DEMONETIZATION

By: VaddiAditya

MEANING OF DEMONETIZATION

Demonetization is the act of stripping a currency unit of its status as legal tender.

The old unit of currency must be retired and replaced with a new currency unit.

DEMONETIZATION IS NOT THE FIRST TIME A similar exercise was conducted in 1978 under prime minister Morarji Desai. When the government discontinued, the circulation of Rs.1000, Rs.5000 and Rs.10,000.

The then finance minister HM Patel and then the Reserve Bank of India governor IG Patel oversaw the demonetization exercise.

INTRODUCTION

On 8 November 2016 PM Narendra Modi announced the demonetisation in an unscheduled live televised address at 20:00pm.

Modi declared that use of all Rs. 500 and Rs.1000 banknotes would be invalid past midnight, and announced the issuance of new Rs. 500and Rs. 2000 banknotes in exchange for the old banknotes.

PROCESS TO EXCHANGE DEMONETIZATION CURRENCY NOTES

CONTINUED Cash withdrawals from bank accounts were restricted to Rs. 10,000 per day and Rs. 20,000per week per account from 10 to 13 November.

The limit was increased to Rs. 24,000 per week from 14 November 2016.

A daily limit on withdrawals from ATM was also imposed varying from Rs. 20,000per day till 14 November, and Rs. 25,000 per day till 31 December.

This limit was increased to Rs. 4,500 per day from January 1, and again to Rs. 10,000 from January 16, 2017

EXCEPTIONS FOR WITHDRAWAL

On 17 November 2016, families were allowed to withdraw Rs. 2,50,000 for wedding expenses from one account provided it was KYC norm.

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

REASONS BEHIND DEMONETIZATION To tackle black money in the economy.

To lower the cash circulation in the country which is directly related to the corruption in our country.

To eliminate fake currency and dodgy funds which have been used by terror groups to fund terrorism in India.

To fight black money, corruption, terrorism and counterfeit currency with one single decision.

WHY DEMONETIZATION BECAME MASTERSTROKE BY

PM MODI Boost deposit base and savings. Improve monetary transmission and reduce lending rates. The demonetization drive of higher denominated notes should give a push to cash deposits in Jan Dhan accounts.

Benefits from higher income tax collections. Rise in GDP growth potential. Support government finance.

EVASION ATTEMPTS AFTER DEMONETIZATION

Converting black money into Gold. Donations in temples and other. Multiple bank transactions. Booking large number of tickets in railways and airways. Depositing money in the accounts of their parents, relatives and friends. Enticing people with some percentage of money for exchange. Paying bank loans. Paying a few months salaries in advance. Using their links with bank employees to exchange of notes.

POSITIVE IMPACTS Demonetization impacted 20 trillion human trafficking industry.

Other sectors like drug trafficking, illegal trade and the money use in it, funding of election and involvement of various terrorist groups effected badly.

Steps towards cashless economy. Real estate can see significant course of correction. Less chance of avoiding taxes. Parallel economy.

NEGATIVE EFFECTS Cash shortage. Stock market crash. Dumping of agricultural produce. Drop in industrial output. Queues outside of bank. People faced difficulties in marriage occasions and other. Many people done have bank accounts in rural areas.

RESULTS Income tax raids and money came into system. Fighting corruption and counterfeiting. Expanding the formal economic grid and building digital economy.

The Indian finance minister Arun Jaitley claimed the direct tax collection and it has increased by 14.4%

More retail outlets are accepting e-wallets India is moving towards cashless transactions.

THANK YOU