1. Demonetisation
Dr. CA. Varadraj Bapat
Indian Institute of Technology, Mumbai
varadraj@som.iitb.ac.in
9892413119

2. Dr. Varadraj Bapat
CA., CWA., M.Com., DISA, PhD.
School of Management
Indian Institute of Technology, Mumbai
Teaching Interests: Financial Accounting, Management
Accounting, Indian Economic Model
Research Interests: Financial Accounting, Financial Inclusion,
Corporate Finance
Others: Yoga, Spirituality, Sanskrut, Bharatiya Sanskriti, ABVP
2

4. What is Currency?
Currency is a form of Money which is generally accepted & includes coins and paper
notes, issued by a government to be circulated within an economy.
As per IMF definition of money, money can be anything that can serve as a:
• Store of value, which means people can save it and use it later—smoothing their
purchases over time;
• Unit of account, that is, provide a common base for prices;
• Medium of exchange, something that people can use to buy and sell from one
another.
Money can be broadly classified into following categories:
 Paper money
 Bank money
 Electronic Money

5. History of Currency : Ancient Coinage
The first use of currency in the world has been mentioned in one of the oldest
literature of the world- The Rig Veda.
The Rig Veda although (earlier believed to be around 1500 B.C) is much older than
that. The exact vedic era is unfathomable but some scientists estimated it to be well
before 25000 B.C., as per recent estimates. The knowledge have been passed on
from generations to generations.
Dr. David Frawley, (Source: Minisobooks.com, Yuga theory of Sri Yukteshwara in The
Holy Science, pp. 4-8, 2010)

6. History of Currency : Ancient Coinage
Due to unsuitable medium (like Cows) for store or as the object of high value, an
alternative medium Nishka (an ornament) was introduced by the Vedic people.
References in Vedas:
• As mentioned in Rig Veda, Rishi Kakshivat recieves a present of 100 Nishkas
with 100 horses and 100 bulls from Raja Bhavayavya (Rig Veda, I.126.2)
• In the Atharvaveda, another poet describes how his generous royal patron gave
him a 100 Nishkas, 10 necklaces, 300 horses and 10000 cows. (ArthavVed,
XX.127.3). When the poet prays for 10 Hiranyapindas or 100 Nishkas, they
obviously seem to have asked for 10 or 100 articles of uniform size, value and
weight.

7. History of Currency : Ancient Coinage
The use of Nishkas as
currency is quite clear from
the Vedic texts (Vedic Index,
I.455), the Jatakas and the
Satapatha Brahmana.
A snapshot from the book: Vedic Index
of Names and Subjects, Volume 2
-By Arthur Berriedale Keith

8. History of Currency : Ancient Coinage
Other references
• Manu defines Nishka as equal in weight to 4 Suvarna or 320 Rattis (Laws of Manu
(VIII, 137). Its relative weight is equal to 1 karsha or 80 Gunjas (140 grains).
• The use of commodities like Gold as a mode of exchange dates back to the era of
Mahabharata and Ramayana, as mentioned in the ancient Indian epics.
• There are references of exchanging uniform weights of Gold and Silver which
establishes the fact commodity money was being used in that era and Gold was
generally accepted medium of exchange.
• Based on Dr. P.V Vartak’s astronomical dating, Ramayana era can be around 7000
B.C and Mahabharata war was fought around 5500 B.C. Hence, the use of
commodity money can be traced back to 7000 B.C in Indian sub-continent.

