64 Int. Journal of Management and Development Studies 6(2): 64-70 (2017) ISSN (Online): 2320-0685. ISSN (Print): 2321-1423 Impact Factor: 0.715 Impact of Demonetization in Indian Economy Kavitha. R 1 , S. Ananthi 1 and R. Sharmila 1 Abstract: The government has implemented a major change in the economic environment by demonetizing the high value currency notes – of Rs 500 and Rs 1000 denomination. The proposal by the government involves the elimination of these existing notes from circulation and a gradual replacement with a new set of notes. The original objectives are eliminating fake currency, inflicting losses on those with black money, and disrupting terror and criminal activities. The New objectives are enabling the growth in bank credit and turning India into a cashless economy. A cost benefit analysis suggests that the benefits were relatively small when compared with the costs. This paper aims to study the impact of demonetization on the different sectors of Indiaand its economy. Both primary and secondary data collection methods have been used to study the objectives. The study concludesthat thedemonetization needs to be done something to prevent recurrence of black money and parallel economy. Keywords: Demonetization, banking sector, Indian economy, currency. Introduction 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. There are multiple reasons why nations demonetize their local units of currency. Some reasons include to combat inflation, to combat corruption, and to discourage a cash system. The process of demonetization involves either introducing new notes or coins of the same currency or completely replacing the old currency with new currency. Gold was demonetized in this way when it ceased to be used as an everyday currency. The Indian rupee (INR) is the official currency of India. The recent sudden move to demonetize Rs 500 and Rs 1,000 currency notes is not new. Rs 1,000 and higher denomination notes were first demonetized in January 1946 and again in 1978. The highest denomination note ever printed by the Reserve Bank of India was the Rs 10,000 note in 1938 and again in 1954. But these notes were demonetized in January 1946 and again in January 1978, according to RBI data. In 2016, the Indian government decided to demonetize the 500- and 1000- rupee notes, the two biggest denomination notes. These notes accounted for 86% 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 1 Associate Professor, Sakthi Institute of Information and Management Studies, Pollachi, Coimbatore, Tamil Nadu, India Corresponding author: Kavitha. R can be contacted at: [email protected] Any remaining errors or omissions rest solely with the author(s) of this paper
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- demonetization, black money