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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.
The Reserve Bank of India stipulated a window of fifty days until December
30, 2016 to deposit the demonetised banknotes as credit in bank accounts.
The banknotes could also be exchanged over the counter of bank branches
upto a limit that varied over the days.
Initially, the limit was fixed at 4,000 per person from 8 to 13 November.
All exchange of banknotes was abruptly stopped from November 25, 2016.
Up to 97% of the demonetised bank notes have been deposited into banks
which have received a total of 14.97 trillion ($220 billion) as of December
30 out of the 15.4 trillion that was demonetised. This is against the
government's initial estimate that 3 trillion would not return to the banking
system.
Of the 15.4 trillion demonetised in the form of 500 and 1000 bank notes
of the Mahatma Gandhi Series, 9.2 trillion in the form of 500 and 2000
bank notes of the Mahatma Gandhi New Series has been recirculated as of
10 January 2017, two months after the demonetisation.
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 November 14, 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 January 1, and again to 10,000
from January 16, 2017.
This is not The First time When Indian Currency is Demonetised In India .
The first instance was in 1946 and the second in 1978 when an ordinance
was promulgated to phase out notes with denomination of Rs 1,000, Rs
5,000 and Rs 10,000.
The highest denomination note ever printed by the Reserve Bank of India
was the Rs 10,000 note in 1938 and again in 1954. But these notes were
demonetized in January 1946 and again in January 1978, according to RBI
data.
The Rs 1,000 note made a comeback in November 2000. Rs 500 note came
into circulation in October 1987. The move was then justified as attempt to
contain the volume of banknotes in circulation due to inflation.
Causes of Demonetization
Effects of Demonetization
1. Cash shortage
The scarcity of cash due to demonetisation 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. Sporadic violence was reported in New Delhi, but there were no
reports of any grievous injury, people attacked bank premises and ATMs, and
a ration shop was looted in Madhya Pradesh after the shop owner refused to
accept 500 banknotes.
The CMD of Punjab National Bank said that panic after demonetisation
started fading on 19 November 2016. As of 18 December 2016, there were
still long queues at banks and ATMs.
2. Deaths
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. In
an interview, Chief Minister of Delhi Arvind Kejriwal lashed out at a BBC
reporter who asked him to justify his 19 November claim that 55 deaths were
linked to demonetisation. By the end of the year, opposition leaders claimed
that over 100 people had died due to demonetisation.
4. Transportation halts
After the demonetisation 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.
5. Agriculture
The demonetisation led to unavailability of cash to pay for food products. The
reduction in demand that arose in turn led to a crash in the prices of crops.
Farmers were unable to recover even the costs of transportation from their
fields to the market from the low prices offered. The prices dropped as low as
50 paise per kilo for tomatoes and onions. This forced the farmers across the
country to dump their products in desperation. Some farmers resorted to
burying unsold vegetables. Agricultural produce such as vegetables,
foodgrains, sugarcane, milk and eggs were dumped on roads. Some farmers
dumped their produce in protest against the government.
7. Banking
A State Bank of India branch remained open at night, and a long queue of
people waited outside the ATM to withdraw money.
In the first four days after the announcement of the step, about 3 trillion
(US$45 billion) in the form of old 500 and 1,000 banknotes had been
deposited in the banking system and about 500 billion (US$7.4 billion) had
been dispensed via withdrawals from bank accounts, ATMs as well as
exchanges over the bank counters. Within these four days, the banking
system has handled about 180 million transactions. The State Bank of India
reported to have received more than 300 billion (US$4.5 billion) in bank
deposit in first two days after demonetisation. A spike in the usage of debit
card and credit card post demonetisation was also reported.
8. Business
The demand for point of sales (POS) or card swipe machines has increased.
E-payment options like PayTM and Instamojo Payment Gateway, PayUMoney
has also seen a rise. According to data of Pine Labs, the demand for its POS
machines doubled after the decision. Further it states that the debit card
transactions rose by 108% and credit card transactions by 60% on 9
November 2016.