9. The Indus-Saraswati Valley Civilization (more than 3500 B.C.)
• The Indus Valley economy was heavily based on trading, it was one of the most
important characteristics of this civilization.
• Evidence of trade between between Harappan and Mesopotamian people.
• Exchange of pottery, seals and other objects through middlemen from Dilmun.
• Eminent Scholars debate the fact that Harappan seals were currency.
• Existence of organized weight system, familiarity with gold as a precious
commodity & a sophisticated system of trading point to existence of a definite
form of exchange system in the period.
History of Currency : Ancient Coinage
The Mohenjo Daro and Harappan
seals of Indus valley Civilization
Source: RBI

10. The Iron Age (1500 B.C. - 500 B.C.)
• Indian Sub-continent consisted of 16 Mahajanpadas.
• Each Mahajanpada issued a unique coinage with
varied symbols punched on the coin as a symbol of its
sovereignty for circulation in its own jurisdiction.
• These coins are thus called ‘Punch Marked Coins’ by
modern numismatists named after the unique
technique of using multiple punches to strike various
symbols on the coins.
A silver punch marked coin,
600-500 B.C.
Length : 11.3mm / 0.44
inches
Weight : 11.25 gm (100 ratti)
Gandhara Janpada
History of Currency : Ancient Coinage
Source:
http://www.columbia.edu/itc/mealac/pritchett/00routesdata/bce_500back/janapadacoins/janapad
acoins.html

11. The early coins in Lydia, 6th Century B.C
• One of the earliest coins (parallel to later Vedic period in
ancient India) are found mainly in the parts of modern
Turkey that formed the ancient kingdom of Lydia
• Made from a naturally occurring mixture of gold and
silver called Electrum.
• The denominations ranged from one stater (weighing
about 14.1 grams) down through half-staters, thirds,
sixths, twelfths, 1/24ths and 1/48ths to 1/96th stater
(about 0.15gm)
The Mauryan Coinage
• Consisted almost exclusively of silver Karshapanas of
roughly 3.4 gm
• Almost all Mauryan coins have five punches, as did the
Magadhan coins before them
• The economy must have been very prosperous, as the
coins seem to have been minted in the millions.
• Arthashastra, written by Chanakya, 340-290 B.C
mentions silver coins as rupyarupa. Other types of
coins including gold coins (Suvarnarupa), copper coins
( Tamararupa) and lead coins (Sisarupa) are also
mentioned.
History of Currency : Ancient Coinage
Silver karshapana used during Mauryan empire

12. Post-Mauryan period of Indo-Greek influence (200 B.C. – 55 B.C.)
• After decline of Mauryan empire, under King Demetrius-I emerged a new kingdom in North of Hindukush
& North-western parts of India referred to as ‘Indo-Greek Kingdom’ by modern historians.
• Demetrius issued a bilingual coinage using Greek script on obverse and North-Western Indian script of
Kharosthi on the reverse
• His successors, Agathocles and Pantaleon issued a bilingual coin using Greek and the North Indian script
of Brahmi
A coin during the Indo-Greek kingdom,
the inscription on the left face is in
Greek, and on the right is in the Indic
Kharoshthi script
The Indo-Greek period left an indelible mark upon the numismatic traditions of the Indian sub-continent long after
the disappearance of the Indo-Greek kingdom.
History of Currency : Ancient Coinage
Source:
http://www.columbia.edu/itc/mealac/pritchett/00routesdata/bce_199_100
/indogreekcoins/indogreekcoins.html

13. Dynastic coinage post Indo-Greek Kingdom
• The coinage after the decline of Indo-Greek period evolved with ruling dynasties.
• Western Kshatraps: ruled Western India between the 1st and 4th Century AD. The legends on the coins were gene
in Greek and Brahmi.
• Gupta: Gupta coinage (4th-6th centuries AD), depicted the king on the obverse and a deity on the reverse.
The deities were Indian and the legends were in Brahmi.
History of Currency : Ancient Coinage
Some Coins of the Gupta Dynasty
The Coins continuously evolved over a period of time and were adopted across various countries in various desig
The 7th century saw first use of Paper Money

14. The first paper currency
Paper currency known as ‘flying money’ was first used by the Chinese, during the Tang Dynasty (618-907 A.D)
— mostly in the form of privately issued bills of credit or exchange notes — and used it for more than 500 years
before the practice began to catch on in Europe in the 17th century.
Flying Money
These notes, known as “flying money”, were similar to modern
day bank drafts. The vouchers were strictly limited for use in
mercantile transactions between distant places. Merchants
deposited cash at the point of origin in return for paper
(flying money) guaranteeing reimbursement in distant provinces.
Thus a double transfer of cash was made without any physical
transfer between points. The picturesque term “flying money”
evolved from this practice, as though the cash had “flown” from
point of origin to destination.
This one kwan note was issued during the reign
of emperor Wu Tsung (841-846 AD)
History of Currency : Paper Currency

