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Demonetization in India - its motive and impact

July 14, 2017 General

Demonetization is the act of stopping or withdrawal of particular currency from the economy which no longer will act as a legal tender.

In the context of Indian economy demonetization is seen by banning of 1000 and 500 currency notes as an official mode of payment by the reserve bank of India.

It is being launched on November 8, 2016. Our Prime Minister Narendra modi addressed live to the nation about the withdrawal of 1000 and 500 currency notes. The new currency note of INR 500 & 2000 is also being issued in the exchange of old void currencies i.e.500 and 1000. People were given a reasonable time to exchange their old currency with the new currency .Reserve bank of India laid down a procedure that needed to be followed for exchange of void currencies. To make demonetization more effective, cash withdrawal limit was also enforced in bank and ATMs to certain amount.

Motive behind the introduction of Demonetization

  1. To make surgical strike on black money.
  2. To make India corruption free.
  3. To make cashless Indian economy.
  4. To curb the flow of money into various illegal activities like terrorism, trafficking etc.
  5. To discourage tax evasion.

Demonetization has served many merits. Some of them are mentioned below:

  1. It will control inflation in economy by reducing flow of cash as people will have lesser cash in the form of liquid.
  2. It will help in increasing India’s gross domestic product (GDP).
  3. It will be heading people to digital world by reducing cash transactions, ultimately leading to cashless society.
  4. Balance of payment will be stable by reducing fiscal deficit.
  5. It will put restrictions on unlawful activities like smuggling, who are dealing with terrorist for funding.
  6. As we all know circulation of fake money involves movement of high value currencies, so this move will impose restrictions on circulation of fake currency by banning such currencies.
  7. It will impose restrictions on corruption practices.
  8. This will help the tax department tracking black money as people who are having holding black money will not be able to exchange their money with the fear of getting penalize by the authorities.
  9. People who are hiding their income to avoid tax payment, with the introduction of demonetization will compel them to pay tax my declaring their income. However there are certain reliefs are given.

Now discussing about demerits of demonetization:

  1. Lack of liquidity which lead to inconvenience among people.
  2. People who had no knowledge about digital payment, how it function were facing huge problems as there was shortage of cash funds in the market.
  3. Daily wage workers became unemployed, they were left with no other options, had no other source of income to fulfill their needs.
  4. Stock market was crashed down in the initial stage of demonetization.


As far as my concerned in the initial start of demonetization had a many loopholes like improper execution, improper maintenance of cash funds which had created a huge chaos. But we all know in the way of eradicating a big problems, minor shortfalls or problems occur. So if those minor problems are ready to give you a fruitful results or consequences in the long run so I think they are worth bearing.

Hope you find this article useful. Thank you

This blog is written by Ms. Neeru Tomar.


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