demonetization in India?

• On 8th November 2016, Government of India had
  announced that from today onward rupees 500 and
  1000 rupee note will not be a legal tender.
• This means that 500 and 1000 rupee note will be
  accepted by anyone except the organisation
  declared by government.
• They can change the currency from the banks and
  post offices till 30th December 2016.

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Background

• There is a background to the current decision of
  demonetization of 500 and 1000 rupee notes. The
  government has taken few steps in this direction
  much before its November 8, 2016 announcement.
• 1)government had urged people to create bank
  accounts under Jan Dhan Yojana. They were asked
  to deposit all the money in their Jan Dhan
  accounts and do their future transaction through
  banking methods only.
• 2)Government initiated was a TAX DECLARATION
  SCHEME of the income and had given October 30,
  2016 deadline for this purpose. Through this
  method, the government was able to mop up a huge
  amount of undeclared income.
• 3)However, there were many who still hoarded the
  black money, and in order to tackle them the
  government announced the demonetization of 500
  and 1000 currency notes.

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Objectives behind demonetisation

• The governments stated objective behind the
  demonetization policy are as follows
• 1) Attempt to make India corruption free.
• 2) To curb black money,
• 3) To control escalating price rise,
• 4) To stop funds flow to illegal activity,
• 5) To make people accountable for every rupee
  they possess and pay income tax return.
• 6) Finally, it is an attempt to make a cashless
  society and create a Digital India.

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Causes

• There can be many causes of Demonetization in any
  economy some of them are Introduction of New
  Currency ,Black Marketing, Currency Storage,
  Corruption and others.
• There will be excess fake currency in the economy
  is main reason of demonetization.

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Impact of demonetization

• 1) Effect on parallel economy The removal of
  these 500 and 1000 notes and replacement of the
  same with new 500 and 2000 Rupee Notes is
  expected to - remove black money from the economy
  as they will be blocked since the owners will not
  be in a position to deposit the same in the
  banks, - Temporarily stall the circulation of
  large volume of counterfeit currency and - curb
  the funding for anti-social elements like
  smuggling, terrorism, espionage, etc.

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• 2) Effect on Money Supply With the older 500 and
  1000 Rupees notes being scrapped, until the new
  500 and 2000 Rupees notes get widely circulated
  in the market, money supply is expected to reduce
  in the short run. To the extent that black money
  (which is not counterfeit) does not re-enter the
  system, reserve money and hence money supply will
  decrease permanently. However gradually as the
  new notes get circulated in the market and the
  mismatch gets corrected, money supply will pick
  up.

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• 3) Effect on Demand The overall demand is
  expected to be affected to an extent. The demand
  in following areas is to be impacted
  particularly
• ? Consumer goods
• ? Real Estate and Property
• ? Gold and luxury goods
• ? Automobiles (only to a certain limit).

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• 4) Effect on various economic entities With
  cash transaction lowering in the short run, until
  the new notes are spread widely into circulation,
  certain sections of the society could face short
  term disruptions in facilitation of their
  transactions. These sections are
• ? Agriculture and related sector
• ? Small traders
• ? SME
• ? Services Sector
• ? Households
• ? Political Parties
• ? Professionals like doctor, carpenter, utility
  service providers, etc.
• ? Retail outlets.
• The nature, frequency and amounts of the
  commercial transactions involved with these
  sections of the economy necessitate cash
  transactions on more frequent basis. Thus, these
  segments are expected to have the most
  significant impact post this demonetization
  process and the introduction of new notes in
  circulation.

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• 5) Effect on GDP The GDP formation could be
  impacted by this measure, with reduction in the
  consumption demand. However with the recent rise
  in festival demand is expected to offset this
  fall in overall impact. Moreover, this expected
  impact on GDP may not be significant as some of
  this demand will only be deferred and re-enter
  the stream once the cash situation becomes
  normal.
• 6) Effect on Banks As directed by the
  Government, the 500 and 1000 Rupee notes which
  now cease to be legal tender are to be deposited
  or exchanged in banks (subject to certain
  limits). This will automatically lead to more
  amounts being deposited in Savings and Current
  Account of commercial banks. This in turn will
  enhance the liquidity position of the banks,
  which can be utilized further for lending
  purposes. However, to the extent that households
  have held on to these funds for emergency
  purposes, there would be withdrawals at the
  second stage.
• 7) Effect on Online Transactions and alternative
  modes of payment With cash transactions facing
  a reduction, alternative forms of payment will
  see a surge in demand. Digital transaction
  systems, E wallets and apps, online transactions
  using E banking, usage of Plastic money (Debit
  and Credit Cards), etc. will definitely see
  substantial increase in demand. This should
  eventually lead to strengthening of such systems
  and the infrastructure required.

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Advantages/Pros

• Merits
• 1.The demonetization policy will help India to
  become corruption-free. Those indulging in taking
  bribe will refrain from corrupt practices as it
  will be hard for them to keep their unaccounted
  cash.
• 2.The ban on high value currency will also curb
  the menace of money laundering. Now such activity
  can easily be tracked and income tax department
  can catch such people who are in the business of
  money laundering.
• 3.This move has generated interest among those
  people who had opened Jan Dhan accounts under the
  Prime Ministers Jan Dhan Yojana. They can now
  deposit their cash under this scheme and this
  money can be used for the developmental activity
  of the country.
• 4.The demonetization policy will force people to
  pay income tax returns. Most of the people who
  have been hiding their income are now forced to
  come forward to declare their income and pay tax
  on the same.

