Pulling back units of cash from the flow is demonetization; units of cash have prevented the status from securing legitimate delicate. Demonetization is characterized as a procedure by which cash units won’t stay legitimate delicate. The cash notes won’t be taken as substantial money. Demonetization is a stage taken by the administration where money units are stopped of its status as lawful delicate. Demonetization is an essential condition to change national money. At the end of the day, demonetization can be said a difference in cash where new units of money supplant the former one.

It might include the presentation of new notes or coins of a similar division or totally new category. The money has been demonetized thrice in India. The main demonetization was on twelfth January 1946 (Saturday), second on sixteenth January 1978 (Monday) and the third was on eighth November 2016 (Tuesday). The investigation endeavours to comprehend the importance and reasons for demonetization, the part astute effect of demonetization. This investigation likewise gives an understanding of the positive and negative effect of demonetization on the Indian economy.


 On November 8, 2016, after quite a while the word demonetization appeared in everybody’s life. After the move of Demonetization reported by Hon’ble Prime Minister of India, Narendra Modi, all began to talk about it. In November 2016, the Indian government chooses to demonetize the five hundred and one thousand rupee takes note of, the two biggest denomination notes. It was evaluated that practically 86% of the national money supply incorporated these two notes.

The point of the focal government was to annihilate dark cash, fake money, a battle for avoidance and fear monger financing. It additionally included individuals to be all the more carefully progressed and to embrace a cashless economy. Nations like Zimbabwe, Australia, North Korea, Ghana, Nigeria, Pakistan and so on are additionally on the rundown of nations which have polished trashing. Referred to be as a notable move, we can say that India is venturing towards cashless age.

The primary proverb of why demonetization is done intermittently that to annihilate dark cash, dark advertising, defilement, forging and so forth. As Rs 1,000 and Rs 500 notes comprised practically 86% of the all-out money, one business analyst analyzed the agony of average folks by expressing imagine a scenario in which 86% of their blood was expelled from their bodies.

 Definitions of demonetization:

Demonetization means Withdrawal of a particular form of currency from circulation. Demonetization is the act of stripping a currency unit of its status as legal tender. It occurs whenever there is a change in national currency. Demonetization refers to an economic policy where a certain currency unit ceases to be recognized or used as a form of legal tender. In other words, a currency unit still loses its legal tender status as a new one comes into circulation.         


The governments of the respective countries formulate the financial strategies and policies for the economic growth of the country. The majority of the occasions when a ton of dark cash flows in the economy of the nation which is unaccounted for in light of the fact that the wellsprings of pay are not known to the administration. It very well may be cash produced through illicit exchange or unapproved financing. To evacuate this cash unavailable for general use, the administration can make the strides like demonetization so the cash holders are compelled to store the money with the banks or lose their riches. It is a technique that has worked successfully in a couple of nations.

 Demonetization can likewise be alluded to like the way toward moving individuals from a money-based framework to a cashless framework. The cashless framework (computerized framework) can be accomplished with the assistance of advances like electronic and versatile instalment strategies. By keeping hard money individuals can without much of a stretch sidestep charges, which is an unsafe practice for an economy of any nation. Keeping money out of the ledgers likewise decreases the stores with the banks and monetary foundations. It implies that the legislature needs to acquire the assets from outside sources like the World Bank and IMF and so forth which prompts increment the national obligation.

The financial effects of which are numerous and serious. Moving individuals to a cashless framework are, hence, a positive financial approach for any nation. The administration of procedure demonetization is essential. On the off chance that it oversaw well it tends to be helpful regarding monetarily just as socially, similar to it can diminish swelling, improve the economy, and result in budgetary conduct change among natives. Be that as it may, if not oversaw well, it might make a great deal of monetary inconvenience the general population.  How the procedure is overseen in the most ideal way decides its consequences for the economy of a nation.

 A brief history of Demonetization in India:

India has officially experienced the circumstance of demonetization twice before Nov.8, 2016. Initially in the time of 1946 and also in the time of 1978. The first was when Rs1,000, Rs5,000, and Rs10,000 notes were removed from distribution in January 1946, 18 months before the nation won freedom from the British.

The Rs10,000 notes were the biggest cash division at any point printed by the Reserve Bank of India, presented without precedent for 1938.  All three notes were reintroduced in 1954. In the mid-’70s, the Wanchoo board of trustees, an immediate expense request advisory group set up by the legislature, recommended demonetization as a measure to cancel the presence of dark cash.

 Then, in 1977, the Janata Party alliance government came into power. A year into the administration’s term, party pioneer Morarji Desai was progressively bullish about getting serious about fakes and dark cash. The High Denomination Bank Notes (Demonetization) Act, instated by the decision party on Jan. 16, 1978, considered the Rs. 1000, Rs 5000 and Rs10,000 notes unlawful for the second time.