There was a reduction in industrial output as industries were hit by the cash
crisis. The Purchasing Managers' Index (PMI) fell to 46.7 in November from
54.5 in October, recording its sharpest reduction in three years. A reading
above 50 indicates growth and a reading below shows contraction. This
indicates a slowdown in both, manufacturing and services industries. The PMI
report showed also showed that the reduction in inflation in November was
due to shortage in money supply.
The growth in eight core sectors such as cement, steel and refinery products,
which constitute 38% of the Index of Industrial Production (IIP), was only to
4.9 percent in November as compared with 6.6 percent in October.
The Finance Ministry instructed all revenue intelligence agencies to join the
crackdown on forex traders, hawala operators and jewellers besides tracking
movement of demonetised currency notes. It was reported that the Prime
Minister's Office (PMO) and the Prime Minister Modi himself were directly
coordinating the raids conducted by the Income Tax, Enforcement
Directorate (ED) and other agencies. As of 23 December, PMO received
around 700 calls giving information about black money and it directly
forwarded the information to various law enforcement agencies for further
action.
As of December 28, official sources said that the Income Tax department
detected over 4,172 crore of un-disclosed income and seized new notes
worth 105 crore as part of its country-wide operations. The department
carried out a total of 983 search, survey and enquiry operations under the
provisions of the Income Tax Act and has issued 5,027 notices to various
entities on charges of tax evasion and hawala-like dealings. The department
also seized cash and jewellery worth over 549 crore out of which the new
currency seized (majority of them 2000 notes) is valued at about 105
crore. The department also referred a total of 477 cases to other agencies
like the CBI and the Enforcement Directorate (ED) to probe other financial
crimes like money laundering, disproportionate assets and corruption.
Huge amounts of cash in the form of new notes were seized all over the
country after the demonetisation. As of December 2016, over 4 crore in new
banknotes of 2000 were seized from four persons in Bangalore, 33 lakh in
2000 notes were recovered from Manish Sharma, an expelled BJP leader in
West Bengal, and 1.5 crore was seized in Goa. 900 notes of the new 2000
notes were seized from a BJP leader in Tamil Nadu. Around 10 crore in new
notes were seized in Chennai.
As of 10 December, 242 crore in new notes had been seized. 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 demonetisation exercise futile.
It was announced by the government that the seized notes will be brought
into the mainstream as soon as possible to ease out the cash problem.
Earlier, agencies kept all seized material, including cash seizures, in their
strong rooms as evidence till the case was adjudicated by the courts. The
seized money was then deposited into the Consolidated Fund of India.
Sometimes, income tax cases took years to resolve, still all seized material
was kept in safe lockers of the tax department.
13. Railways
As of November 2016, Indian Railways did not have the option to make
payment with cards at the counters. After the demonetisation move, the
government announced to make card payment options available at railway
counters in the country.
Evasion attempts
1. Gold purchases
In Gujarat, Delhi and many other major cities, sales of gold increased on 9
November, with an increased 20 to 30% premium surging the price as much
as 45,000 (US$670) from the ruling price of 31,900 (US$470) per 10 grams
(0.35 oz).
Income Tax officials raided multiple branches of Axis Bank and found bank
officials involved in money laundering acts, exchanging old notes for gold.
2. Donations in temples
In India, the cash deposited into hundis, or cash collection boxes in temples
and gurudwaras are exempted from inquiry by the tax department. This
exemption is sometimes misused to launder money. After the note ban, there
was a spike in donations in the form of the demonetised notes in temples.
Authorities of Sri Jalakanteswarar temple at Vellore discovered cash worth
4.4 million (US$65,000) from the temple hundi in the form of defunct notes.
4. Railway bookings
The Railways Ministry and the Railway Board responded swiftly and decided
that cancellation and refund of tickets of value 10,000 and above will not be
allowed by any means involving cash. The payment can only be through
cheque/electronic payment. Tickets above 10,000 can be refunded by filing
ticket deposit receipt only on surrendering the original ticket. A copy of the
PAN card must be submitted for any cash transaction above 50,000. The
railway claimed that since the Railway Board on 10 November imposed a
number of restrictions to book and cancel tickets, the number of people
booking 1A and 2A tickets came down.
