This document is a term paper submitted by Raj Kapoor Bhardwaj for the degree of B.com (Hons) at Rajdhani College, University of Delhi under the supervision of Miss Jyoti Kasana. It discusses the impact of the Indian government's 2016 demonetization of Rs. 500 and Rs. 1000 banknotes. In the acknowledgment and declaration sections, Bhardwaj thanks his supervisor Miss Kasana and declares that the paper represents his original work. The paper then discusses the meaning, background, purpose, operational guidelines, impacts in the short and long term, effects on the economy and key sectors, and overall impact of demonetization in India.

1. DEMONETISATION

2. ACKNOWLEDGEMENT
In completion of this term paper I owe debt of gratitude to my supervisor Miss Jyoti
kasana for her continuous encouragement and valuable guidance. I am grateful for the
time devoted by her for guiding and improving me at every stage of writing this paper.
Her expertise, kindness, patience and experience have greatly helped me in completion
of the paper. I express my deep and sincere gratitude to her.
I also extend my thanks to all teachers of the Department of commerce, Rajdhani
College for their sincere guidance.
(Raj Kapoor Bhardwaj)
B.Com (Hons.)
Batch 2014-17

3. DECLARATION
This is certify that the material embodied in this study is based on my original research
work done under the guidance of Miss Jyoti Kasana and has not been submitted in
part or full for any other degree of diploma of any university. The work of other has been
duly acknowledged at the relevant places.
(Raj Kapoor Bhardwaj)
B.Com (Hons.)
Batch 2014-17
(Miss Jyoti Kasana)
Assistant professor
Department of commerce
Rajdhani college, university of Delhi

4. Demonetization
Researchprojectsubmitted to department of commerce Rajdhani College,
Delhi University
In partial Fulfillment of Requirement for the Degree of B.com (hons)
SUBMITTED BY:
RAJ KAPOOR BHARDWAJ
B.COM (HONS)
BATCH 2014-2017
UNDER THE SUPERVISION OF:
MISS JYOTI KASANA
DEPARTMENT OF COMMERCE
RAJDHANI COLLEGE
UNIVERSITY OF DELHI

5. INDEX
 Meaning……………………………………………………………………………………………..........5
 Definition………………………………………………………………………………………………5
 Background………………………………………………………………………………………………..6
 Some statistics……………………………………………………………..……………………….7
o Purpose/need for demonetization………………………………..……………7
o Your money will be yours……………………………………………………………8
 Operational Guidelines……………………………………………………………………………10
 Impact of Demonetization……………………………………………………………………….11
 Major Benefits……………………………………………………………………………………12
 Directs…………………………………………………………………………………………………13
 IndirectImpacts………………………………………………………………………………….13
 ImpactAnalysis………………………………………………………………………………………..14
 ShortTerm………………………………………………………………………………………….14
 Long Term…………………………………………………………………………………………..14
 Impacton Economy………………………………………………………………………..………..17
 Sector Wise………………………………………………………………………………………..17
 OverallImpact……………………………………………………………………………...............18
 Short……………………………………………………………………………………………………18
 Long…………………………………………………………………………………………............18
 Key Consideration……………………………………………………………………………………19
 Declaration in IDS……………………………………………………………………………….21
 Cyber Crimes………………………………………………………………………………………21
 What next??.................................................................................................23
 On the Radar……………………………………………………………………………………………24
 Conclusion………………………………………………………………………………………………25

6. Meaning of Demonetization
Definition:- 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.
The opposite of demonetization is Remonetization, in which a form of payment is
restored as legal tender.
 November 8, 2016 a day when the Indian Government launched a “surprise
attack”/Surgical strike”/Surgery against black money in the economy
 The hon’ble Prime Minister of India in an unscheduled live televised address to
the nation on November 8, 2016 at 20:15 Indian standard time (ST) declared
circulation of all INR 500 and 1000 banknotes of the mahatma Gandhi series as
invalid with immediate effect.
 Issuance of new INR 500 and INR 2000 banknotes of the Mahatma Gandhi new
series in exchange for the old banknotes was announced.
 With the exchange of new denomination notes of INR 2000 and not INR 500, the
conversion of black money would be curbed.
 Denomination has been done in an effort to:
I. Stop counterfeiting of the current banknotes allegedly used for funding
terrorism
II. Crack down on black money in the country
Steps taken by the Government:
In 2016, the Indian government decided to demonetize the 500- and 1000- rupee notes,
the two biggest denomination notes. These notes accounted for 87% of the country’s
cash supply. The government’s goal was to eradicate counterfeit currency, fight tax
evasion, eliminate black money gotten from money laundering and terrorist financing

