IntroductionThis project has been undertaken as per the requirements of the curriculum setby the University of Delhi and our College (Shaheed Sukhdev College of BusinessStudies). We thank the University for providing us with this opportunity ofcarrying out this project. We would also like to thank our Economics Teacher, Mr.Raj Kumar for assisting us throughout the project and for helping us make it agreat success.The basic objective of this project was to understand the concept ofDemonetization, the impact of the November 8 move of the Modi Governmentand to analyze the impact of the same on the life of the students. The projecthelped us to clear our concepts and have a better understanding of the entire ofthe move of the government. The same has been depicted through our project inthe entire document.
5About DemonetizationWhat is Demonetization?Demonetization refers to the process whereby the existing currency of a countryceases to be a legal tender. The old currency could be wiped out altogether or it couldbe replaced by a new currency.Why is currency demonetized?The currency may be demonetized due to a number of reasons. Some of the fewprominent ones are:a) Hyperinflation – In order to tackle the ongoing hyperinflation in theeconomy a country may demonetize its currency as currency demonetizationwould cut down the demand and thus correct the hyperinflation. Moreover,it also helps in re-strengthening the existing currency. For Example,Zimbabwe demonetized its currency and adopted the US Dollar in order toovercome its hyperinflationb) Black Money – Another important reason behind currency demonetization isthat of tackling the issue of Black Money. The menace of Black Moneyhinders the growth of a country and has other negative impacts. Currencydemonetization if implemented accurately can be useful in eradicating thesame.
c) Counterfeit Currency – Sometimes the issue of fake currency also motivatesthe government to take the step of demonetizing its currency. Fake currencymay further lead to crimes such as that of funding of terror groups, hawalagroups etc.d) Terrorism – It is observed that the terror groups use fake currency and othermeans of black money for funding their operations and activities against acountry. In order to break this chain, the country may decide to undertakedemonetizatione) Currency Updating – In some situations, like that of Australia, thegovernment of a country may decide to replace its existing currency with anew one or with advanced features and thus may undertake demonetization.
What may be considered at this point of time is that the economy is already6working in a good shape before demonetization and has the potential toovercome the negativities of the demonetizationHistory of Demonetization in the WorldLooking at various examples from the world where demonetization took place we coulddraw an analogy that in most of the cases after the government undertook the move todemonetize the currency the economy witnessed a dip in the GDP growth rate. Some ofthe economies like Australia which were in a great shape at the time of such a move didnot bear the grunt of the same and their growth remained stable. Moreover, looking atthe objectives behind these moves of the government helped us understand the type ofissues faced by their economy at that time and whether it was successful enough forthem to implement demonetization. The same analysis helped us understand whether itwas feasible for our country to go for demonetization on 8 November, 2016.A few references of some of the countries are as follows:? Fiji was the first one to undertake demonetization in 1945. Due to lack ofinformation available we could not do the analysis in this case? In 1969 United States demonetized all its currency above and including$100. Even today we do not find any currency in US greater than thedenomination of $100.
It was after a few years of this move that $100currency was remonetized. They took this step in order to tackle the evil ofblack money and corruption? Britain undertook demonetization in 1971. Even it witnessed a downfall in itsGDP growth rate in tandem with the general analogy drawn by us? Ghana demonetized its 50 Cedi currency in 1982 to do away with the evil ofblack money. The move is not said to be that successful and critics think thatit could have been implemented in a much more phased manner? Nigeria witnessed the problem of instable economy and instablegovernment.
The resentment among the people was rising. So, in order tostabilize the economy the government demonetized its existing currencyand reintroduced the new one in 1984. Their economy too had a dip butthey soon recovered? Mayanmar also did demonetization in 1987 to overcome the issues of blackmoney and corruption prevalent in its economy. They were able to solvethem upto a reasonable extent? Soviet Union did demonetization of its 50 and 100 Rubbles in 1991? Australia, in 1996, did demonetization to give its currency more durabilityand to ensure that counterfeiting their currency was not possible. For this7they replaced their paper currency with polymer currency.