The tax collection by local bodies have surged over 260% and more than
15000 crore mare after 14 days of demonetization. The total indirect tax
collection rose to 14.2% only in the month of December according to Finance
Minister Arun Jaitley.
6. Backdated accounting
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.
It would curb the funding for anti-social elements like smuggling, terrorism,
espionage, etc.
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.
3. Effects On Demand
1.Consumer goods
4. Effect on Prices
Real Estate and Property: Prices in this sector are largely expected to fall,
especially for sales of properties where major part of the transaction is cash
based, rather than based on banks transfer or cheque transactions.
5. Effect on GDP
This Will Bring More transparency In System And You can Easily track Online
Money Transactions.
Yes, Demonetisation will slow down growth rate in short term and medium
term because people have less money in hands. So demand is low, that is
why it is hampering our growth rate. But as soon as people get money,
markets will be back on track.
But its long term gain is fictional or say disputed. Some people
theoretically says it will benefit the economy as government will have more
revenue but others say giving a electric shock to the economy when its
already under distress business sentiment can send it into coma.
People have panicked due to sudden demonetization. This will force them to
save and store more money. Thus, a decrease in demand leading to
slowdown in consumer market.
Impact of Demonetization on Elections
1. Former Chief Election Commissioner S.Y. Quraishi said the move will
definitely have a positive impact on the election system but more steps were
needed to tackle the problem of black money in polls.
"It will definitely have some impact on free flow of money in elections but I
don't think it will curb the whole menace. We all know that in Uttar Pradesh
and Punjab elections, money plays a big role. There will be some control after
the decision," Quraishi.
"If political parties have organised their money then it will have no impact
on them but those who would not have organised, they may find themselves
in trouble. Now they will not be able to organise their unaccounted money.
This will obviously impact the elections but will take much more time to
completely curb the menace," he added.
"Candidates who rely on wooing voters by using money will find the going
difficult," Ragi said, adding that all political parties will be impacted in some
way and those opposing it are doing so for petty politics.
4. Union Finance Minister Arun Jaitley, however, said the decision had no
connection with elections.
5. His predecessor, P. Chidambaram of the Congress, said that his party will
fight elections according to rules and regulations.
"I don't know... you must ask people who spend large amounts of money in
elections. I don't know if people stash cash three months ahead of elections.
I don't know. I know that people pull out money at the time of elections and
spend it for elections. I don't know if people put it in gunny bags or suitcases
and store it somewhere. I don't know," he said to queries on the impact of
the government's decision on political parties.
"Congress party, in anyway, did not have too much money even in the last
elections," he said.
Ban on Rs. 500 and Rs.1000 notes has taken the nation with a surprise,
indeed a visionary decision how will this impact upcoming elections in Punjab
and UP?
Electoral funding in India is largely opaque and mostly parties claim that
they have received the funding from unknown sources. India is among very
few countries in the world that allows political parties to receive anonymous
donations.
However, Parties have been spending through cash and one can see
elections as a game of cash. Despite the stringent rules, bribes, cash to
voters is commonly used tactic to lure the votes.
Last Lok Sabha Elections saw a major jump in illegal cash and more than Rs.
300 Crore were seized by the commission.
UP and Punjab elections are scheduled and the latest ban on high
denomination currency will force most parties to rethink their spending
strategy. Caution is for those who were planning to spend outside authorized
limits.
Real Estate has been a major stop point for black money, according to Ambit
Capitals report black money in India is more than Rs 30 lakh which is around
20% of the GDP. HDFC Chairman predicts real estate prices to come down
medially however it will help curb unaccounted cash in the real sector. The
effect will be reaching and immediate but will not shake up the sector in
major way.
Some can see this move as a surgical strike on opposition by Modi but it is
infact the move that has elevated the PMs stature against corruption.
UP Election 2017
its a great, historic and game-changing move by PM Modi.