7. activities, and promote a cashless economy. By making the larger denomination notes
worthless, individuals and entities with huge sums of black money gotten from parallel
cash systems were forced to convert the money at a bank which is by law required to
acquire tax information from the entity. If the entity could not provide proof of making
any tax payments on the cash, a tax penalty of 200% of the tax owed was imposed.
Background
 Similar denomination had been done in the past in India it has been done.
 In January 1946, wherein banknotes of INR 1000 and INR 10000 were withdrawn
 In January 1978, wherein banknotes of INR 1000, INR 5000 and INR 10000 were
demonetized.
 In 2012, central board of direct tax (CBDT) had recommended against
demonetization considering demonetization not to be a soluti9on for tackling
black money or economy, which is largely held in the form of benami properties,
bullion and jewelry.
 Difference with respect to demonetization in 2016 with that of earlier once
obviously is the size
 Previous ones barely impacted common people but this one is huge 85% of
currency out of the system
 Demonetization has been embraced in the past by several other countries. They
include:
Country Year Denomination
United state 1969 $10,000 and $1,000
Ghana 1982 50cedis
Zimbabwe 2010 One hundred trillion dollar
Myanmar 1987 25-,35-, and 75- kyat notes
Australia 1996 Full series of polymer bank
notes
 Some of the country have met the purposes and whereas have failed
 In 1996, Australia become the first country to have a full series of circulating
polymer bank notes after replacing all paper based notes

8. SOME STATISTICS
 Quantum of bank notes in circulation vis-à-vis high denomination notes in
circulation
Particulars In numbers
Quantum of Total Bank Notes 90,226
Quantum of High denomination bank notes 22030 million (i.e. 24% approx)
 Value of bank notes in circulation vis-à-vis high denomination notes in circulation
as on march 31, 2016(as per annual reports of reserve bank of India)
Particulars Amount in INR
Value of total bank notes 162.2 lakh million
Value of high denomination bank notes 141.8 lakh million (86%)
 Value of bank notes in circulation as on October 28, 2016 in India was INR
177.7lakh million
PURPOSE/NEED FOR DEMONETIZATION
We knew terrorism is a frightening threat, but who funds these terrorists? Our
enemies they use the fake currency to sponsor terror-this was proven many a
times.
Corruption and black money are the major obstacles in our country. It is
weakening the efforts to remove poverty. Our country is rapidly increasing in
terms of growth and we are in No.1 position in terms of growth but we are ranked
76 in Global Corruption Perception ranking. It clearly shows how corruption and
black money have spread their tentacles.
 High denomination notes are known to facilitate generation/circulation of black
money
 Total number of bank notes in circulation rose by 40% between 2011 and 2016
 Increase in number of notes of INR 500 denomination was 76% and for INR 1000
denomination was 109% during this period

9.  Infusion of new series bank notes will be monitored and regulated by RBI
 The World Bank in July, 2010 estimated the size of the shadow economy for
India at 20.7% of the GDP in 1999 and rising to 23.2% in 2007
 A parallel shadow economy corrodes and eats into the vitals of the country’s
economy resulting in:
 Inflation adversely affect the poor and the middle classes
 Depriving the government of its legitimate revenues
 Forged cash used to fund terrorist activities against India
Accordingly, steps have been taken to demonetize the high denomination notes
and help to:
1. Curb financing of terrorism through the proceeds of fake Indian currency
notes (FICN)
2. Curb the use of FICN funds for subversive activities such as espionage,
smuggling of arms, drugs and other contrabands into India and
3. For eliminating black money which casts a long shadow of parallel
economy on our real economy
‘Your money will be yours’
It is a transformational decision taken by the government to ban Rs.500 and Rs.1000
notes from circulation in the market. The decision was taken to minimize the black
money and corruption. The RBI is issuing Rs.500 and Rs.2000 notes. They have
released a statement by saying that all the Rs.500 and Rs.1000 notes are to be
deposited at nearby banks or post-offices. This will be a regular currency circulation all
throughout India. All those people who are panicked with this move by the government
need not worry at all as the government has assured that ‘Your money will be yours’.
You will not lose anything so there is no point in being scared. There will be no
restrictions on non-cash payments by cheques, demand draft’s, and electronic fund
transfer.

