Periyar Journal of Research in Business and Development Studies, 1(2), July-December 2016, ISSN (O)

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1 48 Demonetization and Its major parameters which influence in India Diksha Sahni, Periyar Management and Computer College, Delhi ABSTRACT Demonetization refers to 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. First time the currency was demonetized in 1946 and second time in On Nov the currency is demonetized for third time by the present Modi government. This is the conspicuous step taken by the government for the improvement of the economy and country. In this paper I want to discuss the major parameters of recent demonetization on the Indian system. Key words: Demonetization, Black Money, Corruption, Counterfeit Currency OBJECTIVES The main objective of this paper is to study the major parameters of demonetization on 8th Nov by the upcoming government on Indian economy and system. METHODOLOGY The paper is basically based on the secondary data. The secondary data was collected from various published sources like articles, reports, journals, magazines, newspapers and the like etc. INTRODUCTION Technique of removing a currency from extensive usage, or circulation is known as demonetization. Right now old 500s & 1000s are demonetized in this way and it cease to be used as an everyday currency. It will no longer be a legal tender for exchange, although value of the same can be encashed by depositing in one s bank account. For example, gold was demonetized in this way when it ceased to be used as an everyday currency. The Indian rupee (INR) is the authorized currency of India. The recent situation move to demonetize Rs 500 and Rs 1,000 currency notes is not new. Rs 1,000 and in our country higher denomination notes were first demonetized in January 1946 and again occur in The highest denomination note ever printed by the Reserve Bank of India was the Rs 10,000 note in 1938 and again occur in But these notes were demonetized in January 1946 and again occur in January 1978, according to reserve bank of India (RBI) data. To check unrevealed black money, corruption and forgery currency the Government of India on the 8th November 2016 declared demonetization of high denomination of currency notes Rs 500 and Rs1000. A new redesigned sequence of Rs 500 and Rs 2000 banknote is in circulation since 10th November HISTORY AND FRAMEWORK

2 49 The unexpected change to demonetize Rs 500 and Rs1000 currency notes is not newfangled. Rs 1,000 and higher denomination notes were first demonetized in January 1946 and again in1978. The highest denomination note always printed by the Reserve Bank of India (RBI) was the Rs10,000 notes in 1938 and again in But these notes were demonetized in January 1946 and again in January 1978, according to reserve bank of India (RBI) data. Rs 1,000 and Rs 10,000 bank note s were in transmission prior to January Higher denomination bank notes of Rs 1,000, Rs 5,000 and Rs 10,000 were reestablished in 1954 and all of them were demonetized in January 1978.The Rs 1,000 note formulates a comeback in November The note of Rs 500 came into circulation in October The step was then rationalized as attempt to contain the quantity of bank notes in circulation due to inflation. Although, this is the first time that Rs 2,000 currency note is being introduced. While introducing currently circulated Rs 500 and Rs 1,000 notes as invalid from midnight 8th Nov, 2016 and then Prime Minister Narendra Modi announced new Rs 500 note and a Rs.2,000 denomination bank note will be introduced from November 10. Bank notes in Ashoka Pillar watermark series in Rs 10 denomination were issued between 1967and 1992, Rs 20 in 1972 and 1975, Rs 50 in 1975and 1981 and Rs 100 between Thebank notes were issued during this period announced the symbols representing, progress and orientation,science and technology to Indian art forms. In the year 1980, the legend Satyameva Jayate truth alone shall prevail was integrated under the guidance of national emblem for the very first time. In October 1987, the bank note of Rs 500 was announced with the photograph of Mahatma Gandhi and Ashoka Pillar watermark. Mahatma Gandhi (MG) the series of banknotes 1996 were issued in the denominations of Rs 5,(announced in November 2001), Rs 10 (June 1996), Rs 20(August 2001), Rs 50 (March 1997),Rs 100 (June 1996), Rs 500 (October 1997) and Rs 1,000 (November 2000).The Mahatma Gandhi Series 2005 bank notes were issued in the denomination of Rs 10, Rs 20,Rs 50, Rs 100, Rs 500 and Rs 1,000 and maintained some additional/new security features as differentiate to the 1996 Mahatma Gandhi MG series. The banknotes of Rs 50 and Rs 100 were issued in August 2005, issued by Rs 500 and Rs 1,000 denominations in October 2005 and Rs10 and Rs 20 in April 2006 and August 2006, respectively. MAJOR PARAMETERS AND IMPACT OF DEMONETIZATION (1) Real estate The important impact of the demonetization would be deduction in cash transactions in real estate. This is likely to reduce to real estate prices and make it more affordable. In the short term, prices of real estate would cut down for the same reason above. There would be fewer suitcases moving.