15. Real paper currency, as we know it today, first made its appearance in China’s Szechuan province early in the
Sung dynasty. Printed in black and red from copper plates the notes contained various scenes of village life.
Denominations were applied to the notes using a brush and black ink, ordinarily for one string (1000) of cash.
This note is perhaps the earliest paper money ever
discovered. Called “hue-tsu”, it is a Sung government
issue dating from 1023 AD. During excavation,
several brass plates used in the preparation of this
early Chinese paper money were unearthed
Marco Polo astonished the Western world when he, in his book, described the use of paper currency
throughout Khubilai Khan’s Yuan dynasty in China.
History of Currency : Paper Currency

16. The first proper banknotes in Europe were issued by Sweden. They were introduced in 1661 - some thirty-
three years before the creation of Bank of England notes - and came about because of a reduction in the
weight of copper coinage which created a shortage.
Sweden issued the first European banknotes in 1661
but very few are known to have survived. Most of
those that do are dated 1666 and are hand-signed
by various officials including Palmstruch, who
founded the Swedish Stockholm Bank and had first
suggested, without success, using paper money as
early as 1652. This note is for 50 Daler Silvermynt,
dated 1666. (Courtesy of Spink)
These first banknotes of Europe were ‘credit notes’ (‘kreditivsedlar’) issued by the Stockholm Bank. They
were issued in denominations of 5 to 1,000 Copper Dalers.
History of Currency : Paper Currency

17. The origin of the word “rupee” is found in the Sanskrit rūpya “shaped; stamped,
impressed; coin” and also from the Sanskrit word “raupya” meaning silver.
The original rūpaya was a silver
coin weighing 175 grains troy (about
11.34 grams). The silver coin
remained in use during the Mughal
period, and later during the British
rule.
History of Currency : Evolution of Indian Rupee

18. Some excerpts from “THE PROBLEM OF THE RUPEE: ITS ORIGIN AND ITS SOLUTION” by Dr. B.R
Ambedkar
• Under the Hindu emperors the emphasis was laid on gold, while under the Mussalmans silver formed a large
part of the circulating medium.
• Since the time of Akbar, the founder of the economic system of the Moghul Empire in India, the units of
currency had been the gold Mohur and the silver rupee. Both coins, the Mohur and the rupee, were identical
in weight, i.e., 175 grs Troy and were supposed to have been coined without any alloy.
• In Southern India, to which part the influence of the Moghuls had not extended, silver as a part of the
currency system was quite unknown. The pagoda, the gold coin of the ancient Hindu kings, was the standard
of value and also the medium of exchange, and continued to be so till the time of the East India Company.
History of Currency : Evolution of Indian Rupee
Name of the Rupee Weight
in pure
Grs.
Name of the Rupee Weight in
pure Grs.
Akbari of Lahore 175.0 Delhi Sonat 175.0
Akbari of Agra 174.0 Delhi Alamgir 175.0
Jehangiri of Agra 174.6 Old Surat 174.0
Jehangiri of Allahabad 173.6 Murshedabad 175.9
Jehangiri of Kandhar 173.9 Persian Rupee of 1745 174.5
Shehajehani of Agra 175.0 Old Dacca 173.3
Shehajehani ofAhmedaba
d
174.2 Muhamadshai 170.0
Shehajehani of Delhi 174.2 Ahmadshai 172.8
Shehajehani of Delhi 175.0 Shaha Alam (1772) 175.8
Shehajehani of Lahore 174.0
The table of the assays of the Moghul rupees shows
how the coinage throughout the period of the Empire
adhered to the standard weight of 175 grs. pure.

