DemonetizationOn november8th 2016 prime minister narendra modi announced the act of cancelling the currency as a legaltender. donetization of all ?500 and ?1,000banknotes of the Mahatma Gandhi Series.
This was mainly done by thegovernment to put down the use ofillicit and counterfeit cash to fund illegal activity and terrorism.This was not the first time theindian government has demonitized its notesIt was done in 1946 and then in1978—and in both cases, the goal was to combat tax evasion by “blackmoney” held outside the formal economic system.. In 1946, the pre-independence government hopeddemonetization would penalise Indian businesses that were concealing thefortunes amassed supplying the Allies in World War II.
In 1978, the JanataParty coalition government demonetized banknotes of 1000, 5000 and 10,000rupees, again in the hopes of curbing counterfeit money and black money. ImpactsExchange of old notes People gatheredat ATM of Axis Bank at 16th November2016 in Mehsana, Gujarat towithdraw cash following deposit of demonetized currency notes in bank on 15November 2016.The ReserveBank of India stipulated a window of fifty days until 30 December 2016 todeposit the demonetized banknotes as credit in bank accounts. The banknotescould also be exchanged over the counter of bank branches up to a limit thatvaried over the days:2 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.4142 The limit was reduced to ?2,000 per person from 18 November.43 The Indian economy has slowed considerably since demonetization. In the April-June quarter of this year, the country recorded a growth of 5.7 percent, the lowest in the last three years, prompting many economists to point fingers at demonetization, The scarcity ofcash due to demonetisation led to chaos, and most people holding old banknotesfaced difficulties in exchanging them due to endless queues outside banks andATMs across India, which became a daily routine for millions of people waitingto deposit or exchange the ?500 and ?1000 banknotes since 9 November.14111220513 ATMs wererunning out of cash after a few hours of being functional, and around half theATMs in the country were not functioning.
Sporadic violence was reported in New Delhi, but there were no reports of anygrievous injury, people attacked bank premises and ATMs, and a ration shop waslooted in Madhya Pradesh after the shopowner refused to accept ?500 banknotes. ‘Live ATM Alert’ was a hashtagcampaign started by agroup of youngsters from a Facebook community called ‘7PM Status’.221 It launched acampaign for crowdsourcing locations ofATMs in their vicinity that were live and working. The public were asked topost the location and details of ATMs that were live and dispensing cash,including a hashtag #LiveATMAlert or by tagging the group in their post inFacebook or Twitter. The group would in turn collate all gathered informationand broadcast it to their followers at regular intervals.
222The cashshortage was still ongoing in the month of April 2017, five months after thedemonetisation. According to a survey, the situation was as bad as 83% ofpeople being unable to withdraw money in Hyderabad, while in Pune, the figure was 69%.Cashwithdrawals from bank accounts were restricted to ?10,000 per day and ?20,000 per week per account from 10 to13 November 2016.
This limit was increased to ?24,000 per week from 14 November 2016.4142The rbi kept arule of daily withdrawal limit which was really low .A daily limit onwithdrawals from ATMs was also imposed varying from ?2,000 per day till 14November, and ?2,500 per day till 31 December. This limit was increased to?4,500 per day from January 1, and again to?10,000 from January 16, 2017.
Limits placed vide the circulars cited above oncash withdrawals from Current accounts/ Cash credit accounts/ Overdraftaccounts stand withdrawn with immediate effect. RBI increased the withdrawallimit from Savings Bank account to Rs 50,000 from the earlier Rs 24,000 onFebruary 20, 2017 and then on March 13, 2017, it removed all withdrawal limitsfrom Savings Bank AccountsThe BSE SENSEX and NIFTY 50 stock indices fell over 6 percent on the day after the announcement.10 In the days following the demonetization, thecountry faced severe cash shortages with severe detrimental effects across theeconomy.111213 People seeking to exchange their bank notes hadto stand in lengthy queues, and several deaths were linked to the rush toexchange cash.
1415 Lower income Indians are unlikely to havetheir own bank account, and even given 50 days to do so, would struggle withlimited education and resources to open one. They might even not be able toreach a bank in the first place, as only 27% of Indian villages have one within5km. Women also have been particularly effected, as most do not already own abank account This demonetization has caused chaos throughoutIndia.
The Indian Express reported that at least 33 people have died as aresult of demonetization, with causes of death ranging from people collapsingof exhaustion after waiting in the queues for the bank, a child dying inhospital as the parents only had only currency notes, and others committingsuicide as they were unable to feed their families. Outside of these extremecases, the rest of the country faced hours of queuing outside banks and ATMsand huge income losses, as customers and employers had no cash to pay workerswith. The huge cash shortages haven’t been helped by the government’s failureto introduce the new 500 and 2,000 rupee notes: to make demonetization asurprise, they couldn’t start printing any new cash before the announcement.Domestic abuse rates spiked in November, withcalls to India’s One Stop Crisis Centre (OSCC) – a domestic abuse charity –more than doubling the month that Modi announced demonetization.
50% of the womenwho received counseling said their abuse was due to troubles to do withdemonetization. India has a culture of women stowing away small sums of cashwithout their husbands’ knowing, in cases of emergencies. In a country wherethe percentage of work-age women with jobs has fallen by 10% to 27% since 2005(the largest drop in any country), for many this cash is a lifeline and thegreatest source of control and independence they have. After demonetization,many women were faced with the choice of losing their money or handing it overto their husbands. ProspectsUp to 97%464748 of thedemonetised bank notes have been deposited into banks which have received atotal of ?14.97 trillion ($220 billion) as ofDecember 30 out of the ?15.
4 trillion that was demonetised.This is against the government’s initial estimate that ?3 trillion would not return to the banking system.49Of the ?15.
4trillion demonetised in the form of ?500 and ?1000 bank notes of the MahatmaGandhi Series, ?9.2 trillion in the form of ?500 and ?2000 bank notes of theMahatma Gandhi New Series has been recirculated as of 10 January 2017, twomonths after the demonetisation.Finance Minister Arun Jaitley said that demonetisation would clean the completeeconomic system, increase the size of economy and revenue base. He mentionedthe demonetisation along with the upcoming Goods and Services Tax (GST) as “an attempt to change the spending habit and lifestyle