This wasdemonetization being done for some new and unthought-of purpose. TheAustralian economy did not dip rather remained stable even afterdemonetization? North Korea too tried to demonetize its currency to tackle black money, butthe move failed so miserably that the ruler of North Korea had to kill thethen Finance minister and apologies to the public for the move? Zimbabwe did its demonetization to overcome the on-going hyper-inflationin the country. Ultimately they adopted the US Dollar as their own currency? Pakistan too tried to demonetize its currency in 2015 to overcome themenace of black money, but it couldn’t be successful because of the one anda half long year exchange period given by the governmentHistory of Demonetization in IndiaIn IndiaDemonetization has taken placethree times. These are as follows:o 12 th January, 1946Being of the time of8independence we do not have much data available on this demonetization. But,as per the facts provided in the RBI’s first history volume we come to know thatthe main objective behind implementing this move was to counter the blackmarket in India. As per the ordinance issued, notes worth Rs. 500, Rs. 1000, Rs.
10,000 ceased to be the legal tender. The move is said to have failed because outof a total of Rs. 143.07 crore, Rs. 134.9 got successfully replaced. Thus, effectivelyit was just Rs.
9 crore which got demonetized. People were given a time period of10 days to get the old currency exchanged.o 16 th January, 1978Even this time the currency was demonetized to curb corruption and black moneyin the Indian Market. It was implemented under the leadership of Morarji Desai,Prime Minister of the nation at the time of time of this move. This time, notes ofRs.
500, Rs, 1000 and Rs. 10,000 were discontinued with. As a contradiction tothe 1946 event, people were provided with just 3 days to carry out the exchangeof old currency. Approximately Rs. 73 crore was demonetized.o 8th November, 2016In India, on the night of November 8 th , Prime Minister Narendra Modi made animpromptu appearance on live national media declaring 86% of the country’swealth to be demonetized. The high value denominations of Rs 500 ; 1000 wereturned into mere pieces of paper.9Objectives of the 2016 Indian DemonetizationThe 2016 demonetization was a necessary step for various reasons-Terrorism Funding- India is highly prone to terror attacks from various anti-social groupsoperating both within and outside the country.
All terrorist organizations procure theirfunds in cash, in order to ensure that there is no paper or digital trail. Thusdemonetization ensured that all the currency held with the terrorist organizationswould be valueless.Black Money- Many people in our country hide their money illegally in form of blackmoney. Thus, after demonetization, these people would either have to abandon theirmoney or report it to the authorities, hence making the income taxable.Digitization of Currency- In India, many of the poor lower class citizens are oppressedbecause of the presence of middlemen.
Digitization helps people to take control of theirown finances. Moreover, it helps to document the money trail.Corruption- Demonetization also ensures a reduction in corruption, since peoplewouldn’t be in any position to make any underhand transaction.Human Trafficking and other Crimes- Much like terrorism, most criminal activities areundertaken in cash form. Thus, demonetization also reduces the availability of cashwhich in turn leads to curbing of such illegal activities.10Key Features of the 2016 Indian DemonetizationThe currency was demonetized under the leadership of Mr.
Narendra Modi, theincumbent Prime Minister of India. Some of its key features are:? Currency notes worth Rs. 500 and Rs. 1000 ceased to be legal tender from 1 stJanuary, 2017? Physical notes comprised of about 90% of the total money supply, while 86%of the money supply was in denomination of 500 and 1000 rupee notes? Government gave a time period of 50 days for exchange of the currency? The limit for exchanging the notes over the counter was set up at:o Rs. 4000 till 13 Novembero Rs.
4500 till 17 Novembero Rs. 2000 till 25 November and then no exchange? Petrol, CNG and gas stations, government hospitals, railway and airlinebooking counters, state-government recognised dairies and ration stores,and crematoriums were allowed to accept the banned ?500 and ?1,000bank notes until December 2, 2016? As per the government’s reports 97% of the demonetized currency has beendeposited in the banks11Impact of the 2016 Indian DemonetizationEconomyIndia’s GDP was predicted to grow at 8% in FY2017. Right after demonetization, analystspredicted a slowdown in the growth rate at 5.5-6%. This was because 40% of theeconomy constituted of the informal sector, which was the most impacted in this case.On the contrary, the latest data shows that the GDP is still growing at 7%.