19. Coinage of the British East India Company
• In AD 1600, the East India Company was founded and set up trading settlements on the coast of India.
• They Started with using Silver coins and gradually moved on to minting Bronze-gilt and Gold Mohurs as well.
• In 1858, after the Indian Mutiny, the East India Company was disbanded and administration of India was
transferred to the
British government. As a result, the coinage no longer carried the name of the East India Company, but the British
monarch.
East India Company
silver Rupee, 1639
East India Company gold mohur,
1835
Victoria as Queen, gold Mohur, 1862 Victoria as Empress of India, silver rupee, 1877
History of Currency : Evolution of Indian Rupee
One Anna coin of East India Company, 1616

20. A Victorian Hundi with duty of 3
Rupees
Hundis: The first form of paper currency (Bills of Exchange) in India
• A Hundi is a financial instrument that had evolved on the Indian subcontinent during 16th Century and was used
in trade and credit transactions as a bill of exchange or an IOU. It was also used as a remittance instrument to
transfer funds from one place to another.
• Technically a Hundi was an unconditional order in writing made by a person directing another to pay a certain
sum of money to a third person, named in the order.
• Difficult to say about the first use of Hundis, but writing about 1596, Abul Fazl, the greatest historian of medieval
India, has given a detailed account of hundi from which it appears that the instrument was quite well-known by
that time, and frequently used in monetary transactions.
• In the 1760s, the English Council at Bombay asked for a loan from the merchants in Murshidabad which was to
be sent there by Hundi. The amount was estimated to be around 4 Lac rupees.
History of Currency : Evolution of Indian Rupee
Hundis, being a part of the informal system have no legal
status and are not covered under the Negotiable
Instruments Act, 1881.

21. • According to the Central Banking Enquiry Committee (1931), money lending activity in India could be
traced back to the Vedic period.
• The existence of professional banking in India could be traced to the 500 BC.
• Kautilya’s Arthashastra, dating back to 400 BC contained references to creditors, lenders and
lending rates. Banking was fairly varied and catered to the credit needs of the trade, commerce,
agriculture as well as individuals in the economy.
• Bank of Hindostan was established in 1770 by an agency house in Calcutta (now Kolkata).
Bank of Hindostan & First Banknotes
• Bank of Hindostan, issued the first banknotes of India
in 1770. The lowest denomination in early issued
banknotes was Rupees Ten and the highest
was Rupees Ten Thousand.
• The early banknotes were exchanged for silver or gold
coins or vice versa.
• There were banknotes with denominations of Rupees
Four, Rupees Fifteen and Rupees Sixteen.
• Sixteen silver coins were equivalent to One Gold
Mohur of equal weight.
• One Gold Mohur weighed 11.59 grams.Sixteen sicca Rupees
History of Currency : Evolution of Indian Rupee

22. • The Government of India took over the issue of banknotes in 1861 from the Private and Presidency Banks.
• The Paper Currency Act of 1861 conferred upon Government of India the monopoly of Note Issue bringing to
an end
note issues of Private and Presidency Banks.
• The Uniface or one-sided notes of Government of India were in circulation from 1861 to 1930.
Government of India - Twenty Rupees -
Uniface with Portrait of Queen Victoria
Green Underprint- The first Rupees Five notes
were Uniface and issued in 1871 by
Government of India
The Victoria Portrait series was withdrawn in the wake of a spate
of forgeries and replaced by the unifaced 'Underprint Series'
which were introduced in 1867.
The first set of British India notes were the 'Victoria Portrait' Series
issued in denominations of 10, 20, 50, 100, 1000.
History of Currency : Evolution of Indian Rupee

