“PROJECT

WORK”

NAME-
TANIYA DUTTA
TOPIC -
“HAS THE
DEMONETIZATION
REALLY BENIFITTED
OUR COUNTRY?”
CONTENTS
1 Definition of demonetization
2 2016 Indian bank note demonetization
3 Background
4 Procedure
4.1 Televised address
4.2 Government ordinance
4.3 Exchange of old notes
5 Reactions
5.1 Support
5.2 Criticism
6 Effects
6.1 Banking
6.2 Human trafficking
6.3 Radical groups
6.4 Hawala
6.5 Railways
6.6 Cash shortage
6.7 Deaths
6.8 Stock market crash
 6.9 Transportation disruption
6.10 Agriculture
6.11 Business
6.12 Digital transactions
6.13 Drop in GDP growth rate
6.13.1 Forecasts
6.13.2 Results
6.14 Drop in industrial output
6.15 Job losses
6.16 Municipal and local tax payments
6.17 People left with old notes
7 Evasion attempts
7.1 Gold purchases
7.2 Donations in temples
7.3 Multiple bank transactions
7.4 Railway bookings
7.5 Backdated accounting
7.6 Accepting deposits without PAN
8 Income tax raids and cash seizures
8.1 Seizures of ₹2000 notes
8 See also
9 References
10 External links
DEMONETIZATION
DEFINITION of 'Demonetization'
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. Sometimes, a country completely replaces the
old currency with new currency.

BREAKING DOWN 'Demonetization'

There are multiple reasons why nations demonetize their local
units of currency:

 to combat inflation
 to combat corruption and crime (counterfeiting, tax
evasion)
 to discourage a cash-dependent economy
 to facilitate trade
2016 Indian banknote demonetization

On 8 November 2016, the Government of India announced the demonetization of

all ₹500 and ₹1,000 banknotes of the Mahatma Gandhi Series. The government
claimed that the action would curtail the shadow economy and crack down on the
use of illicit and counterfeit cash to fund illegal activity and terrorism. The sudden
nature of the announcement—and the prolonged cash shortages in the weeks
that followed—created significant disruption throughout the economy,
threatening economic output.

Prime Minister of India Narendra Modi announced the demonetization in an

unscheduled live televised address at 20:00 Indian Standard Time (IST) on 8
November. In the announcement, Modi declared that use of all ₹500 and ₹1000
banknotes of the Mahatma Gandhi Series would be invalid past midnight, and
announced the issuance of new ₹500 and ₹2000 banknotes of the Mahatma
Gandhi New Series in exchange for the old banknotes.

The BSE SENSEX and NIFTY 50 stock indices fell over 6 percent on the day after
the announcement. In the days following the demonetization, the country faced
severe cash shortages with severe detrimental effects across the economy.
People seeking to exchange their bank notes had to stand in lengthy queues, and
several deaths were linked due to the rush to exchange cash.

Initially, the move received support from several bankers as well as from some
international commentators. The move has also been criticized as poorly planned
and unfair, and was met with protests, litigation, and strikes against the
government in several places across India. Debates also took place concerning the
move in both houses of parliament. The move is considered to have reduced the
country's GDP and industrial production.
 Queues outside a bank to exchange ₹500 and ₹1000 banknotes in Bidhannagar, Kolkata

Time 20:15 IST (14:45 UTC)

Date 8 November 2016

Location India

Background
The Indian government had demonetized bank notes on two prior
occasions—once in 1946 and then in 1978—and in both cases, the goal
was to combat tax evasion by "black money" held outside the formal
economic system. In 1946, the pre-independence government hoped
demonetization would penalize Indian businesses that were concealing
the fortunes amassed supplying the Allies in World War II. In 1978, the
Janata Party coalition government demonetized banknotes of 1000,
5000 and 10,000 rupees, again in the hopes of curbing counterfeit
money and black money.
In 2012, the Central Board of Direct Taxes had recommended against
demonetization, saying in a report that "demonetization may not be a
solution for tackling black money or economy, which is largely held in
the form of benami properties, bullion and jewellery. "According to
data from income tax probes, black money holders kept only 6% or less
of their wealth as cash, suggesting that targeting this cash would not be
a successful strategy.

