ALCIDE GASPERI UNIVERSITY OF

EUROREGIONAL ECONOMY, JOZEFOW

FACULTY OF SOCIAL SCIENCES

FIELD OF STUDY: MANAGEMENT

MAJOR IN: BUSINESS ADMINISTRATION
PROFILE: GENERAL IN ACADAMIC

Priya Viralkumar Patel

Index number: 8437

Supervisor

Dr. Krzysztof Krassowski

Jozefow 2018
Contents
INTRODUCTION ....................................................................................................................................... 3
Rule of Law? ............................................................................................................................................ 4
EFFECTS OF DEMONITISATION ON BLACK MONEY................................................................................. 5
EVASION .................................................................................................................................................. 5
EFFECTS OF DEMONETISATION ON AGRICULTURE................................................................................. 6
Conclusion ............................................................................................................................................... 7
REFERENCIES ........................................................................................................................................... 8
INTRODUCTION

On 8 November 2016, the Government of India announced the

demonetisation of all Rs500 and Rs1000 banknotes of the Mahatma Gandhi
Series. IT also announced the issuance of new Rs500 and Rs2000
banknotes in exchange for the demonetised banknotes.

The Government claimed that the action would curtail the shadow
economy and reduce the use of illicit and counterfeit cash to fund illegal
activity and terrorism. The announcement of demonetisation was followed
by prolonged cash shortage in the weeks that followed, which created
significant disruption throughout the economy. People seeking to
exchange their banknotes had to stand in lengthy queues, and several
deaths were to the rush to exchange cash.

According to a 2018 report from the Reserve Bank of India approximately

99.3% of the demonetised banknotes or Rs15.41 lakh crore that had been
demonetised, were deposited with the banking system. The banknotes that
were not deposited were only worth Rs 10,270 crore. leading analysts to
state that effort had failed to remove black money from the economy. The
BSE SENSEX and NIFTY 50 stock indices fell over 6 percent on the day after
the announcement. The move reduced the country’s industrial production
and its GDP growth rate.

Initially, the move received support from several bankers as well as from
some international commentators. The move was also criticised 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 the house of parliament.1

1
"Withdrawal of Legal Tender Status for ₹ 500 and ₹ 1000 Notes: RBI Notice (Revised)".
Reserve Bank of India. 8 November 2016. Retrieved 8 November 2016
The government is expected to shift from efforts to improve the business
climate to adoption of populist measures as the 2019 election approaches.
India is developing into an open-market economy, but traces of its past
autarkic policies remain. Economic liberalization measures that began in
the early 1990s, including industrial deregulation, privatization of state-
owned enterprises, and reduced controls on foreign trade and investment,
have accelerated growth. Corruption, underdeveloped infrastructure, a
restrictive and burdensome regulatory environment, and poor financial
and budget management continue to undermine overall development.

Therefore, India is a stable democracy. Its population is 80 percent Hindu,

but it is also home to one of the world’s largest Muslim populations. Prime
Minister Narendra Modi, leader of the Bharatiya Janata Party, took office in
2014 and is credited with reinvigorating India’s foreign policy, in part to
balance China’s growing influence in South Asia and the Indian Ocean. Modi
promised sweeping economic reforms, but results thus far have been
modest. The diverse economy encompasses traditional village farming,
modern agriculture, handicrafts, and a wide range of modern industries.
Capitalizing on its large, educated English-speaking population, India has
become a major exporter of information technology services, business
outsourcing services, and software workers.2

Rule of Law?
Real property rights are enforced in metropolitan areas, but titling remains
unclear in some other urban and rural areas. Although the judiciary is
independent, India’s courts are understaffed and lack the technology
necessary to clear an enormous backlog. Corruption is an obstacle to
growth and remains a serious problem, and there is little evidence to
suggest that anticorruption laws are effective.

2
Saikia, Bijoy Sankar (18 November 2016). "Demonetisation may drag India behind
China in GDP growth, rob fastest-growing economy tag". The Economic Times.
Retrieved 5 January 2017
EFFECTS OF DEMONITISATION ON BLACK MONEY

The government estimate that Rs3 lakh, or approximately 99.3% of the

demonetised banknotes However according to a 2018 report from the RBI
approximately 15.41lakh crore that had been demonetised, were deposited
with the banking system. The banknotes that were not deposited with the
banking system. The banknotes that were not deposited were only worth
Rs 10,720 crore. Commentators concluded that the government failed in its
aim of purging black money from economy.