This showsthat even though there has been an impact, it hasn’t been as severe as it was thought tobe.EmploymentThe move has had no impact on the top and the middle level workers. In labourintensive sectors, there have been some layoffs among the lower level wage workers.This has been done in order for the firms to maintain their ex ante profit targets.
Consumer SpendingDemonetization has negatively impacted consumption in the economy. Consumtionforms a big chunk of GDP. According to Nielsen, FMCG sales have dropped by 30-40% in12November and December. Furthermore, impulse buys in stores have also droppedsignificantly.MSMEsA majority of MSMEs exist in the rural areas. A majority of these MSMEs have a turnoverof just a few lakhs. Furthermore, rural areas have uneven distribution of banks andfinancial institutions. Thus, demonetization has forced many such MSMEs to scale downor, in worse cases, cease their operations.
13Real EstateDemonetization has brought down the real estate market. This is primarily because theunderhand deals that were usually the norm, are no more feasible due to shortage ofcash. Furthermore, the demand for houses have also dropped almost 30%.
AgricultureThis sector usually has a high percentage of cash transactions. Thus, it is going to beaffected in the short run. But at the same time, the government has also brought aboutvarious benefits to the farmers.14Existing Research’Demonetization and its impact in India’ by Prof. Sandeep Kaur, SGGS KhalsaCollege, Mahilpur(https://edupediapublications.
org/journals/index.php/IJR/article/view/6214/6002)In this research paper, Prof. Kaur discussed about the impact that demonetizationwould have on the various sectors of the economy. He held the view thatdemonetization would have a largely positive effect on the economy of the country.He concluded that this move would reduce corruption and black money, bring downreal estate prices, clarify election funding, increase digitization, lower GDP growth,lower inflation. Lastly, he says that there will be a positive impact on the market inthe long run, as there would be an increased confidence of foreign investors inIndia.’Effect of Demonetization on financial inclusion in India’ by Parul Mahajanand Anju Singla, CMH, PEC University, Chandigarh(http://data.
conferenceworld.in/SGTB/P1282-1287.pdf)In this paper, the authors attempted to analyze how demonetization has affectedfinancial Inclusion. They studied various sects such as ordinary individuals, informalsector, rural population, MSMEs, NBFC MFIs and E-wallet companies. Theyconcluded that ordinary individuals were most effected. Furthermore, they statethat because of demonetization, a new type of deposits, called benami depositshave come up.
15’Demonetization and its impact on unemployment in India’ by Prof. PawanKumar, Assistant Professor, Ramjas College, Delhi(https://arxiv.org/ftp/arxiv/papers/1702/1702.
01686.pdf)In this paper, Prof. Kumar states that India is in no position to handle a financialemergency such as demonetization. He states that in India, 76% of non-agriculturalworkers have no written contract. Thus, demonetization impacts them negatively.He further concluded that demonetization has led to reverse migration from urbanto rural areas.’Demonetization in India: The good, bad and ugly facets’ by Dr. TandonDeepak and Ms.
Kulkarni Bhagyashree, IMI, Delhi(http://www.indianjournals.com/ijor.
aspx?target=ijor:ajrbem;volume=7;issue=1;article=004)In this paper, the authors have critically examined the process of demonetization,boons and banes of demonetization, key impacts on various sectors and haveconcluded that it is necessary to put the economy on a high powered growthpattern in order to generate more jobs and make housing in the urban area moreaffordable to the poor.16Objective of the StudyThe primary objective behind this research was to analyze the impact thatdemonetization had on the life of college students in India. No such researchhas been undertaken until now. Furthermore, it is pertinent to understandthe sentiment prevailing in the students, since they are the future of thiscountry.Moreover, this study aims to study whether the GDP growth of the countryis in concurrence to the micro data collected by us.Lastly, by the means of this study, we wished to observe whether there wasany correlation between the impact of demonetization and other factorssuch as age and family income.17Methodology and Data(An Excel file (Demonetization Research Paper- Data.xlsx) has beenattached along with this research paper, containing all the pertinent data.
Kindly refer to the same.)So, we collected data using the primary sources of information. A survey form wascirculated among the students of our college and other colleges. We could get 205responses to our survey form.