On 28 October 2016 the total banknotes in circulation in India was

₹17.77 trillion. In terms of value, the annual report of Reserve Bank of
India (RBI) of 31 March 2016 stated that total bank notes in circulation
valued to ₹16.42 trillion of which nearly 86% (around ₹14.18 trillion
were ₹500 and ₹1,000 banknotes. In terms of volume, the report stated
that 24% (around 22.03 billion) of the total 90266 million (9026.6 crore)
banknotes were in circulation.

In the past, the Bharatiya Janata Party (BJP) had opposed

demonetization. BJP spokesperson Meenakshi Lekhi had said in 2014
that "The aam aurats and the aadmis (general population), those who
are illiterate and have no access to banking facilities, will be the ones to
be hit by such diversionary measures."

In June, the Government of India had devised the Income Declaration

Scheme,that lasted till 30 September 2016, providing an opportunity to
citizens holding black money and undeclared assets to avoid litigation
and come clean by declaring their assets, paying the tax on them and a
penalty of 45% thereafter.
Procedure
The plan to demonetize the rupee 500 and rupee 1000 bank notes
began six to ten months prior, and was kept highly confidential with
only about ten people aware of it completely. The logistical processes
and preparations for printing the new rupee 500 and rupee 2000 bank
notes began in early-May. The cabinet was informed about the
demonetization on 8 November 2016 in a meeting called by the Prime
Minister of India Narendra Modi which was followed by Modi's public
announcement about the demonetization in a televised address.

Televised address
On 8 November 2016, Prime Minister of India Narendra Modi
announced the demonetization in an unscheduled live televised
address to the nation at 20:15 IST. 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 banknotes.

After Modi's announcement, the Governor of the Reserve Bank of India,

Urjit Patel, and Economic Affairs secretary, Shaktikanta Das explained in
a press conference that one purpose of the action was to fight
terrorism funded by counterfeit notes. While the supply of notes of all
denominations had increased by 40 percent between 2011 and 2016,
the ₹500 and ₹1,000 banknotes increased by 76 percent and 109
percent, respectively, owing to forgery. They said that forged cash was
used to fund terrorist activities against India and that the
demonetization had a counter-terrorism purpose.

Patel also informed that the decision had been made about six months
ago, and the printing of new banknotes of denomination ₹500 and
₹2,000 had already started. However, only the top members of the
government, security agencies and the central bank were aware of the
move. But media had reported in October 2016 about the introduction
of ₹2,000 denomination well before the official announcement by RBI.
This statement has led to much debate, because the Reserve Bank
governor six months before the announcement was Raghuram Rajan,
while the new banknotes have the signature of the newly appointed
governor, Urjit Patel.

Government ordinance
The Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016 was
issued by the Government of India on 28 December 2016 ceasing the
liability of the government for the banned bank notes, and also
imposing a fine up to ₹10,000 or five times the amount of the face
value of the bank notes, whichever is higher, for people transacting
with them after 8 November 2016; or holding more than ten of them
after 30 December 2016. The ordinance also provided for the exchange
of the bank notes after December 30 for non-resident citizens and
others on a case by case basis.

However, Petrol, CNG and gas stations, government hospitals, railway

and airline booking counters, state-government recognized dairies and
ration stores, and crematoriums were allowed to accept the banned
₹500 and ₹1,000 bank notes until December 2, 2016.

Exchange of old notes

The Reserve Bank of India stipulated a window of fifty days until 30
December 2016 to deposit the demonetized banknotes as credit in
bank accounts. The banknotes could also be exchanged over the
counter of bank branches up to a limit that varied over the days:

Initially, the limit was fixed at ₹4,000 per person from 8 to 13

November.
This limit was increased to ₹4,500 per person from 14 to 17 November.
The limit was reduced to ₹2,000 per person from 18 November.
All exchange of banknotes was abruptly stopped from 25 November
2016.
International airports were also instructed to facilitate an exchange of
notes amounting to a total value of ₹5,000 for foreign tourists and out-
bound passengers.

People gathered at ATM of Axis Bank in Mehsana, Gujarat to withdraw cash following
deposit of demonetized currency notes in bank on 15 November 2016.
Reactions
Support
The decision met with mixed initial reactions. Several bankers like
Arundhati Bhattacharya (Chairperson of State Bank of India) and
Chanda Kochhar (MD & CEO of ICICI Bank) appreciated the
move in the sense that it would help curb black money.
Businessmen Anand Mahindra (Mahindra Group), Sajjan Jindal
(JSW Group), Kunal Bahl (Snapdeal and FreeCharge) also
supported the move adding that it would also accelerate e-
commerce. Infosys founder N. R. Narayana Murthy praised the
move.

