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By:-Narinder KumarCUJammuRoll NO:-1300715

Presentation OverviewDemonetization : The Real EffectsReasons for DemonetizationYour money will be yoursPercentage share of denominations before

demonetizationSteps taken by the governmentImpact of demonetizationPros & Cons of demonetizationVarious modes of paymentEffect of demonetization on Indian EconomyWill demonetization in India impact your loan

burden?Remonetization : A good idea or not?Conclusion

Demonetization is the act of stripping a currency unit of its status as legal tender. Demonetization is necessary whenever there is a change of national currency. The old unit of currency must be retired and replaced with a new currency unit.

Demonetization

Reasons 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.

“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.

Percentage share of Denominations before

Demonetization

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 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.

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. 

Impact Of Demonetization(contd.)

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.

PROS & CONS OF DEMONETIZATION

PROS:• The major decision which is made by the government

will help us to eradicate black money, corruption to some extent.

• Due to lack of funding there will be no arms smuggling and all the terrorist activities will also be choked.

• The government has proposed the new limits on ATM withdrawals being restricted. It indicates that card transactions will slowly replace the cash transactions in our daily prone activities.

• Financial Unit will track all details of the transactions from the banks. So now it is really difficult to get rid of the black money.

PROS (CONTD.):• Exchange of money in banks can only be done producing a

valid identity cards like PAN, aadhar card and electoral card. By doing so it will be easy for the government to track the money which is being exchanged in banks. There is no limit if the amount which we are exchanging is legal amount.

• Real estate industry is totally corrupted and now by this stringent decision the real estate sector will bring in more transparency. By doing it in this way we will have more credibility, making it more attractive to the foreign investors as well as domestic investors.

CONS:• It will cause great inconvenience to common man who will

start running to bank to exchange Rs.500 and Rs.1000 notes.

• By replacing all the Rs.500 and Rs.1000 denomination notes, as ordered by the government, could cost the RBI at least Rs.12000 crore.

• It will be very difficult for half of the population who are not well versed with the card transactions.

• The major problem is that big fishes will be left out whose black money is in the form of foreign currency, gold and property and stashed in tax havens.

Mode of payments

Cash

E-Payment

Barter System

Various modes of Payment:

CASH :India’s economy relies predominantly on cash, the effects will be far greater. ATMs are scarce, and few rural Indians have a credit or debit card. An estimated 600 million Indians—nearly half the country’s population—are without a bank account. Three hundred million have no government identification, necessary to open an account. By comparison, about 7 percent of Americans are unbanked, with an additional 20 percent underbanked, according to the Federal Deposit Insurance Corporation (FDIC).

CASH (CONTD.) :

Electronic Payment is 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.

BARTER SYSTEM :

TRADE WHAT YOU HAVE, TO GET WHAT YOU WANT.!!

Inevitably, low-income and rural households have been hardest hit by Modi’s currency reform. Barter economies have reportedly sprung up in many towns and villages. Banks have limited the amount that can be withdrawn.

Effect of Demonetization on Indian Economy

• It will likely hit the economy hard in the short term.. The service sector, which dominates economic activity and involves a sizable chunk of cash transactions, will likely be hit the hardest.

• GDP growth in the quarters from September to December 2016 and January to March 2017 could be significantly lower than previous years. Some bounce back should be seen in the first quarter of fiscal 2017–2018.

• The demonetization that has been in effect since November 9 is expected to have a negative impact on inflation. Consumer spending activity fell to a near halt.

Will Demonetization in India Impact Your Loan Burden?

Rates are already on the declineAfter 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 burden will also fallApart 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.)

Remonetization : A good idea or not??

This question mark is really difficult to answer and the opinion may vary from person to person.

The roadmap for remonetization is what the markets are anxiously waiting to hear from the Reserve Bank of India (RBI) governor Urjit Patel, who has barely spoken on the subject. So, clearly, there is a cash crunch. And there could be just one solution to ensure that the economy does not suffer for too long: supply of more cash in the market.

How about this for a solution: since most of the currency in circulation is already in the banks — and not lying buried under pillows or being thrown into the Ganges — why not introduce the old Rs. 500 currency notes back into the market, make them legitimate tender again?

CONCLUSIONThe 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.

THANK YOU