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PROJECT

“ PROJECT WORK ” NAME - TANIYA DUTTA

WORK

“ PROJECT WORK ” NAME - TANIYA DUTTA

NAME-

“ PROJECT WORK ” NAME - TANIYA DUTTA

TANIYA DUTTA

TOPIC -

TOPIC - “HAS THE DEMONETIZATION REALLY BENIFITTED OUR COUNTRY?”

“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

    DEMONETIZATION

    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 announcementand the prolonged cash shortages in the weeks that followedcreated 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 <a href=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. " id="pdf-obj-8-2" src="pdf-obj-8-2.jpg">

    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

       
       

    Background

    The Indian government had demonetized bank notes on two prior occasionsonce in 1946 and then in 1978and 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.

    ration stores, and crematoriums were allowed to accept the banned ₹500 and ₹1,000 bank notes untilf Axis Bank in Mehsana , Gujarat to withdraw cash following deposit of demonetized currency notes in bank on 15 November 2016. " id="pdf-obj-12-25" src="pdf-obj-12-25.jpg">

    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
    Support
    The decision met with mixed initial reactions. Several bankers like Arundhati Bhattacharya (Chairperson of State Bank
    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
    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
    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
    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
    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
    Effects

    Banking
    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
    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
    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
    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
    Business

    By the second week after demonetization of ₹500 and ₹1,000 banknotes,

     

    cigarette sales across India witnessed a fall of 3040%, 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
    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
    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
    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
    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
    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.

     
    because ambulances refuse to offer services on old notes. A month after demonetization: The unorganized sector

    BIBLIOGRAPHY

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    https://www.youthkiawaaz.com/2017/02/a-commoners-
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    https://demonetizeormonetize.blogspot.in/2016/11/demonetiz
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