Finance Minister Arun Jaitley said that demonetization would

clean the complete economic system, increase the size of
economy and revenue base. He mentioned the demonetization
along with the upcoming Goods and Services Tax (GST) as "an
attempt to change the spending habit and lifestyle."

The Indian National Congress spokesperson Randeep Surjewala

welcomed the move but remained sceptical on the consequences
that would follow. Chief Minister of Bihar Nitish Kumar supported
the move. The demonetization also got support from Chief
Minister of Andhra Pradesh Nara Chandrababu Naidu. Former
Chief Election Commissioner of India S. Y. Quraishi said
demonetization could lead to long term electoral reforms. Indian
social activist Anna Hazare hailed demonetization as a
revolutionary step. The President of India Pranab Mukherjee
welcomed the demonetization move by calling it bold step. The
opinion of the masses varied both ways on micro-blogs and social
media sites like Twitter.

By and large, international response was positive which saw the

move as a bold crackdown on corruption. International Monetary
Fund (IMF) issued a statement supporting Modi's efforts to fight
corruption by the demonetization policy.

Chinese state media Global Times praised the move and termed
it as "fierce fight against black money and corruption." Former
Prime Minister of Finland and Vice-President of European
Commission Jyrki Katainen welcomed the demonetization move
stressing that bringing transparency will strengthen Indian
economy. BBC's South Asia Correspondent Justin Rowlatt in his
article praised the move for its secrecy and success and
elaborated on reason behind demonetization. Tim Wortall termed
the demonetization as welcome macroeconomic effect in his
article in Forbes magazine. Swedish Minister of Enterprise Mikael
Damberg supported the move by calling it bold decision.

Singapore-based paper The Independent published a laudatory

article on the move titled "Modi does a Lee Kuan Yew to stamp
out corruption in India." Lee Kuan Yew was the Singaporean
Prime Minister and is considered the architect of modern
Singapore. "From making up his mind to rolling it out, a new Lee
Kuan Yew is born in India. It will be reflected in the legacy of this
Prime Minister," the article said.
Indian-American economist Jagdish Bhagwati praised the
demonetization.
Criticism
he Indian Supreme Court while hearing one among a slew of
cases filed against the sudden demonetization decision in various
courts observed that it "appears to be carpet bombing and not
surgical strike" which government repeatedly claims it to be.

Nobel laureate Indian economist Amartya Sen, severely criticized

the demonetization move calling it a "despotic action" among
other things.

Former Senior Vice-President and Chief Economist of the World

Bank, Kaushik Basu, called it a 'major mistake' and said that the
'damage' is likely to be much greater than any possible benefits.

Pronab Sen, former Chief Statistician and Planning Commission

of India member, called it a "hollow move" since it did not really
address any of the purported goals of tackling black money or
fake currency.
Prabhat Patnaik, a former professor of economics at the
Jawaharlal Nehru University, Delhi called the move 'witless' and
'anti-people'. He criticized the simple way in which black money
was assumed as "a hoard of cash", saying that it would have little
effect in eliminating "black activities" while "causing much
hardship to common people."

Noted economist and journalist, T. N. Ninan wrote in the Business

Standard that demonetization 'looks like a bad idea, badly
executed on the basis of some half-baked notions'. Deepak
Parekh (Chairman of HDFC) had initially appreciated the decision
to ban the ₹500 and ₹1000 notes, but later said that the move had
derailed the economy, and expressed skepticism about its
outcome. Industrialist Rajiv Bajaj criticized the demonetization,
saying that not just the execution, but the concept of
demonetization was wrong in itself.

Chief Ministers of several Indian states like Mamata Banerjee,

Arvind Kejriwal and Pinarayi Vijayan have criticised and led major
protests against the decision in their states and in parliament.
Initially, the move to demonetize and try to hinder black money
was appreciated, but the manner in which it was carried out by
causing hardships to common people was criticized. A Public
Interest Litigation (PIL) was filed in Madras High Court by M Seeni
Ahamed, General Secretary of the Indian National League, to
scrap the decision. The High Court dismissed the PIL stating that
it could not interfere in monetary policies of the government.
Similar PILs were also filed in the Supreme Court of India.
Supreme Court of India is yet to decide on the matter. It is listed
for hearing on 2 December 2016.