23. Small Denomination Notes
The introduction of small denomination notes in India was
essentially in the realm of the exigent. Compulsions of the first
World War led to the introduction of paper currency of small
denominations. Rupee One was introduced on 30th November,
1917 followed by the exotic Rupees Two and Annas Eight. The
issuance of these notes was discontinued on 1st January, 1926
on cost benefit considerations.
King's Portrait Series
Regular issues of this Series carrying the portrait of George
V were introduced in May, 1923 on a Ten Rupee Note. The
King's Portrait Motif continued as an integral feature of all
Paper Money issues of British India. Government of India
continued to issue currency notes till 1935 when the
Reserve Bank of India took over the functions of the
Controller of Currency.
History of Currency : Evolution of Indian Rupee

24. Reserve Bank of India
• The Reserve Bank of India was formally inaugurated on Monday, April 1, 1935 with its Central Office at
Calcutta.
• It began operations by taking over from the Government the functions hitherto performed by the Controller
of Currency and from the Imperial Bank the management of Government Accounts and Public Debt.
• First note issued by RBI, January 1938, the first Five Rupee note was issued bearing the portrait of
George VI.
• This was followed by Rs 10 in February, Rs 100 in March and Rs 1,000 and Rs 10,000 in June 1938.
Rupees Five - First Note issued
by Reserve Bank of India
The George VI series continued till 1947 and thereafter as a
frozen series till 1950 when post independence notes were
issued.
The Frozen Series 1947-1950
This represented the currency arrangements during the transition
period upto the establishment of the Indian Republic.
The Monetary System remained unchanged at One Rupee
consisting of 192 pies.
1 Rupee = 16 Annas
1 Anna = 4 Pice
1 Pice = 3 Pies
History of Currency : Evolution of Indian Rupee

25. Republic India Issues
The Anna series: This series was introduced on 15thAugust, 1950 and represented the first coinage of
Republic India.
History of Currency : Evolution of Indian Rupee

26. Evolution
Bank/ Electronic Money
Paper Currency
Coins

27. Financial Inclusion
• Account Penetration
 Globally, more
than 2.5 billion
working age adults
(~50% of adults)
do not have a
account at a
formal financial
institution

28. Financial Inclusion
• Issues – Inadequacy of Opportunity to Save and
Transfer Money and get credit and financial
services for the poor.
• Concept of Financial Inclusion - process of
ensuring access to financial services and timely
and adequate credit where needed by vulnerable
groups such as weaker sections and low income
groups at an affordable cost (Rangarajan, 2008)

29. Adhar cards
• The Unique Identification Authority of
India (UIDAI) has generated 100 crore
+ Aadhaar numbers for residents in
India

30. Jan Dhan Yojana
• Pradhan Mantri Jan Dhan Yojana (PMJDY), the ambitious financial
inclusion scheme launched by the government, to open 10 crore bank
accounts by 26 January 2015. On 20 January 2015, the scheme
entered into Guinness book of world records setting new record for
'The most bank accounts opened in one week'.
• The number of accounts opened under the scheme reached 22 crores
(including 57 million zero balance accounts) by 18 May 2016.The
amount of deposits rose to ₹380.47 billion (US$5.7 billion) by April
2016.
• 19 lakh householders have availed the overdraft facility of ₹2.56
billion (US$38 million) by May 2016.

31. GST Historic reform
• "August 8th marks a crucial step towards freedom
from tax terrorism," the Prime Minister said, while
recalling that this was the day in 1942 when Mahatma
Gandhi had sounded the bugle of 'Quit India' which
marked a major step towards the country's
Independence.
"GST can't be seen as a victory of a party or
government. It is the victory for democratic ethos of
India and a victory for everyone," he said, while
noting that the measure was being supported by all
parties, irrespective of different ideologies. The Prime
Minister said the new indirect taxation regime,
which will subsume 7-13 taxes, will help end
corruption as traders will be compelled to give proper
bills and the consumer will be the "king".

32. • The Constitution (122nd Amendment) Bill, which was passed by the Lok
Sabha in May 2015, and the Rajya Sabha in August 2016. the Lower
House passed the bill with all the 443 members present voting in favour.
• It is likely be implemented w.e.f 1St April 2017.
•

33. Introduction/Concept of GST
• It is a tax on Goods & Services with comprehensive & continuous Chain
of Set off benefit from producers to retailer point.
• In other words, GST is an Indirect tax which is levy on manufacture, sale
& consumption of all goods & services.
• It substitute most of the indirect taxes like excise, VAT, Service Tax,
Entertainment Tax, Luxury Tax, CVD as well as SAD.
• It is based on the VAT principles .

