Page 1 of 15

European Journal of Business &

Social Sciences

Available at https://ejbss.org/

ISSN: 2235-767X

Volume 07 Issue 04

April 2019

Available online: https://ejbss.org/ P a g e | 1151

Demonetization and Its Impact

DIKSHA PAHUJA

Assistant Professor, Faculty of Commerce,

S.D. (PG) College, Panipat

ABSTRACT

Demonetization can be said as a "Surgical Strike" on black money. It can also be said as

‘Swachha Bharat Initiative’ in the terms of making India free from the garbage of black

money. Black money sows the seeds of corruption and money laundering in many sectors. It

leads many social, unethical and economic struggles, helps in funding of terrorism, affects

real estate and funds illegal activities in the country. To demolish black money and flush

out fake currency, the step of ‘Demonetization’ was taken by the government of India

thrice. The last demonetization was announced by the Prime Minister Sh. Narendra Modi at

8:17PM on Nov8, 2016. Currency notes of Rs.500 and Rs.1000 denominations were ceased

to be legal tender from midnight that day. It was an attack on black money holders.

The present study is made out of available literature on post demonetization. It portrayed the

positive and negative effects of demonetization. It encompassed the recent decision of the

central government on Demonetization and its gradual effect on Indian economy.

Key Words: Demonetization, Surgical Strike, Black Money, Fake Currency

INTRODUCTION

Whenever there is a change in national currency, it is termed as Demonetization. On

Nov8, 2016 the Prime Minister Sh. Narendra Modi announced the demonetization of all

Rs.500 and Rs.1000 bank notes of the Mahatma Gandhi series. In place of these

demonetized currency notes, new notes of Rs.500 and Rs.2000 were declared to be issued.

It was stipulated in the announcement that the old demonetized currency notes could be

deposited with banks or exchanged with new currency notes over the counter at all banks.

People had been given time till Dec 30, 2016. There were limits on currency exchange and

Page 3 of 15

European Journal of Business &

Social Sciences

Available at https://ejbss.org/

ISSN: 2235-767X

Volume 07 Issue 04

April 2019

Available online: https://ejbss.org/ P a g e | 1153

amount of money and therefore, joined hands to force govt to rollback its decision. The most

interesting thing regarding the demonetization was that people had devised various unique

methods for transforming their black money in to white one. Some of these methods were as

follows –

 Depositing money in the accounts of their poor relatives and friends.

 Enticing the people with some percentage of money for exchange.

 Asking their employees to stand in the long queues in front of Banks and ATMs for

getting money exchanged.

 Hiring labors for some Rupees ranging from Rs 500/- to 700/- for becoming the part of

long queues in front of banks/ ATMs.

 Converting black money in to gold.

 Paying a few months salaries in advance.

 Paying back loans forcibly.

 Using their influence / links with bank employees and so on.

REASONS OF DEMONETISATION

 To curb black money.

 To control inflation rates as demands of people holding black money were rising day

by day.

 To move from cash to cashless economy.

 To lower the cash in circulation which was the main cause of corruption?

 To eliminate money laundering.

 To diminish fake currency so that terror funding and other illegal activities come to an

end.

LITERATURE REVIEW

Nithin and Sharmila (2016) studied demonetization and its impact on Indian Economy.

They opined that demonetization has short term negative impact on different sectors of the

economy and such impacts are solved when the new currency notes are widely circulated in