Several government ministers had declared before the

demonetization that they were holding large amounts of cash,
including Arun Jaitley, who had more than 65 lakh rupees in cash.
This led to speculation about whether and when the ministers had
deposited the cash they held.

Steve Forbes described the move as 'Sickening and Immoral'. He

stated that "What India has done is commit a massive theft of
people's property without even the pretense of due process--a
shocking move for a democratically elected government."Nobel
laureate Paul Krugman said that it is difficult to see gains from
demonetization, while there may be significant costs to it.

The demonetization also came in for sharp criticism from media

outside India, with the New York Times saying that the
demonetization was "atrociously planned" and that it did not
appear to have combatted black money, while an article in The
Guardian stated that "Modi has brought havoc to India". The
Harvard Business Review called it "a case study in poor policy
and even poorer execution" The frequent change in the narrative
on objectives of the demonetization to its visible impact on the
poorest of the poor made other critiques calling government's
narrative as spins in view of the "pointless suffering on India's
poorest."

A Parliamentary panel report in April 2017 stated that rural

households and honest taxpayers were the worst hit by
demonetization. It said that it was not just the poor that suffered,
but the manufacturing sector was impacted too. According to the
panel, demonetization created significant disruption throughout
economy, because it was carried out without prior study or
research.
Effects
 Banking
In the first four days after the announcement of the step, about ₹3 trillion in
the form of old ₹500 and ₹1,000 banknotes had been deposited in the
banking system and about ₹500 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
(18 crore) transactions. The State Bank of India reported to have received
more than ₹300 billion in bank deposit in first two days after
demonetization. A spike in the usage of debit card and credit card post
demonetization was also reported.
Between November 10 and November 27, banks reported exchange and
deposits of demonetized banknotes worth ₹8.45 trillion exchange of
₹339.48 billion and deposits of ₹8.11 trillion . During this period, an amount
of ₹2.16 lakh crore had been withdrawn by people from their accounts.

In Malda, a district believed to be a transit-point for fake Indian currencies,

a large sum of cash deposits in dormant accounts were also reported.
According to The Economic Times, more than 80 percent of fake currency
in India originates from Malda district in West Bengal.

 Human trafficking
Nobel laureate Kailash Satyarthi and others working to fight human
trafficking said that the note ban had led to a huge fall in sex trafficking.
Satyarthi said the demonetization would be effective in combating
exploitation of children as well as corruption and would be a great obstacle
to traffickers. However, 2 months later he expressed his disappointment on
₹ 2000 notes being pushed into human trafficking in absence of other
concrete steps.
  Radical groups
The Demonetization has badly hit Maoist and Naxalites as well. The
surrender rate has reached its highest since the demonetization is
announced. It is said that the money these organizations have collected
over the years have left with no value and it has caused them to reach to
this decision.
The move also reportedly crippled Communist guerrilla groups (Naxalites)
financing through money laundering. On 10 November the police arrested a
petrol pump owner at Ranchi when he reportedly tried to deposit ₹2.5
billion, belonging to a person affiliated with the banned Communist Party of
India (Maoist). According to Chhattisgarh Police demonetization has
affected the Naxalite activities. It is reported that insurgents have stashed
more than ₹70 billion in the Bastar region.
While Manohar Parrikar claimed that the move has also helped in reducing
the incidents of stone-pelting in the Kashmir valley his claim has been
disputed.

 Hawala
Mumbai Police reported a setback to Hawala operations. Hawala dealers in
Kerala were also affected. The Jammu and Kashmir Police reported the
effect of demonetization on hawala transactions of separatists.

 Railways
As of November 2016, Indian Railways did not have the option to make
payment with cards at the counters. After the demonetization move, the
government announced to make card payment options available at railway
counters in the country. The railways placed an order for 10,000 card
reader machines in January 2017.
 Cash shortage
The scarcity of cash due to demonetization led to chaos, and most people
holding old banknotes faced difficulties exchanging them due to endless
queues 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.
As of 18 December 2016, there were still long queues at banks and ATMs.
Three months after the withdrawal of banknotes, a quarter of the ATMs
were still short of cash.