34. 34
Benefit under GST
Single taxation point.
Uniform tax rate
Common market.
Reduces Transaction cost.
Eliminates the cascading effect of taxes.
Reduces corruption.
Transparency.
Increasing the tax base & raising compliance.

35. 35
Simplified tax laws.
Increase in exports & employments.
GDP Growth -HSBC estimates an 80 basis point rise in
GDP growth over 3-5 years. NCAER pegs this at 0.9-1
International competitiveness Go Up by about 5%.
Increased FDI
Growth in overall Revenues.
Prevention of unhealthy competition among states.
Reduction in purchase price.

36. 36
VDIS 2016
Income Declaration Scheme 2016 unearths Rs.65250 Crore
(1st October, 2016.)
Tax rate 45%

37. Demonetisation

38. Why Demonetisation Was Needed?
• This move was long overdue. Cash to GDP ratio – 12%. Though, this
should be going down as new banking habits pick up, it is increasing.
Growth in high denomination currency (as high as 87%)
• High corruption.
• This has led to distortions in the economy, especially in real estate, gold
prices, usurious lending to small and micro businesses. This is also
partly a failure of the banking system.
• The fact is cash economy has moved deep into the Indian economy.
Studies estimate that 50% of Indian economy is in cash. This has
resulted in huge cash hoardings.
• This situation had to be handled. Only a strong prime minister could
have taken this decision.

39. • Out of the total circulation of currency about 16.6 lakh crores, 87
per cent is in Rs 500 and Rs 1,000. How much of this finances
genuine economy versus the illicit economy is not very clear.
• India has globally one of the highest levels of currencies in
circulation at over 12% of gross domestic product

40. “It was way back in 1923, Babasaheb (B R Ambedkar) in
his book titled ‘Problems of Indian Rupee’ had
recommended that the Indian currency should be replaced
every 10 years to end the menace of hoarding of rupees
and checking inflation.
• London School of Economics
• DSc, 1927, "The Problem of the Rupee: Its Origin and Its
Solution", (is a magnum opus and seen as a major
contribution to the field of monetary economics)
• http://www.ambedkar.org/ambcd/28H.%20Problem%20of%20Rupee%20CHAPTER%20VIl.htm

43. Effect of Faulty Taxation System & High Denomination Currency:
Every year, the fiscal deficit triggers a fresh bout of tinkering of the taxation system. Rather than any real
analysis and corrective action, incremental and superficial changes are tried on the same old failed system.
Years of such tinkering has resulted in a completely flawed taxation system, which naturally encourages
evasion.
High denomination currency of face value 100 Rs. and above, is introduced to bridge the deficit. Let us take a
look at the effects of this currency. The basic advantage of high denomination currency is that it makes high
value cash transactions easy, since a large amount can be carried with great ease. In addition to this ease, cash
transactions are by definition, non traceable, since unlike in the bank, they leave no footprint. These properties
of high denomination currency make it the preferred currency for storing black money created out of tax
evasion. It also enables corruption and serves as the life blood of the parallel economy. The other terrible
consequence of high denomination currency is grossly reduced use of the banking system in vast tracts of our
country. The direct result of this is the poor credit formation and inadequate capital supply to the economy.
Corruption and the breakdown of formal systems of governance together fuel further social insecurity. The
prevailing high cost of capital and the flawed taxation system, together lead to high input costs, rendering our
local industry uncompetitive and leading to more unemployment.

44. Credit Establishment

45. Credit Establishment

48. History of Demonitisation
January 1946 Rs 1,000 and Rs 10,000 notes
discontinued
Later, in 1978, the Morarji Desai government that took
over after a resounding vote against the Emergency in
1977 demonetised the big value notes, to target
corruption..
The European Central Bank has announced
that it will phase out the €500 mega-note.