EVASION

There have been reports of people circumventing the restriction imposed

on exchange transaction by conducting multiple transaction at different
bank branches and also 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
demonetised banknotes at banks. In Gujarat, Delhi and many other major
cities, sales of gold increased post-demonetisation, with an increased 20 to
30% premium surging the price as much as ₹45,000 (US$630) from the
ruling the cash deposited into hundis, or cash collection boxes in temples
and gurudwaras are exempted from inquiry by the tax department which is
sometimes misused to launder money.3

3
"The dire consequences of India's demonetisation initiative". The Economist. 3
December 2016. Retrieved 5 January 2017
EFFECTS OF DEMONETISATION ON AGRICULTURE

Transactions in the agriculture sector are heavily dependent on cash and

were adversely affected by the demonetisation. Due to scarcity of the new
banknotes, many farmers have insufficient cash to purchase seeds,
fertilisers and pesticides needed for the plantation of crops usually sown
around mid-November. Farmers and their unions conducted protest rallies
in Gujarat, Amritsar and Muzaffarnagar against the demonetisation 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 demonetised banknotes.
The shortage of cash led to plunge in demand which 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.
Some farmers dumped their produce in protest against the government.
Demonetisation resulted in the relative erosion of agricultural wages and
weak bargaining power of farmers for their produce.
Real GDP growth rate
Real GDP growth rate - Quarterly (%) [134][135][136][137]
Real GDP growth rate - Year-on-Year (%) [138]
Real GDP growth rate [134][135][136][137] (base year 2011-12)
Financial Year Quarter Quarterly Yearly
2015-16 Q1 (April–June) 7% 8% [138] Q2 (July–September)
7.4%
Q3 (October–December) 7.2%
Q4 (January–March) 9.1%
2016-17 Q1 (April–June) 7.9% 7.1% [138]
Q2 (July–September) 7.5%
Q3 (October–December) 7%
Q4 (January–March) 6.1%
2017-18 Q1 (April–June) 5.7% 6.5%
Q2 (July–September) 6.3%
Q3 (October–December) 7.2%
Q4 (January–March) 7.6%
2018-19 Q1 (April–June) 7.7%
Q2 (July–September) 8.2%
Q3 (October–December)
Q4 (January–March)

Global analysts cut their forecasts of India's real GDP growth rate for the financial year
2016-17 by 0.5 to 3% due to demonetisation.[139][140] 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 crore) for the Indian
economy.[141] According to Society General, quarterly GDP growth rates would drop
below 7% for an entire year at a stretch for the first time since June 2011.[142]

The Q4'16-17 rate was 6.1% as against a forecast of 7.1% by economist. [143] The rate
for the financial year 2016-17 was 7.1%, a reduction from the 8% in 2015-16[144]

Conclusion
Demonetization was the wrong policy yet all. The polls done show that
more than 75% Indian people support the demonetization and these are
the people who are actually suffering. These are the poor who are bearing
the burden of it but they support it.
I really do not wish to tolerate a Leader like Mr. Narendra Modi in
future. because they have no planning, no idea about what are they going
to do. He is the biggest liar in the country. let me start
with Demonetization.
As Manmohan Singh says: “It organized loot and legalized plunder.” I
agree with him. Because they know something about economy.
Demonetization in a booming economy is like shooting the tires of a
speeding car. What was the purpose of demonetization. Even govt. do
not know this.
But all surveys suggest that only 6% of black money is held in cash. The rest is in real
states, gold, jewelry, stocks and foreign accounts. Is it therefore worth
demonetizing 86% of all currency to tackle 6% black money. How do you expect to
have a major victory over black money by just dealing with that proportion? The
justification of demonetization terms of elimination black money really fully.

Fake currency: The fake currency or counterfeit currency in the economy

is only 400 crore. This figure has been constant for four years. Is it
appropriate to tackle four hundred crore worth of counterfeit currency
by eliminating 86 % of all currency? Fake money had never been a big
problem in India.

REFERENCIES

1. "Here is what PM Modi said about the new Rs 500, Rs 2000 notes and black

money". India Today. 8 November 2016. Retrieved 9 November 2016.

2. "Notes out of circulation". The Times of India. 8 November 2016.

3. "Demonetization Announcement Anniversary 2017

|Onmanorama". OnManorama. Retrieved 7 November 2017.

4. Jump up to: "India demonetisation: Chaos as ATMs run dry". Al Jazeera. 9

November 2016. Retrieved 9 November 2016.

5. Jump up to: "Demonetisation: Chaos grows, queues get longer at banks, ATMs on

weekend". Indian Express. 12 November 2016.

6. "100 days of demonetisation: Stories of hardship". Al Jazeera.

7. Jump up to: "India: Demonetisation takes its toll on the poor". Al Jazeera. 16

November 2016. Retrieved 17 November 2016.

8. "Demonetisation Death Toll Rises To 25 And It's Only Been 12

Days". Huffingtonpost. Retrieved 15 November 2016.