The cash shortage was still ongoing in the month of April 2017, five months
after the demonetization. According to a survey, the situation was as bad
as 83% of people being unable to withdraw money in Hyderabad, while in
Pune, the figure was 69%.
 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 demonetization. By the end of the year, opposition
leaders claimed that over 100 people had died due to demonetization.

In March 2017, the government stated that they received no official report
on deaths connected to demonetization.
 Stock market crash
As a combined effect of demonetization and US presidential election, the
stock market indices dropped to an around six-month low in the week
following the announcement. The day after the demonetization
announcement, BSE SENSEX crashed nearly 1,689 points and NIFTY 50
plunged by over 541 points. By the end of the intraday trading section on
15 November 2016, the BSE SENSEX index was lower by 565 points and
the NIFTY 50 index was below 8100 intraday.

 Transportation disruption
After the demonetization was announced, about 800,000 truck drive ₹ 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.

Nitin Gadkari, the Minister of Transport, subsequently announced a

suspension of toll collections on all national highways across India until
midnight of 11 November, later extended until 14 November and again until
midnight of 18 November, and yet again till 2 December.

 Agriculture
Transactions in the Indian agriculture sector are heavily dependent on cash
and were adversely affected by the demonetization of ₹500 and ₹1,000
banknotes. Due to scarcity of the new banknotes, many farmers have
insufficient cash to purchase seeds, fertilize ₹ and pesticides needed for
the plantation of rabi crops usually sown around mid-November. Farmers
and their unions conducted protest rallies in Gujarat, Amritsar and
Muzaffarnagar against the demonetization as well as against restrictions
imposed by the Reserve Bank of India on district cooperative central banks
which were ordered not to accept or exchange the demonetized banknotes.

The demonetization 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.

 Business
By the second week after demonetization of ₹500 and ₹1,000 banknotes,
cigarette sales across India witnessed a fall of 30–40%, while E-commerce
companies saw up to a 30% decline in cash on delivery (COD) orders.

 Digital transactions
Several e-commerce companies hailed the demonetization decision as an
impetus to an increase in digital payments, hoping that it would lead to a
decline in COD returns which could cut down their costs.

The demand for point of sales (POS) or card swipe machines increased. E-
payment options like PayTM and Instamojo Payment Gateway,
PayUMoney also saw a rise. According to data of Pine Labs, the demand
for its POS machines doubled after the decision. The company stated that
the debit card transactions rose by 108% and credit card transactions by
60% on 9 November 2016.

After peaking in December 2016, digital transactions declined from January

2017 onwards, thus thwarting the objective of increasing digital payments
through demonetization.
 Drop in GDP growth rate
o Forecasts -
Global analysts cut their forecasts of India's GDP growth rate for the
financial year 2016-17 by 0.5 to 3 percent due to demonetization.
India's GDP in 2016 is estimated to be US$2.25 trillion, hence, each
1 per cent reduction in growth rate represents a shortfall of US$22.5
billion ( ₹ 1.54 lakh crores) for the Indian economy. According to
Societe Generale, India's quarterly GDP growth rates would drop
below 7% for an entire year at a stretch for the fi ₹t time since June
2011.
o Results-
India's GDP growth for the quarter Jan-Mar '17 was 6.1% as against
a forecast of 7.1% by economists. The GDP growth for the entire
fiscal year was 7.1%, a reduction from the 8% of the previous year.
This drop in GDP was attributed to demonetization by economists.
 Drop in industrial output
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 yea ₹. 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.

 Job losses
There was a loss of jobs due to demonetization, particularly in the
unorganized and informal sector and in small enterprises. Labour
union jobs were crashed.

 Municipal and local tax payments

As the use of the demonetized notes had been allowed by the
government for the payment of municipal and local body taxes, it led
to people using the demonetized ₹500 and ₹1,000 notes to pay large
amounts of outstanding and advance taxes. As a result, revenue
collections of the local civic bodies jumped. The Greater Hyderabad
Municipal Corporation reported collecting about ₹1.6 billion in cash
payments of outstanding and advance taxes, within 4 days.
 The tax collection by local bodies have surged over 260% and more
than 15000 crore more 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.