49. Benefits
• Fake currency
• Fake currency directly affects security of India. Estimated to be
coming from Pakistan and BanglaDesh.
• The new currency will eliminate counterfeit currency. The
denomination in which counterfeit currency operates is in Rs 500s
and Rs 1,000s.

50. • On Terror Funding
• There has been a sudden drop in unrest – it means this has had a very
positive impact in a very sensitive place like Jammu and Kashmir.
• (For instance, 3 per cent of total money deposited in the banking since
demonetisation began was in Jammu and Kashmir banks. The extremists
had threatened the people not to go and deposit the money. But people
queued up in the banks! )
• The Naxalite funding is through normal currency. According to one
estimate, about Rs 50,000 to Rs 60,000 crores of the extremist funding is
in the form cash. It will be very difficult for them to deposit – their funding
is designed for cash economy. Left extremism will receive a very, very
serious setback because of this.

51. • Crackdown on Black Money
• Unaccounted Money hoarded
• Illegal transactions
• (other measures Black money abroad, Foreign Treaties, Real Estate)
• Black Money (Undisclosed Foreign Income and Assets) and
Imposition of Tax Act, 2015 was enacted to pursue black money
stashed overseas. The Act levies total tax exposure to as high as 120 per
cent along with a provision for imprisonment for a maximum term of 10
years. Last year, the government had said the total disclosures under the
compliance window for foreign assets was 644 while the total illegal
foreign assets disclosed were worth Rs 4,147 crore.

52. • Boost deposit base and savings
• Global agencies have pegged the size of the parallel economy in
India at close to 23% as of 2007. Basis this, we estimate
unaccounted cash in the economy to the tune of ₹4500 billion, of
which a certain significant proportion will make its way to the banks,
thus boosting deposit base as well as financial savings:
• The banks' deposit base is expected to receive a fillip of 0.5-1.4% of
GDP.
• In turn, financing savings can be expected to rise by close to this
proportion due to switch from savings from unproductive physical
assets to financial assets.

53. • Improve monetary transmission and reduce lending rates
• A rise in deposit base will allow banks to lower the blended
cost of funds as higher CASA (current accounts, savings
accounts) deposits help to replace the high cost of borrowing
and lower overall cost of funds. We expect banks to reduce
deposit rates by ~125 bps over the next six months.
• The new regime of MCLR (Marginal Cost of Funds based
Lending Rate )will immediately take into account the lower cost
and will thereby lead to a decline in lending rates, which will
boost economic activity in the medium term.

54. • Ready, steady, now go: financial inclusion via Jan Dhan
• Over the last two years, while the number of Jan Dhan
accounts has recorded a stellar growth, the share of these
accounts in total deposit base of the banking system has
remained under 1%. The demonetization drive of higher
denominated notes should give a push to cash deposits in Jan
Dhan accounts, of which close to 43% so far have remained
dormant. In addition, the move will help to inculcate banking
habits among the large unbanked population in the country.

55. • Improvement in government finances
• Profit to RBI – Notes which will not come back
• (est. 15 Lack crores @ 20% = 3 lakh crores)
• Income Tax - higher income tax collections. 200% Fine.
• (Cash is being found in several raids)
• Excise, Service Tax – Higher sales/ services
• VAT and State Taxes
• Fiscal Deficit will reduce and more development funding and 7th
Pay

56. • Municipal finances
• The demonetisation of high-value currency notes has brought in
revenue windfall for the GHMC (Greater Hyderabad Municipal
Corporation). The city’s civic body has topped in tax collection
among 22 other cities in the country in the month of November (till
19). While the tax collection of GHMC was Rs 8 crores in
November 2015, it rose to Rs 188 crore this year in the first 19
days of the month. As per an analysis of the Ministry of Urban
Development based on the municipal receipts received by various
Urban Local Bodies (ULBs), 22 corporations across the States
revealed that there was 312.04% increase in revenues when
compared to the previous year.
• BSNL, MTNL and other bodies have also benefitted