10. Percentage share of Denominations before
Demonetization

11. OPERATIONAL GUIDLINES
In order to implements the above decision of the Government and keeping in view the
need to minimize inconvenience to the public, several operational guidelines had been
issued:
i. Old high denomination bank notes may be deposited up till December 30,
2016
ii. Old high denomination bank notes can be exchanged as per the limits fixed
by the RBI
iii. No limit on the quality or value of old high denomination bank notes to be
credited to the account of the tender maintained with the bank on complying
with extent know your customer(KYC) norms and valid proof of identity
iv. Old high denomination bank notes tendered can be credited to a third party
account on submission of specific authorization along with proof of identity
v. Limits in cash withdrawal and ATM withdrawals
vi. No restriction on the use of any non cash method of operating the account
which includes cheques, demand drafts, credit/debit card, mobile wallets and
electronic fund transfer mechanisms
Old high denomination bank notes (Rs.500) would continues to be accepted at certain
places for public utility such as Government Hospitals and pharmacies in these
hospitals/railways ticketing counter/ ticket counters of government/Public Sector
Undertaking buses and airline ticketing counter at airports for purchases at consumer
co-operative societies, at milk booths, at crematoria/burial ground, at petrol/diesels/gas
station of public sector oil marketing companies and for arriving and departing
passengers at international airports and for foreign tourists to exchange foreign
currency at airports up to a specific amount for a specific period.
Withdrawal up to INR 2.5 lakhs by families with upcoming weddings subject to certain
compliances.
i. Special provision for famers and traders for buying agricultural products has
been introduced from time to time with respects to withdrawal and use of old high
denomination notes.

12. ii. Special provision for weddings with respects to withdrawal of cash has been
introduced in order to minimize the inconvenience to the public large
iii. Special provision for receipts of advance salary by central government
employees up to level of Group C and equivalent level in defense Para Military
Forces, Railways and Central Public Sector Enterprises.
iv. Expansion of Banking Correspondents Networks (BCs) for rural areas
v. Option for withdrawal of new currency from debits cards has been allowed from
petrol pumps, Big Bazaar and select petrol pumps (using pos machines)
vi. Increase in use of digital wallets
Impact Of Demonetization
Inflation: It will cause deflation in the market as people who have earned money
through illegal ways would be afraid to declare the money as they may be prosecuted
by the Income tax department on the legitimacy of their income.
Reduction in Monetary Circulation: This will lead to reduction of money
circulation in the economy leading to deflation. Value of money will be increasing which
we have because the total money supply will be going down but the commodities and
things available in the market have not gone down. It will lead to inflation slowly but not
overnight.
Cash Deposits in Banks: A lot of cash which are legally earned will be deposited
in the banks and now the banks with more deposits will be able to do more lending.
Easy Loans: Loans will become easier and interest rates may come down. As banks
will have more money so more loans will be given out which will increase the money
supply in the market and it will create inflation.
Will Demonetization in India Impact Your Loan Burden?
 Rates are already on the decline

13. After the demonetization announcement on November 8, Indian banks saw a rise
in deposits.
Banks also saw a rise in term deposit accounts since the demonetization. Due to
these factors, commercial banks sharply reduced their deposit rates.
 Loan burdenwill also fall
Apart from cutting deposit rates, banks reduced their lending rates as well. In
India, loans sanctioned from April 1,2016 are with reference to the MCLR
(Marginal Cost of funds-based Lending Rate), instead of the Base Rate, which
was used earlier.
It will translate into lower interest rates on existing floating rate loans and new
loans.
Will Demonetization in India Impact Your Loan
Burden?(Contd.)

14. MAJOR BENEFITS
Demonetization of high denomination notes would have leap in long term benefits which
could be classified as directs and indirect impacts in the economy
Directs Impacts:
1. Face currency-out of circulation in one stroke
2. Hawal sources dried up-funding stops to terrorist Novelties and
underworld
3. Real estate prices dip to be in the long run
4. Reduction in inflation
5. Reduction in fiscal deficit
6. Reduction in lending rates
7. Increase in GDP
Indirect Benefits:
1. Kashmir moved to normalcy- Blow of Insurgency, no more schools being and no
stone patters found
2. Use of apps and cards- Initial step towards digitalization in India with the
involvement of small leading to transparency in the system
3. Gold Stock- Declaration in the stock maintained by the jewelers on a day to day
basis, which if continued would have control over generation of wealth from black
money
4. Increase in revenue collection by the government authorities
5. Simplification in tax policies and reduction in tax rates in the upcoming years