3 50 (2) Funding Funding for terrorism and smuggling will consider a flutter since all the money will get back to bank and from there it is very easy to recognize the fake currency. Demonetization hence, affects the funding of terrorism attacks in Jammu and Kashmir, North-eastern states and the other areas. (3) Black Money and Corruption Due to demonetization, Black money would be taken out of Indian structure. As anticipated by ICICI Securities Primary Dealership by the government's plan to remove INR 500 and INR 1,000 notes from circulation will disclose up to INR 4.6 lakh crore in black money. Corruption will also be automatically decreased by removing black money from economy. Arithmetic of Demonetization of High-Denomination Notes in circulation ( value in INR billion) Notes with Notes with banks together with other govt. agencies % Conversion by public for new notes with old (%) Total value of converted by public (INR billion) Scenario 1: Total value not converted by public billion) Scenario 2: Total value not covered by 4520 of 20% of black money(inr billion) Scenario 3: Replicating 1978, with 25% not coming Back Source: SBI Research, RBI The table represents the public holding of high denomination notes worth Rs billion as on march There are 3 schemes in the table. In scheme 1 and 2 it is presumed that 50% of the notes of higher denomination do not restore to the system. It is also equitable to expect that 60% of Rs. 500 notes and 40% of Rs.1000 notes would be interchanged at the banks/ post offices and RBI before

4 51 march31,2017. Based on such estimates, approximately round Rs. 4.5 lakh crore of money could dematerialize from the system. (4) Elections Demonetization has surprised political parties. Many states like Punjab and Uttar Pradesh, cash contributions are enormous part of "election management". Political parties will identify themselves powerless as cash hoards are usually undeclared money. So upcoming elections 2017would be transparent to the some extent. (5) Gold/Silver and Jewellery After the move of demonetization the demand for gold and other precious metals increase greatly. Because people are trying to saturate their black money in gold and other metals to make it white in short intervals of time. But the demand for gems and jewellery to reduce in the next two to three quarters. (6) Digital payments People adopting online and digital payments system such as Paytm, freecharge, etc. after prohibit for high denomination Currency in India. Digital transaction systems, online transactions using E- banking, usage of Plastic money (Debit and Credit Cards), etc. will positively see substantial increases in demand. This behavioural change could be a game changer for India in the upcoming future. (7) Lower Inflation Due to demonetization as the black money goes out of the system so that the supply of money will shrink to some degree. This will decline inflation rate in the absence of any available market interventions by the Reserve Bank of India (RBI). (8) Fake Currency The major impact of Demonetization on the fake currency would be more remarkable. Many traders with the existing counterfeit notes will be trapped as they would have to take the notes to the bank and

5 52 have profitable chances of getting their racket exposed. Hence, they have only option to destroy their notes and suffer losses. (9) Markets There will be positive step in markets in long intervals of time that could lead confidence of overseas investors in Indian stock markets. Market goes like a bit down in the short and medium term. India is still very fascinating destination on a long term basis. It is really not the perfect market in the next three months. (10) Decrease in Interest Rates The final impact we will see a lowering interest rates for home loans, education loans, and medical loans very promptly. It will make higher education and medical facilities more approachable. This change is stiff to undo because if any successive government increases loan it will suffer enormous backlash. CONCLUSION So considerably, it can be responded that this is a historical step by the Modi Government and should be reinforced by all. This decision of government would definitely bring results in the long term. From an equity market prospective, this step would be favourable for sectors like Banking and Infrastructure in the channel to long term. This could be negative for sectors like Gems and Jewellery, Consumer Durables, Real Estate,Luxury items and allied sectors, in the near to channel term. This move could lead to enhanced tax compliance, better fiscal policies, lower corruption, lower inflation and complete elimination of fake currency and another stepping stone for improved economic growth in the longer term. REFERENCES (HDFC, 2016). Bank investment advisory group Demonetization and its Impact" 11Nov,2016 (CARE RATINGS, 2016). Professional risk opinion "Impact of demonetization on GDP"Nov.18, times.com/demonetisation-old-rs-500-and-rs-1000-notes- now illegal-newsreports-and developments/live blog/ cms

6 53 AUTHOR(S) BIOGRAPHY Diksha Sahni is currently working as an Assistant professor at Periyar Management and Computer College, New Delhi and pursuing Ph.D in Finance. She has completed her Masters of Business Administration (MBA) in Finance and Human Resource Management from Lingayas University Faridabad, India. She has also completed o Level Certification Programme from JLJ Institute, Faridabad, Her research areas are:- Mergers & Acquisitions, Project planning and Analysis and Accounting for managers.