57. • Positive impacts from a bond market perspective
• Improvement in bank deposit base leads to higher SLR (statutory
liquidity ratio) demand.
• Anticipation of monetary easing to further support bonds.
•

58. • Rise in GDP growth potential
• While there are short-term implications for growth in cash-
intensive sectors such as real estate, construction, and
discretionary household consumption in general, Sectors like
e-commerce and payment banks, payment gateways are set
to gain as transactions using cashless methods will increase
• Long-term benefits for GDP growth will outweigh the short
term transitional impact.
• We are now surely heading towards a 9%+ GDP growth by
FY2018-19.

59. WELCOMED GLOBALLY
• This is how international media responded to india’s currency ban which shows
the impact of this historic decision over world economy and how it is going to
stop corruption and black money in india!
• IMF, European Union, World Bank and every reputed international
organisations supported this move, World bank president even said, “I am a big
fan of Modi!”
*Forbes*: Five days after the decision, Forbes has published an article titled
“India’s Great Bank Note Switch Appears To Be Working – $30 Billion In Rs
Deposited In Banks.” The article notes that a move of this magnitude would
result in “obvious chaos”, but points that “so far at least it looks as if it is
working.” The article goes on to call the scheme “rather well done, a clever
plan.”

60. • *New York Times*: A New York Times quoted an expert saying it was a wise move. “The plan, top secret
until Mr. Modi’s announcement, was hailed by financial analysts as bold and potentially transformational
for India. It is also a high-stakes experiment,” the article said.
*Washington Post*: It called PM Narendra Modi’s initiative as ‘ambitious’ and in keeping with his election
time vow to initiate a crackdown against black money. The Post said black money in India ‘is estimated to
total from $400 billion to more than $1 trillion’.
*The Independent*: This Singapore-based paper published a glowing 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 for several decades and is considered the architect of modern Singapore. “Government leaders
feel that the sudden move by the Indian Prime Minister has brought new respect for him.
*Bloomberg*: In an article published in leading American financial journal Bloomberg, Swiss global
financial services company UBS Group AG said that Australia should follow India’s lead and scrap its
biggest bank notes.
• *“Removing large denomination notes in Australia would be good for the economy and good for the
banks,”* UBS analysts led by Jonathan Mott said in a note to clients on Monday. Benefits would include
reduced crime and welfare fraud, increased tax revenue and a “spike” in bank deposits.
• A senior Indian government official even equated Mr Modi to Singapore’s first Prime Minister *Lee Kuan
Yew*. From making up his mind to rolling it out on 8 Nov, a new Lee Kuan Yew is born in India. It will be
reflected in the legacy of this Prime Minister,”
• Deloitte report said, emphasising that “the long-term outlook remains positive”.
•

61. Short term-pains
• Queues, Waste of Time, Cost of new notes
• The demonetisation of Rs 500 and Rs 1,000 notes will hurt agriculture,
informal sector workers—about 482 million people who earn cash incomes—
and disrupt India’s consumption patterns for at least the next quarter.
• The informal economy includes workers in small and medium industries,
grocers, barbers, maids, bar dancers, hotels, underworld...
• Roadside vendors, cab drivers, small kirana stores are affected.
• People who do not use debit or credit cards, access the internet or use mobile
banking and e-wallets will be the worst hit.
•

62. Road ahead
• We need to develop e-Banking and M-Banking habits.
• Use apps like PayTM
• Teach others to use Debit cards and Mobile apps to make
payment
• Shift to Cash-Less Economy

63. References
• http://www.huffingtonpost.in/rana-kapoor/7-reasons-why-demonetization-is-a-
masterstroke-by-modi/
• http://swarajyamag.com/insta/why-demonetisation-was-needed-and-how-it-
will-greatly-help-the-india-growth-story
• http://www.thehindu.com/news/cities/Hyderabad/GHMC-top-in-22-cities-in-tax-
collection/article16670268.ece

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