Demonetization businesses that were concealing the fortunes amassed supplying

Demonetization

On november8th 2016 prime minister narendra modi announced  the act of cancelling the currency as a legal
tender.

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donetization of all ?500  and ?1,000
banknotes of the Mahatma Gandhi Series. This was mainly done by the
government to put down the use of
illicit and counterfeit cash to fund illegal activity and terrorism.

This was not the first time the
indian government has demonitized its notes

It was done 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 penalise 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.

 

 Impacts

Exchange of old notes

 

People gathered
at ATM of Axis Bank at 16th November
2016 in Mehsana, Gujarat to
withdraw cash following deposit of demonetized currency notes in bank on 15
November 2016.

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: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 of
cash due to demonetisation led to chaos, and most people holding old banknotes
faced difficulties in 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.14111220513 ATMs were
running out of cash after a few hours of being functional, and around half the
ATMs in the country were not functioning. 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.

 ‘Live ATM Alert’ was a hashtag
campaign started by a
group of youngsters from a Facebook community called ‘7PM Status’.221 It launched a
campaign for crowdsourcing locations of
ATMs in their vicinity that were live and working. The public were asked to
post the location and details of ATMs that were live and dispensing cash,
including a hashtag #LiveATMAlert or by tagging the group in their post in
Facebook or Twitter. The group would in turn collate all gathered information
and broadcast it to their followers at regular intervals.222

The cash
shortage was still ongoing in the month of April 2017, five months after the
demonetisation. 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%.

Cash
withdrawals from bank accounts were restricted to ?10,000 per day and ?20,000 per week per account from 10 to
13 November 2016.This limit was increased to ?24,000 per week from 14 November 2016.4142

The rbi kept a
rule of daily withdrawal limit which was really low .A daily limit on
withdrawals from ATMs was also imposed varying from ?2,000 per day till 14
November, and ?2,500 per day till 31 December. This limit was increased to
?4,500 per day from January 1, and again to
?10,000 from January 16, 2017. Limits placed vide the circulars cited above on
cash withdrawals from Current accounts/ Cash credit accounts/ Overdraft
accounts stand withdrawn with immediate effect. RBI increased the withdrawal
limit from Savings Bank account to Rs 50,000 from the earlier Rs 24,000 on
February 20, 2017 and then on March 13, 2017, it removed all withdrawal limits
from Savings Bank Accounts

The BSE SENSEX and NIFTY 50 stock indices fell over 6 percent on the day after the announcement.10 In the days following the demonetization, the
country faced severe cash shortages with severe detrimental effects across the
economy.111213 People seeking to exchange their bank notes had
to stand in lengthy queues, and several deaths were linked to the rush to
exchange cash.1415

 

 Lower income Indians are unlikely to have
their own bank account, and even given 50 days to do so, would struggle with
limited education and resources to open one. They might even not be able to
reach a bank in the first place, as only 27% of Indian villages have one within
5km. Women also have been particularly effected, as most do not already own a
bank account

 

 

 

This demonetization has caused chaos throughout
India. The Indian Express reported that at least 33 people have died as a
result of demonetization, with causes of death ranging from people collapsing
of exhaustion after waiting in the queues for the bank, a child dying in
hospital as the parents only had only currency notes, and others committing
suicide as they were unable to feed their families. Outside of these extreme
cases, the rest of the country faced hours of queuing outside banks and ATMs
and huge income losses, as customers and employers had no cash to pay workers
with. The huge cash shortages haven’t been helped by the government’s failure
to introduce the new 500 and 2,000 rupee notes: to make demonetization a
surprise, they couldn’t start printing any new cash before the announcement.

Domestic abuse rates spiked in November, with
calls to India’s One Stop Crisis Centre (OSCC) – a domestic abuse charity –
more than doubling the month that Modi announced demonetization. 50% of the women
who received counseling said their abuse was due to troubles to do with
demonetization. India has a culture of women stowing away small sums of cash
without their husbands’ knowing, in cases of emergencies. In a country where
the 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 the
greatest source of control and independence they have. After demonetization,
many women were faced with the choice of losing their money or handing it over
to their husbands.

 

Prospects

Up to 97%464748 of the
demonetised bank notes have been deposited into banks which have received a
total of ?14.97 trillion ($220 billion) as of
December 30 out of the ?15.4 trillion that was demonetised.
This is against the government’s initial estimate that ?3 trillion would not return to the banking system.49

Of the ?15.4
trillion demonetised in the form of ?500 and ?1000 bank notes of the Mahatma
Gandhi Series, ?9.2 trillion in the form of ?500 and ?2000 bank notes of the
Mahatma Gandhi New Series has been recirculated as of 10 January 2017, two
months after the demonetisation.

Finance Minister Arun Jaitley said that demonetisation would clean the complete
economic system, increase the size of economy and revenue base. He mentioned
the demonetisation along with the upcoming Goods and Services Tax (GST) as “an attempt to change the spending habit and lifestyle