As indicated by RBI information, the most elevated category note at any point printed by the Reserve Bank of India was the Rs 10,000 note in 1938 and again in 1954. In any case, these notes were demonetized in January 1946 and again in January 1978. Rs 1,000 and Rs 10,000 monetary certificates were available for use preceding January 1946. Higher section banknotes of Rs, 1000, Rs. 5,000 and Rs, 10,000 were reintroduced in 1954 and every one of them was demonetized in January 1978. The Rs, 1,000 Note made a rebound in November 2000 and Rs, 500 Note came into course in October 1987.

This is the first occasion when that Rs, 2000 cash note is being introduced. Banknotes in Ashoka Pillar watermark arrangement in Rs 10 group were issued somewhere in the range of 1967 and 1992, Rs 20 out of 1972 and 1975, Rs 50 out of 1975 and 1981 and Rs 100 between 1967-1979. The banknotes issued amid this period contained the images speaking to science and innovation, advancement and introduction to Indian fine arts. In the year 1980, the legend Satyameva Jayate – ‘truth alone will win’ – was joined under the national symbol for the first run through. The Mahatma Gandhi Series – 2005 monetary orders were issued in the section of Rs 10, Rs 20, Rs 50, Rs 100, Rs 500 and Rs 1,000 and contained some extra/new security includes when contrasted with the 1996 MG arrangement.


As indicated by law, the legitimate reason for the demand demonetizing currency can be found in Section 26 of the Reserve Bank of India Act, 1934. Under sub-section (2) of this Section, the Union Government is enabled to proclaim that any notes issued by the Reserve Bank will never again be lawful delicate. The main procedural prerequisite is that the Board of the Reserve Bank of India prescribes the equivalent to the Union Government. Truth be told, in 1978, demonetization was done under an extraordinary enactment, in particular, the High Denomination Bank Notes Act, 1978.

In any case, the protected legitimacy of this law was tested under the watchful eye of the Supreme Court of India in Jayantilal Ratanchad Shah versus Reserve Bank of India on the premise that it was an infringement of the privilege to complete exchange and business, and likewise, added up to an obligatory securing of property without pay by the Government. In any case, the Supreme Court of India did not discover the system for the return of the high division to be absurd or in any capacity subjective or illegal.

NOTE: If we analyze the circumstances somewhere in the range of 1978 and 2016, there are tremendous contrasts in the monetary situation in India somewhere in the range of 1978 and2016. The estimation of high division notes available for use 1978 was a minor Rs 131 crores – not at all like the current circumstance where the estimation of high section notes available for use is Rs 14.18 lakh crore or 85% of the estimation of all notes available for use.


A large portion of the informed individuals in our nation was seeing the positive side of demonization and was additionally supporting it. Talks with respect to the controlling of black money made by Prime Minister Narendra Modi had the capacity to draw tremendous votes in favour of BJP. Particularly youth and taught individuals, notwithstanding of any religion are supporting the means taken by the Central government to curb black money.


 Congress VP Rahul Gandhi on a meeting with NDTV India says that demonetization a ‘Modi-made disaster’ and asserted that the PM embraced this activity to reimburse 50 excessively rich families who developed his picture, so he got the post. Rahul likewise guaranteed that this move by the Modi government will end up being a major trick. Dr Manmohan Singh, past executive, amid the winter session in Parliament says that this move as unlawful and against vote based system.

Dr Singh further included that no place on the planet, individuals are limited to pull back just 2,000 rupees from their record. Restriction parties emphatically contradict the Demonetization usage process. Nobel Laureate Amartya Sen has called the Narendra Modi government’s demonetization move “authoritarian activity that has struck at the foundation of an economy dependent on trust.” But Nandan Nilekani, The modeller of Andhra, in a meeting with ANI has invited Prime Minister Narendra Modi’s demonetization plot and said it will help bring an ever-increasing number of individuals into the financial framework. Delhi Chief Minister Arvind Kejriwal, amid his question and answer session in New Delhi on twentieth November 2016, blamed Prime Minister Narendra Modi for ensuring his “corporate companions” while doing demonetization and tried to interface him with some “huge government officials” whose names had come up amid a test by CBI and Income Tax division.

He likewise inquired as to why Modi was not making a move against those named in the rundown of Swiss Bank account holders just as in Panama papers. Tending to a mass rally in Lucknow, Uttar Pradesh Ex-Chief Minister Akhilesh Yadav on 26th December 2016 said it is duping with the country which prompted the ending of the whole exchange part of the nation. He likewise said that individuals came to control based on Ganga cleaning however legislative issues have been played over it for last more than two years. However, no work has been finished.


