Demonetisation in India

Demonetisation in India"Demonetisation is the withdrawal of a particular form of currency from circulation." Through demonetisation, the old currency is replaced by the new currency or a currency circulation is blocked. There are multiple reasons why a country demonetises its currency. Some reasons include - checking the inflation, curbing the corruption and promoting the cashless transactions.Recently, the Indian government decided to demonetise the highest denomination notes i.e. 500 and 1,000 Rupees notes. This step has been declared as a master stroke for the Indian economy by various experts. This is not the first time that India has demonetised its currency. Earlier, it was done in 1946 with the complete ban of Rs. 1,000 and Rs, 10,000 notes to deal with the unaccounted money i.e. black money. Second time, it was done in 1978 by the Government headed by Morarji Desai, when Rs. 1000, Rs. 5000 and Rs. 10,000 notes were demonetised. Indian Government's goal was to remove all counterfeit (fake) currency from the market which is used in tax evasion corruption and even in funding terrorist activities. This step is considered as cleanliness drive against the black money in the history of Indian economy. AS per RBI, 87% transactions in India are cash transactions and this loophole is used by corrupt people to build a parallel economy with unaccounted money. This parallel economy helps in terror financing, which in turn hampers the growth and development of country. High- values notes (Rs. 500 and Rs 1000) accounted for total value of 86% of the notes in circulation in India.

Notes in circulation as on November 4, 2016: Rs. 17,742 billion (13% of GDP)

Value of Rs. go0/1000 notes in circulation (86.5% of notes in circulation): Rs. 15,347 billion (11% of GDP)It is expected that this step will help in reducing the fiscal deficit of India and will promote the cashless economy in India that can be easily monitored. While currency notes of Rs. 500 were re-issued, Rs 1,000 currency notes were completely done away with. Additionally, the technologically advancednotes of denomination 5o0 and 2,000 were introduced.Impact of DemonetisationAlthough people with black money obviously stand the most affected, there are several implications that have to be faced by the average middle class person, farmers, banks and the economy as a whole.1. Impact on Economy:The Reserve Bank, in its fifth Bi-monthly Monetary Policy Statement on December 7, 2016, placed the GVA (Gross Value Added) growth for 2016-17 at 7.1 per cent, which was lower than 7.6 per cent GVA growth projected in its fourth Bi-monthly Monetary Policy Statement of October 4, 2016.2. Impact on farmers:Farmers beard the hardest burnt of the demonetisation:(i) Farmers were unable to purchase inputs Eke certified HYV seeds from market. They were using old seeds from the last year harvest and not purchasing quality seeds from market. This will adversely affect crop yields despite good monsoon this year.(ii) Farmers suffered a setback due to nationwide cash crunch and a collapse in the demand vegetables in wholesale markets. It also affected the retail vegetable sellers, as they kept inventories of perishable commodities.

3. Surge in cashless transactions:(i) Transactions on e-wallets have increased from Rs. 17 lakh per day to Rs. 63 lakh per day and value of the transactions has increased from Rs. 52 crore to Rs. 191 crore.(ii) Volume of transactions using Rupay Card has increased from Rs. 3.85 lakh per day to 16 per day and value the transactions has increased from Rs. 39.17 crore to Rs. 236 crore.

Chapters

Banking Transactions

Reserve Bank of India

Organisations and Regulatory Bodies

International Financial Instituitions

Indian Banking Industry

NPA And Basel Norms

Inflation