 People left with old notes

The government had initially announced that any person who is
unable to deposit the old notes by 31 December 2016 would be given
an opportunity to do so until a later date. However, the government
allowed only NRIs to deposit old notes after 31 December 2016. As a
result, many people with legitimately earned old notes were left
stranded with old currency notes. This included soldiers who were on
duty during the demonetization period, people who had suffered a
bereavement, and persons who had old notes received as wedding
gifts before the demonetization. Many people found small amounts of
currency stashed away inside quilts, pillows, cupboards, lockers
behind old photographs and wall hangings, in some cases by family
members who had died. In one case, two destitute orphans founders.
96,000 left by their mother and petitioned the Prime Minister for relief.
A poor woman who was unable to get her old notes exchanged
stripped outside the RBI office in desperation. People petitioned the
courts to allow deposit of the old banknotes. The Supreme Court of
India also questioned the government on this matter.

 Evasion attempts
o 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$700) from the ruling price of ₹31,900 per 10 grams .

Income Tax officials raided multiple branches of Axis Bank and found bank
officials involved in money laundering acts, exchanging old notes for gold.
 o 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 demonetized notes in
temples. Authorities of Sri Jalakanteswarar temple at Vellore discovered
cash worth ₹4.4 million from the temple hundi in the form of defunct notes.

o Multiple bank transactions -

There have been reports of people circumventing the restrictions imposed
on exchange transactions by conducting multiple transactions at different
bank branches and also sending hired people, employees and followers in
groups to exchange large amounts of banned currency at banks. In
response, the government announced that it would start marking customers
with indelible ink. This was in addition to other measures proposed to
ensure that the exchange transactions are carried out only once by each
person.

o Railway bookings -
As soon as the demonetization was announced, it was observed by the
Indian Railways authorities that a large number of people started booking
tickets particularly in classes 1A and 2A for the longest distance possible,
to get rid of unaccounted cash. A senior official said, "On November 13,
42.7 million passengers were nationally booked across all classes. Of
these, only 1,209 were 1A and 16,999 for 2A. It is a sharp dip from the
number of passengers booked on November 9, when 27,237 passengers
had booked tickets in 1A and 69,950 in 2A."

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.

o Backdated accounting -
The Enforcement Directorate raided several forex establishments making
back dated entries. Money laundering using backdated accounting was
carried out by co-operative banks, jewellery sellers, sellers of iPhones, and
several other businesses.

o Accepting deposits without PAN -

In March 2017, it was alleged that more than 1 lakh crore (in high value
deposits of more than 2.5 lakh) were deposited without any record of PAN.

 Income tax raids and cash seizures

The Finance Ministry instructed all revenue intelligence agencies to join the
crackdown on forex traders, hawala operators and jewellery besides
tracking movement of demonetized 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.

Income Tax departments raided various illegal tax-evasive businesses in

Delhi, Mumbai, Chandigarh, Ludhiana and other cities that traded with
demonetized currency. The Enforcement Directorate issued several FEMA
notices to forex and gold traders. Large sum of cash in defunct notes were
seized in different parts of the country. In Chhattisgarh liquid cash worth of
₹4.4 million was seized.

As of December 28, official sources said that the Income Tax department
detected over ₹41.72 billion of un-disclosed income and seized new notes
worth ₹1.05 billion 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 ₹5.49 billion out of
which the new currency seized (majority of them ₹2000 notes) is valued at
about ₹1.05 billion. 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.

In a period of four months from 9 November 2016 to 28 February 2017,

CBDT claims to have detected an undisclosed income of over ₹93.34
billion through more than 2,362 search, seizure and survey actions by
Income Tax department.

 Seizures of ₹2000 notes

Huge amounts of cash in the form of new notes were seized all over the
country after the demonetization. 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 demonetization
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.

Demonetization failed to achieve what it was

meant to:
Demonetization failed to do what it was supposed to do and its impact is

turning out to be more protracted than initially expected, a New York Times

commentary has said.

And even from the point of view of promoting digital money, the

government need not have put 86 per cent of all currency out of circulation,
says Kaushik Basu, the C. Marks Professor of International Studies and

professor of Economics at Cornell University.

"Demonetization was too coarse an approach, and it accomplished too little

while causing too much collateral damage," said Basu.

Nearly eight months after the government scrapped ₹ 500 and ₹ 1,000

notes, he said a lot of data was now available to help assess what

demonetization had actually wrought.

