Demonetization: Economic Impact on Different Sectors in India

Abstract – Demonetization refers to change of currency by a government to curb illegal activities and transactions. India initiated its controversial plan of demonetization on 8th Nov 2016, by making the Rs 500 / 1000 notes not as legal tender. Through this momentous move the Indian Government tried to tackle four key issues: undesirable upsurge of black money, corruption, fake currency circulation and funding of terrorist activities in the country. With this announcement of Prime Minister Narender Modi, life of Indian citizens came to a standstill; a person who had many lower denomination notes suddenly became affluent to meet daily needs whereas the urban middle class dependent on e-banking had no cash in hand and spent hours in line outside banks and ATMs to get cash. The rich who had safely hoarded crores in their homes, within a few hours became paupers. Also, this had a phenomenal impact on slowing down the growth rate of the Indian economy. Ten sectors in India were majorly impacted by Demonetization: Agriculture, Real Estate, Construction, Manufacturing, Financial, Aviation, Tourism and Hospitality, Telecom, Healthcare and Automobile. The worst affected sectors being Financial and Real Estate, Construction, Tourism and Hospitality. Through this paper short-term and long-term economic impact of demonetization on various sectors of India are highlighted.

Keywords – Demonetization, Agriculture, Real Estate, Financial Services

I. INTRODUCTION

Demonetization was a move initiated by Indian government to cleanse the formal economic system and discard black money in India. This courageous act nullified around 86% of the Indian currency. It was further implemented in order to keep a check on the illegal activities like smuggling, terrorist activities and espionage.[1] It was declared that existing rupee five hundred and one thousand notes would no longer be used as legal tender. RBI issued guidelines that rupees two thousand notes and new five hundred notes would be in circulation from 10th Nov 2016. Although the lower denomination notes i.e. Rupees one hundred, fifty, twenty, ten, two and one rupee note continued as legal tender.[2] India has witnessed demonetization at two earlier instances i.e. January 1946 and January 1978. During the first demonetization in Jan 1946, Rs. 1000 and Rs. 10000 notes were demonetized.[3] Whereas in January 1978, an ordinance was promulgated in order to phase out the notes of denomination rupees thousand, two thousand and ten thousand notes.[4] The first demonetization related to conversion whereas the second was termed as cumulating. Hence, it can be said that the change of currency is not new in the economic history of India. It can be understood that all the three instances had a common goal – curb the circulation of black money and keep the illegal activities at bay.
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International Journal of Latest Technology in Engineering, Management & Applied Science (IJLTEMAS)