Demonetization

Submitted By : Meghna Bhagat (Department of BBA, Batch: 2017-2020)

 

  • MEANING

Demonetization 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 or forms of money is pulled from circulation and retired, often to be replaced with new notes or coins.

 

  • DID IT HAPPEN BEFORE IN OUR COUNTRY?
  • Yes, It happened twice
  1. In The year 1948 on 11th January
  2. In the year 1976 on 16TH January

 

  • REASONS
  1. One of the major reasons for demonetization to happen was to eliminate large chunks of black money possessed by some of the corrupt politicians and bureaucrats.
  2. To convert the present economy into a cashless economy so as to promote and cultivate the concept of digitalization among the citizens of India.
  3. Also, it was believed that this step would definitely flush out the fake currency notes which still persisted in several parts of the country though it was not completely successful but helped to a must greater

 

  1. Due to the presence of fake currency in our country, the threat of terrorism was increasing day by day. These fake currency were being send by our neighboring countries mainly.

 

  • How did it take place?

The plan to demonetize the ₹500 and ₹1000 banknotes was 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 new ₹500 and ₹2000 bank notes began in early May 2016. The Union cabinet was informed about the plan on 8 November 2016 in a meeting called by the Indian Prime Minister Narendra Modi.

On 8 November 2016, Modi announced the demonetization in an unscheduled live national televised address at 20:15 Indian Standard Time. In the announcement, Modi declared circulation of all ₹500 and ₹1,000 banknotes of the Mahatma Gandhi Series as invalid effective from the midnight of the same day, and announced the issuance of new ₹500 and ₹2,000 banknotes of the Mahatma Gandhi New Series in exchange for the old notes.

 

  • Exchange of old notes

The Reserve Bank of India stipulated that the demonetized notes could be deposited with banks over a period of fifty days until 30 December 2016. The banknotes could also be exchanged for legal tender over the counter at all banks. The limit for such exchange was ₹4,000 per person from 8 to 13 November, was increased to ₹4,500 per person from 14 to 17 November, reduced to ₹2,000 per person from 18 November.

  • Withdrawal limits

Cash withdrawals from bank accounts were restricted to ₹10,000 per day and ₹20,000 per week per account from 10 to 13 November. This limit was increased to ₹24,000 per week from 14 November 2016. A daily limit on withdrawals from ATMs was also imposed varying from ₹2,000 per day till 14 November, and ₹2,500 per day till 31 December. This limit was increased to ₹4,500 per day from 1 January, and again to ₹10,000 from 16 January 2017. Limits placed vide the circulars cited above on cash withdrawals from Current accounts / Cash credit accounts / Overdraft accounts stand withdrawn with immediate effect. RBI increased the withdrawal limit from Savings Bank account to Rs 50,000 from the earlier Rs 24,000 on 20 February 2017 and then on 13 March 2017, it removed all withdrawal limits from Savings Bank Accounts.

Under the revised guidelines issued on 17 November 2016, families were allowed to withdraw ₹250,000 (₹2.5 lakh) for wedding expenses from one account provided it was KYC compliant.

The rules were also changed for farmers who are permitted to withdraw ₹25,000 per week from their accounts against crop loans.

  • POSITIVE EFFECTS OF DEMONETIZATION
  1. At one stroke the Prime Minister has choked the supply of black money stacked inside the country. Of the Rs 17 lakh crore of total currency in circulation in the country, black money is estimated at mind-boggling Rs 3 lakh crore. Black money is nothing but a plunder of the nation. Black money operators run a parallel economy which shakes the very foundation of the Indian economy. With Modi’s demonetisation move, all domestic black money will either be deposited into the banks with heavy penalty or be simply destroyed.
  2. Demonetization will have a huge resultant effect on the Indian economy. The clean-up of illegal cash will help turn around the economy. First, it will bring more borrowings to the exchequer, improve inflation outlook and increase India’s gross domestic product (GDP). Second, it will revive investment opportunities and give a fillip to infrastructure and the manufacturing sector. Third, it will help reduce interest rates and lower income tax rate.
  3. Terror financing is sourced through counterfeit currency and hawala transactions.This is how terror financing works. Fake currency circulation is routed through a multi-layered network of hawala operators which are closely linked to satta (gambling) and smuggling of drugs, opium and arms. Indirectly, they all end up financing terrorism.In addition, the terrorists collect huge donations and then route the money through hawala transactions.With the circulation of counterfeit Indian currency completely stalled and hawala transactions stopped, all windows for terror financing are closed.
  4. Improved tax revenues and deposits, helping both banks and government to get better returns on its investments (like lending, infrastructure, etc…).
  5. Bringing unorganized sector into the banking system, encouraging savings for these workers.

 

  • NEGATIVE EFFECTS OF DEMONETIZATION

 

1.People queue outside a private bank to deposit and exchange old ₹500 and ₹1000 banknotes in Kolkata on 10 November 2016.The scarcity of cash due to demonetization led to chaos, and most people holding old banknotes faced difficulties exchanging them due to endless lines outside banks and ATMs across India, which became a daily routine for millions of people waiting to deposit or exchange the ₹500 and ₹1000 banknotes since 9 November. ATMs were running out of cash after a few hours of being functional, and around half the ATMs in the country were non-functional.

 

2.Several people were reported to have died from standing in queues for hours to exchange their old banknotes. Deaths were also attributed to lack of medical help due to refusal of old banknotes by hospitals. As of 15 November 2016, the attributed death toll was 25.and 33 deaths as of 18 November. Many farmers had committed suicide due to lack of money.

 

  1. After the demonetization was announced, about 800,000 truck drivers were affected with scarcity of cash, with around 400,000 trucks stranded at major highways across India were reported. While major highway toll junctions on the Gujarat and Delhi-Mumbai highways also saw long queues as toll plaza operators refused the old banknotes.
  2. It was noted in the media that while people were dying in queues to obtain a few thousand rupees in cash, persons with the right connections were able to amass crores of rupees in new notes, thus rendering the demonetization exercise futile.

DO YOU KNOW?

  • Anil Bokil was the man who advised Mr. Narendra Modi to initiate the process of demonetization in a meeting which was about 9 minutes but stretched to 2 hours.
  • Some observe 8th November as “ Black Day “ for our country.
  • About 200,000 ATMs were re calibrated because the size of the old notes were bigger in size than the new one.
  • New software were installed in every ATM machines which required huge money and labour.
  • About 17 lakh crores monay is in circulation in India and about 5.3 lakh crores were deposited within a span of 10 days.

 

 

 

 

 

 

 

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