"Demonetization failed to do what it was supposed to do, and although the

immediate disruption it caused was less severe than feared at first, the

policy's impact is turning out to be more protracted than initially expected."

Basu, who was Chief Economic Adviser to the Indian government in 2009-

12 and Chief Economist of the World Bank in 2012-16, pointed out that very

little black money was caught -- this was supposedly the prime reason why

demonetization took place in November 2016.

Although there was visible chaos in the first weeks, even months, after the

note ban, "the immediate damage caused, though large, was not as large as

some of us had feared", Basu said.

GDP growth in the last quarter of 2016 was 7 per cent and manufacturing

activity continued to grow. But "there may be greater long-term side effects

than expected", he warned.

Already, India's growth in the first quarter of 2017 was 6.1 per cent, down

from 7.9 per cent in the fiscal year 2015-16.

"An economy is a complex machine, and there is no way to be absolutely

certain that the cause of all this is demonetization," Basu said.

"But there is a telltale sign: Much of the slowdown originated in the

financial sector. Rural loans increased by only 2.5 per cent between October

2016 and April 2017, compared with 12.9 per cent a year before. The rate of

growth in overall bank credit declined.

"The growth in industrial output in April was a paltry 3.1 per cent, down

from 6.5 per cent the previous April. In the fi ₹t quarter of 2017, the

construction sector actually shrank, by 3.7 per cent, over the previous

quarter.

"All this augu ₹ poorly for the months to come: As the agriculture sector

slows down in response to low crop prices and the credit shortage begins to

bite, overall growth will likely fall further.

"The state-engineered shock of demonetization will continue to cou ₹e

through the economy."

Basu added: "India's economy has enormous strengths - such as high rates

of savings and investment - and this crisis will pass.

"But just as sailors heading to sea disregard the winds and waves at their

peril, economic policy make ₹ cannot ignore the laws of economics, and

intervene in the market with a blunt and heavy hand, without risking

shipwreck."
“Demonetization A Despotic Act” Nobel Laureate Amartya Sen
“Demonetization A Despotic Act” -Nobel Laureate Amartya Sen
“Demonetization goes against trust... It undermines the entire economy of

trust ,” “Only an authoritarian government can calmly cause such misery to

the people — with millions of innocent people being deprived of their

money and being subjected to suffering, inconvenience and indignity in

trying to get their own money back .” Telling the public suddenly that the

promissory notes you have, do not promise anything with certainty, is a

more complex manifestation of authoritarianism, allegedly justified — or so

the government claims — because some of these notes, held by some

crooked people, involve black money. At one stroke the move declares all

Indians — indeed all holders of Indian currency — as possibly crooks,

unless they can establish they are not”.

 CONCLUSION

DEMONETIZATION IN INDIA: WHAT HAPPENED?

Let us rewind to day one and see the developments that

followed the announcement.
November 8: Modi declares that ₹500 and ₹1,000 notes
are no longer legal tender. Pharmacies, shops, hospitals,
petrol pumps and other essential goods operators will
continue to transact on old notes. If someone wants to
convert more than ₹250,000 ($3,600), they will have to
provide an explanation for why they have so much cash
and prove they have paid tax on it. If they don’t, they are
expected to pay a fine of 200% of the tax they owe.
November 9-10: Banks remain closed as preparation for
the new ₹500 and ₹2000 notes are done across the
country.
November 11: People start queuing up in large numbers
outside banks to exchange their void notes for new ones;
panic ensues as banks run out of money.
November 12-16: Dozens of deaths are reported across
the country, partly because of standing in long queues or
because ambulances refuse to offer services on old
notes.
A month after demonetization: The unorganized sector
is believed to have been the worst-hit by this scheme,
especially those workers who received their income in
cash.
 BIBLIOGRAPHY
1 Internet [websites]

https://en.wikipedia.org/wiki/2016_Indian_banknote_demonet
isation
https://www.youthkiawaaz.com/2017/02/a-commoners-
viewpoint-of-demonetisation/
https://demonetizeormonetize.blogspot.in/2016/11/demonetiz
ation-effects.html

http://www.business-standard.com/article/news-
ians/demonetization-failed-to-achieve-what-it-was-
meant-to-expert-117063000825_1.html