15. IMPACT ANALYSIS-SHORT TERM
1. Scarcity of cash due to demonetization
2. Sporadic violence wherein people attacked bank premises and ATM with no
major injuries
3. Large chunk of population especially at the bottom of the pyramid and rural
population highly impacted due to poor banking facilities and extremely higher
dependence on hard currency
4. Various tribal areas living in isolation and illiteracy have been impacted adversely
in the short run
5. Certain sectors necessitating frequent use of cash on a daily basis including
hospital, households, roadside vendors, domestic workers, cab drivers doctors,
transfer likely to face interim disruptions
6. Farmers may face financial difficulties to pay wages to labors in small
denomination and manage other farming expenses
7. Slowdown in consumer spending due to limited availability of cash
IMPACT ANALYSIS-LONG TERM
 Real state, jewelry and luxury products:-
(i) Downward revaluation
(ii) Indirect reduction in price of cement and steel
 Politics and elections:-
(i) Transparency
(ii) Appropriate utilization of central exchequer
 Online transaction:-
(i) Substantial increase leading to transparency
(ii) Increase in revenue collection by there revenue authoritie

16. Electronic Paymentis a financial exchange that takes place online between
buyers and sellers. The content of this exchange is usually some form of digital
financial instrument (such as encrypted credit card
numbers, electronic cheques or digital cash) that is backed by a bank or an
intermediary, or by a legal tender.
• All Central Government
Departments and Public
Sector Enterprises are being
instructed to use the method
of e-payments to the
maximum extent possible.
• RBI has advised National
Payments Corporation of
India (NPCI) to waive its
transaction charges on
transactions settled through
National Financial
Switch(NFS) till
31st December, 2016.
• Banks are also being advised
to waive similar charges
currently levied by them.

17. IMPACT ANALYSIS-LONG TERM
Fear of high costs associated with tax revasion
should lead to higher tax compliances which could
lead to reduced overalltax rates by the
Government
Reduced interest rates inflation and
strengthening of the currency marginally
Parallel economy to a great extent
consolidates with the main economy, as
targeted by the demonetization move
Positive bearing on Governments’ fiscal
deficit

18. IMPACT ON ECONOMY-SECTOR WISE
Banking
About 3 trillion rupees in the form of old INR 500 and INR 1000 banknotes deposited in
the banking system
500 billion rupees dispensed via withdrawals from accounts, ATM’s as well as
exchanges over the bank counters
Spike in the usage of debit card and credit card post domestication was also reported
Business
By the second week after demonetization sale of cigarettes witnessed a fall in 30-40
percent
Ecommerce companies saw up to a 30 percent decline in cash on delivery (COD) order
E-payment option like PayTM and PayUMoney saw a rise
Real estate- primary transaction may not be impacted, secondary sales may some
extent
Municipal and local taxes
Allow ability of use of INR 500 and INR 1000 notes to pay municipal/taxes resulted in
increase in revenue collections
Agriculture
Adverse impact in input output channels in agricultural sector
Sale, transport, marketing and distributing of ready produce to wholesale centre’s or
mandis, adversely impacted
Disruption breaks in supply chains feedback to farmers as sale fall
Increased wastage of perishables
Lower revenues that slow up as trade dues instead of cash in hand

19. OVERALL IMPACT
Short Run
Whooping increase in cash deposits at banks and reduction in bank money
No affect on stock of black money which had been invested and held in other forms of
assets like benami properties in land and real estate. Gold, diamonds. Precious gems,
foreign currency, artifacts, paintings, etc
Increase in the proportion of other assets in which black money is held with different
level of difficulties challenges to trace the same
Long Run
The thought remains unanswered/un-warranted whether there is any way to prevent the
generation of black money again and not re-enter the system?
Psychological impact on the society on account of this overall move would result in
reconsidering before indulging into generation of black money
Greater level of scrutiny at various levels and digitization coupled with sharing
information between various departments of the governments would help to keep a
check on the parallel economy
Introduction of Goods and Services Tax (GST) to pay a key role to keep checks and
balances

20. KEY CONSIDERATION
For demonetization to be successful and to meet it purpose it is important that certain
cautionary steps are taken before and after the introduction of the demonetization
scheme.
Considering the above, the government of India, had considering the following steps:
Details o f all bank accounts in the
income tax
Linking of pan and aadhar number
Income declaration scheme
Introduction of jan dhan yojana
Revised treaty of most of the
country
Passing of benami transaction act
and
Demonetization