On November 8, 2016, the declaration of Rs 1,000 and Rs 500 not to be treated as a legitimate delicate from ninth November brought about making ruin among the general population. Individuals were confronting a few issues, for example, marriage issue and medical problem. To list the most exceedingly terrible impact of demonetization, the effect on well-being area was most noticeably bad as clinics were declining to acknowledge the old money.

 A few instances of passing and unsettling brought about by individuals were enrolled because of disparagement. Anyway, the effect on the instructive part was extremely less than every one of the colleges and universities have been told to empower online exchanges in their official sites. Yet at the same time, a great deal of dark cash was recovered from the instructive establishments through pay charge attack which was gotten as gifts from understudies and accumulated as black money Demonetization has brought the dealing of ladies and young ladies for sex work to a stop. It has been assessed this has been a Rs 24 trillion industry in India.

Everyday citizens experienced numerous issues as the declaration was done in the start of the month when individuals were going to draw their pay rates from their records, yet they were just ready to draw Rs 2,000 day by day from ATM. Street barricades and fights among the general population who held up in long lines were likewise taken note. There was anxiety among individuals in light of the fact that notwithstanding representing the entire day they were just ready to draw Rs. 2,000 from their record.

There were likewise no extraordinary arrangements made for the senior residents at the banks. Opiates exchange was not taken off alone as it additionally endured the effect of trashing. The majority of the advertising happens through Afghanistan and different ports. That is the reason tranquillize vendors thought that it was hard to sell their staying stock after the high Vale cashes disappeared from the economy The best effect of trashing was on decreasing the fear-mongering. One of the fundamental destinations of defamation was to stop the stream of phoney notes streaming in from Pakistan.

The demonetization of Rs 500 and Rs 1000 notes to pound back economy possesses come at the wrong energy for ranchers. A great many ranchers can’t motivate enough money to purchase seeds and composts for their winter crops. Creation of basic wares is under risk harming ranchers who are simply recuperating from the two-year dry spell. India’s 270 million ranchers live generally in the money economy.


The role of the Reserve bank of India was vital in this neatness drive. A positive and warm reaction was gotten from the financial specialists. Both private and open segment is confronting the extreme issue of NPA (Non-Performing Assets) or awful credits. It has expected that derision will assist the manages an account with recovering awful advances and will improve their monetary position.

Demonetization will prompt increment informal financial division which will result in straightforwardness. From 4% to 28% this bounced in the figure has been recorded by the Income Tax Department in respect of making good on regulatory obligations by individuals. At the point when dark cash inside India gets checked, it will result in the in general monetary improvement of the country.


Central government’s ongoing choice to demonetize the high esteem cash is one of the significant strides towards the annihilation of dark cash and debasement in India. In the event that the cash vanishes, as certain hoarders might not want to be seen with their money heap, the Indian economy won’t profit. Then again if the cash discovers its way in the economy it could have a significant effect. Demonetization in Indian economy is having negative effects on the distinctive divisions.

Lion’s share of the negative impact is short-run impacts. Every one of these impacts is settled when the new cash notes are broadly coursed in the economy. Indeed, the facts demonstrate that People is confronting a few issues in the trading of cash notes. Despite the fact that individuals are confronting such an issue people are prepared to endure these issues for its constructive outcome on the economy.

In the event that Union government effectively clears every one of the issues, downsides related with the issue of demonetization, this demonetization will turn into the fruitful financial upset in India’s history, and we can expect a superior tomorrow with defilement free India.


The Demonetization in India was not without precedent for the historical backdrop of India as examined before (Demonetization in 1946 and 1978) so it isn’t sound to troll the present government for that. The Indian government stepped up to the plate of Demonetization for the welfare of the Indians and Indian economy. It is helpful motivation to welcome the endeavours of the administration and as it would not have been conceivable without the participation of overall population so the legislature ought to comply with their guarantee that they have made to people in general.

The analyst of Demonetization should quit condemning and accusing the legislature about their choice rather they should offer recommendations to fix the issues they feel that has emerged because of Demonetization.  The administration ought to plan the arrangements to help the unhealthy people that lost their lives because of Demonetization specifically or in a roundabout way.  The administration should make successful wanting to deal with the impacts of these sorts of choice used for that they ought to detail the exceptional panel to comprise of specialists from different segments.  

The legislature ought to distribute the information with respect to the Demonetization to make mindful the overall population about the advancement by method for general brochures, commercials, hoardings and so on of the Demonetisation.


  8. Accessed 19 Jan. 2017.
  9. Accessed 19 Jan2017

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