Taking such a strategic and bold move just before the UP elections is really
hell of a task because this can easily be misunderstood by the majority of
illiterate public of UP (no-offense to UPians but its true). This can cause BJP
all sorts of trouble in election but PM Modi was still inclined to declare it pre-
elections.
Whether BJP will have positive or negative effect on elections will depend on
how we Indians take his decision of demonetization.
Urban - BJP stands to gain here the most. From what I can tell young urban
electorate is staunchly behind BJP. They see demonetization as not only a
anti-corruption drive but also a modernization drive. So from a UP standpoint
BJP will do well in large cities, especially with electorate who can quickly
switch to cash alternatives. This is the vote the PM Modi has been shoring up
on the past two days with his cash less statements.
Semi Urban - This is where BJP will have a mixed performance. The switch
to cash alternatives is relatively difficult and people felt more of the pinch
than the good folks in urban areas. But I would say that the overall tilt will be
towards BJP.
Rural - This group will make or break BJP. Most likely they will turn away from
the BJP and BJP will try to make up the votes/seats in urban areas. This is
where BJP will play the anti-corruption and nationalism card to shore up
support. The main pain points will be visible in 23 months or so after the
second wave of demonetization impacts become evident. If the impact is
severe loss of jobs, then BJP will not do well in the rural belt.
Overall I do not think this will backfire, but the rural folks will decide the UP
elections.
Money plays a great role in Punjab elections, the flow of money, depicts the
impact of demonetization on the people. In Punjab Election 2017, People are
in favor of the demonetization as it would control the flow of money, election
committee makes sure that the flow of cash would be under control and the
black money wont flow easily.
Come elections, and you could witness money being showered on voters.
With demonetization, political parties with black money wouldnt be able to
woo voters.
We can hope, there will be fair voting in the upcoming state election of
Punjab.
The only state to have suffered the drugs menace is Punjab. The drug
peddlers have run back into their rat holes post demonetization. The drugs
business is the most important, in a shadow economy. The drugs business
has completely stopped in the state, as transactions were done only in cash.
Goa Election 2017
Goa Election 2017 is concern the Goa is a tourist state, most of the people go
Goa for vacation but due to the demonetization tourist industry is adversely
effected in Goa, as far as elections are concern the citizens of Goa has
positively accepted the plan of demonetization. Goa people has shown full
support to Prime Minister Narendra Modi In working smoothly during the time
of demonetization.
The government of India has demonetized Rs 500 and Rs 1000 notes to get
back the black money. The impact of demonetization is clearly visible on the
elections of the five states. People are expecting positive results in the
Uttarakhand Vidhan Sabha Election 2017, but it may get difficult to tackle
the black money from the elections. As per the election commission, parties
those who have organized the money wont face any problem but parties who
have not organized it may find them in trouble. In Uttarakhand, tourism
business has been affected as people are facing bit problem in cash, the
committee has analyzed the effects of demonetization in Uttarakhand, but
people living in Uttarakhand are witnessing changes in getting free flow of
cash.
Pros
People who possess huge amounts of black money in hard cash are at a
complete loss now.
Now if a black holder want to deposit money in bank accounts than he/she
has to show ID.
By banning Rs. 500 and Rs. 1000 notes, Modiji has busted all these
unethical rackets completely .
Most of These terrorist ,Maoist Organization Used These Funds For Buying
Arms and Weapons.
4. 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.
With this ban , Modiji has delivered a fatal blow to the unethical Hawala
traders as they cant trade anymore using denominations of Rs. 500 and Rs.
1000 .
Cons
1. Rush at Banks
Peoples are forget everything else and throng to the places where the
banned notes are being officially exchanged leading to a tremendous chaos .
3. 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 . This can adversely have a negative effect
on trade in general .
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 .
Prices of vegetables and fruits have also soared burdening the common
man .
6. Marriage Season
CONCLUSION
Bibliography
www.moneycontrol.com
www.timesofindia.com
www.economictimes.com
www.quora.com
www.investopedia.com
www.Wikipedia.com