21. KEY CONSIDERATION (CONTI…..)
The government of India had given an opportunity for disclosing the black money and
payment of taxes in the income declaration scheme (IDS) 2016. Total amount in bank
accounts may swell beyond the INR 65000 crore collected under the IDS.
Declaration In IDS 2016
No requirement to declare the source of income
One – time immunity from penalty and prosecution under the income tax Act, 1961 and
wealth tax Act 1957
Secrecy of declaration would be maintained and the government would not furnish a
copy of the declaration to any other government agency or department
If part of sale proceed of property is received off-record, the same could be declared
without attracting section 269SS and penalty under section 271D of income tax act,
1961
Total tax liability would be only 45% without liability for interest under section 234B and
234C of the income tax Act, 1961
Allowed payment by installments-At least 25% by November 30, 2016, not less than
50% by March 31, 2017 and entire amount by September 30, 2017
Declaration of cash deposits in ITR as currentsyear’s income
Sources of income and manner of deriving income period in which it was derived may
need to be substantiated
Wealth tax proceedings could be reopened income escaping assessment (section 147)
could also be resorted
Details of cash deposits would be made available by Govt. to other agencies.
Departments dealing with indirect taxes-VAT/Services Tax/excise duty dept may launch
proceedings for suppression of sales and evasion of indirect taxes

22. If property sale proceed received in black is declared section 269SS would be
attracted and assesee could liable to penalty under section 271D of the income tax act
1961
One could incur huge interest penalty if declared amount cannot be proved as current
income and founds as past income
Entire amount of advance tax on amount deposited in bank and to be declared will have
to be paid latest by March 31, 2017 (self-assessment tax)
Apart from the above measure, steps should have been taken to improve/meet the
safety aspects of the online transactions, e-wallet transactions etc wherein the privacy
terms are set in place before digitization of transactions
Modificationof Privacy norms beforeDigitalization
The e-wallet apps, taxi apps, business apps collect the personal details such as IP
address, travel details, transaction details etc as per the privacy policy
The privacy policy of the various apps is subject to change from time-to-time
Steps were required to be taken to modify the privacy policies as Indian laws protect
only sensitive personal data such steps are to be taken at the earliest possible
Cyber Crimes
Instances of cyber crimes such as duplication of debit/credit card and leakage of
confidential details such as card number, account number, ATM’s have increased in the
recent past.
Considering the move for depositing of cash with the bank accounts, the privacy norms
security of the money in the bank accounts and steps to monitor and eliminate the cyber
frauds had to be initiated before the introduction of demonetization scheme.
Through preliminary steps have been taken before the introduction of the
demonetization scheme, considering the quantum of high denomination notes in
circulation in Indian economy (i.e. 86 percent), certain additional steps were required to
be taken. They include:

23.  Recalibration of ATM’s
 Substantial amount of new currency notes has to be pre-printed to meet the
demand
 Expand the safety measures at Bank’s ATM’s and other sensitive places
 Time-to-time guidance on the scheme
 Increase the quantum of banking staff to manage the chaos
 Clarity on tax and penal provisions.

24. WHAT NEXT??
After demonetization of high denomination notes, the other forms of wealth generated
through black money would have to be taken note of
Details of Swiss/foreign bank account holders, foreign asset holders, forex etc
Jewelry, bullion purchased and hoarded from black money
Benami properties
Digitization of Indian economy and maintain transparency in the long run
Transforming India into a cashless economy

25. ON THE RADAR
 Sudden spurt in Jan Dhan accounts (INR 21000 crores already deposited in 25
crores Jan Dhan accounts within a fortnight, source may examined)
 IT Lens on big cash deposits, to use data analytics tools to examine investment
and consumption pattern
 Lens on high value RTGS transactions
 Jet, set, cash-in-northeast states
 Donations by charitable institutions and trusts
 Real estate, jewelry, forex businesses
 Sliding rupee despite central bank’s best efforts (records low; near 69/dollar)
 Rainbow unity of the opposition staging vociferous protest

26. CONCLUSION
The advantages are much dominating and it will be in the long term interest of our
country comfortably outweighing the disadvantages. Government need to take all the
necessary steps so as to ensure that there will be a smooth flow of currency exchanges.
It would turn into chaos if government takes no necessary steps to circulate money
correctly. It will make a massive change in our economy. We congratulate the entire
government and those hidden brains of our democracy who brought this decision.

27. THANK YOU