Now, the questions asked in the survey were drafted insuch a manner that we could use various statistical techniques to analyze the results ofthe survey.Primarily our survey was divided into two parts. The first part gathered the generalsentiment of the students about demonetization. This part was useful for the subjectiveanalysis. The other part of the survey had statements which could be marked on a scaleranging from strongly disagree to strongly agree. This portion helped us carry out ourobjective analysis. The methods used to carry out the analysis were:? Likert’s Scale? Correlation Coefficiento With respect to ageo With respect to family income? Bar Diagrams? Graphs? Pie Charts18So, the Graphs, Pie Charts and Bar Diagrams were useful in analyzing what was thegeneral perception of the students regarding the step of demonetization. We couldassess questions like do you think demonetization should have been implemented in aphased manner, would you support the government in future etc.
For calculating Likert’s Scale values we need questions in the form of statements whichcan be ranked on a scale of one to five. So, we had eight statements which could beranked ranging from strongly disagree to strongly agree. The person marking stronglydisagree was given one point as the person disagreed with the fact that demonetizationhad an impact on the economy.
Similarly, the person marking strongly agree wasawarded five marks. This made it possible for every applicant to earn a minimum ofeight points and a maximum of forty points. Now, taking these points we could calculatethe weighted average and correlation. The average was calculated for every particularquestion, which had a maximum of five marks and a minimum of one mark.
Dependingon the question we obtained results. Also, an overall aggregate weighted average wascalculated taking into consideration all the questions.For calculation of correlation we need two cardinal variables. These are those variableswhich can be assigned some particular absolute value.
As per the data collected by uswe got one variable as the Likert Marks, which we had assigned to each respondent, andthe second variable was the age or the income, as these too were measurable inabsolute terms. Correlation helps us establish a relation between change in values oftwo variables.19Graphical Representation202122Likert’s Analysis1 41 56 17 16 15 14 30 15 2042 85 85 22 34 13 41 55 31 3663 37 30 30 53 114 71 29 59 4234 31 22 91 61 43 57 56 54 4155 11 12 45 41 20 22 35 46 232Total 205 205 205 205 205 205 205 205 1640WeightedProduct41 56 17 16 15 14 30 15170 170 44 68 26 82 110 62111 90 90 159 342 213 87 177124 88 364 244 172 228 224 21655 60 225 205 100 110 175 230WeightedTotal501 464 740 692 655 647 626 700 5025TotalWeights205 205 205 205 205 205 205 205 205WeightedAverage2.4439024392.2634146343.6097560983.3756097563.
1951219513.1560975613.0536585373.41463414624.51219512Min 1 1 1 1 1 1 1 1 8Max 5 5 5 5 5 5 5 5 40CorrelationsBetween Income and Demonetization Impact 0.132482136Between Age and Demonetization Impact 0.01067182523Outcomes and ConclusionThrough our analysis we could infer that there was a neutral impact of demonetizationon the students’ life.
A similar impact was seen on the GDP growth rate of our countrywhich had s slight dip from 7.2 to 7. A few questions asked in the survey, like there wastrouble arranging for study material due to demonetization was denied by the students,whereas questions like your average daily expenditure reduced after demonetizationwas supported by the majority.The average obtained for each question through the Likert’s Scale ranged from 2.2. to3.7 points, with a minimum of 1 point to a maximum of 5 points. The overall analysis ofthe eight questions got us an average of 24.
5 points on a scale of 8 to 40. The mid-pointof this scale is 25 points which is close enough to our average of 24.5 points, thusshowing that demonetization had a neutral impact.The correlation between age and the impact of demonetization had a value of 0.01,which depicts a week relation.
It shows that people of all the age groups were equallyaffected by this move of the government.The correlation between Impact of Demonetization and the Annual family income had avalue of 0.13. It is a positive relation with a meek strength. Thus, this depicts that as thefamily income rose more was the impact of demonetization, thus the rich class wasaffected more by demonetization.Also, our survey tapped the sentiment of the young population of our country and theywere ready for more such drastic moves by the government and were willing to helpgovernment throughout its mission of curbing black money and corruption.All in all, we were able to conclude that there existed a positive sentiment in the countryregarding demonetization.