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6.Attack On Black Money Holders  People who
possess huge amounts of black money in hard cash
are at a complete loss now .Their black money in
hard cash is now a pile of trash. Now if a black
money holder wants to deposit money in Bank
Account than he/she has to show ID.penalty is
paying 50 to 80 of tax.Pradhan mantra garib
kalyan yojana is based on this issue.
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7. Death Knell To Fake Currency Rackets  Most of
the fake currencies used to be be in the
denominations of Rs. 500 and Rs. 1000 . By
banning Rs. 500 and Rs. 1000 notes, Modi ji has
busted all these unethical rackets completely .
Now it is useless.
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• 8. End Of Terrorist Funding  Huge sums of money
  especially in hard cash in the denominations of
  Rs. 500 and Rs. 1000 was used to fund terrorists
  , Naxalites and maovadis. Now, these
  Organizations will suffer from shortage of funds.
  Most of these terrorist , Maoist Organization
  used these funds for buying arms and weapons .
  Buying arms is an extremely difficult task now
  after this ban .
• 9. Transparency  Online transaction More
  transparency  Financial Intelligence Unit will
  track all Online transactions easily.
• 10. End of Huge Donations   Huge amounts of
  donation that is taken in the private education
  and healthcare sectors would be stopped .Schools,
  engineering and medical colleges and hospitals (
  private ones) used to take huge amounts of money
  as donations especially in the form of hard cash
  in the denominations of Rs. 500 and Rs. 1000 .
  These money-minded people running these
  institutions wont be able to make any easy money
  now . Same applies to the real estate sector.

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• 11. Towards A Cashless Economy  While it is
  practically impossible to have a 100 cashless
  economy , the proportion of hard cash in the
  economy will decrease and our economy will get
  more digitized . This will result in greater
  transparency. Now government has put Some
  limitation for Cash Withdraw from bank Accounts.
  People Will go for online payments ,They Will Use
  PayTM Or other Online payment Companies For
  Buying goods or Making payments. As a result
  there will be more Use of Debit and Credit Card.

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Disadvantages/Cons

• Demerits
• 1.It has deeply affected business. Due to the
  cash crunch, the entire economy has been made to
  come to a standstill.
• 2.Many poor daily wage workers are left with no
  jobs and their daily income has stopped because
  employers are unable to pay their daily wage.
• 3.The government is finding it hard to implement
  this policy. It has to bear the cost of printing
  of the new currency notes. It is also finding it
  difficult to put new currency into circulation.
  The 2000 rupees note is a burden on the people as
  no one likes to do transaction with such high
  value currency. Some critics think it will only
  help people to use black money more easily in
  future.
• 4.Further, many people have clandestinely
  discarded the demonetized currency notes and this
  is a loss to the countrys economy.

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cons

• 5. Rush At Banks  Banks will be extremely
  over-crowded by people . People will forget
  everything else and throng to the places where
  the banned notes are being officially exchanged
  leading to a tremendous chaos .
• 6. Effect on Rural Areas  Unbanked villages,
  small businesses badly hit as currency
  crisis continues . Huge pressure on rural banks
  55 of unregistered MSMEs in villages where cash
  rules.
• 7. Shortage of Money To Common People  There is
  Shortage of Money For Common people .

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• 8. Stock Market   Due to currency being sucked
  out of the market coupled with Trumps victory,
  the mood at the stock market was completely
  bearish . Sensex lost 1600 points at open.

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• 9. Problem For House Wives   Many Indian
  housewives store money secretly so that they
  could be of help during times of financial crisis
  in their households . The accumulated money of
  our respected Indian housewives is of no use now
  until they exchange in the banks and post-offices
  .
• 10. Short Term Inflation  Due to shortage of
  money in the market , a short-term cost push
  inflation will occur . The price of gold went sky
  high . Prices of vegetables and fruits have also
  soared burdening the common man but they are in
  control.
• 11. Marriage Season   It is difficult for those
  who have
• wedding celebrations in their family.

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conclusion

• Surely this demonetisation will help eradicate
  the 15 of the Black Economy which is put in
  cash. Which might push the bank to decrease
  interest rate by 1.5 in feb/mar. Also we might
  move towards digital economy. But looking at some
  digital economy like Brazil or USA, there is no
  guarantee that it will put brake to corruption.
  Where as Japan considered as less corrupted
  country even its cash economy is 20 of its
  GDP.
• Even though there is suffering and agony among
  the masses right at the moment but the forecast
  is that its benefits will be seen in the long
  run.
• The government is taking all the necessary steps
  and actions to meet the currency demand and soon
  the trial and tribulations of the people will be
  over with the smooth flow of the new currency.

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bibliography

• http//www.civilserviceindia.com/current-affairs/a
  rticles/demonetization-of-currency.html
• http//www.economictimes.indiatimes.com/news/econo
  my/policy/demonetisation-seven-crucial-questions-a
  nswered-and-unanswered/articleshow/56472858.cms
• http//www.business-standard.com/article/economy-p
  olicy/demonetisation-to-adversely-impact-consumer-
  goods-sector-in-q3-report-117011100508_1.html
• https//www.linkedin.com/pulse/effect-demonetizati
  on-india

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Thank You!!!!