PowerPoint Presentation

DEMONETISATIONOF INDIAN CURRENCY

WHAT IS DEMONETISATION?Demonetization is the act of stripping acurrencyunit of its status aslegal tender. Demonetization is necessary whenever there is a change ofnational currency. The old unit of currency must be retired and replaced with a new currency unit.

On 8 November 2016,Prime Minister of IndiaNarendra Modiannounced the demonetisation in an unscheduled live televised address to the nation at 20:15IST.In the announcement, Modi declared circulation of all 500 and 1,000 banknotes of theMahatma Gandhi Seriesas invalid effective from the midnight of the same day, and announced the issuance of new 500 and2,000banknotes of theMahatma Gandhi New Seriesin exchange for the old banknotes.

EXCHANGE OF OLD NOTESThe Reserve Bank of India stipulated a window of fifty days until December 30, 2016 to deposit the demonetised banknotes in bank accounts. The banknotes could also be exchanged over the counter of bank branches upto a limit that varied over the days:Initially, the limit was fixed at 4,000 per person from 8 to 13 November.This limit was increased to 4,500 per person from 14 to 17 November.The limit was reduced to 2,000 per person from 18 November.All exchange of banknotes was abruptly stopped from November 25, 2016.International airports were also instructed to facilitate an exchange of notes amounting to a total value of 5,000 for foreign tourists and out-bound passengers

REACTIONS OF GENERAL PUBLICStrikesAs the demonetisation was opposed in both houses of theparliament, it triggered organisednationwide strikesacross India. The Opposition involving parties likeIndian National Congress,BSP,DMK, JD(U), AIADMK,Nationalist Congress Party, Left,Rashtriya Janta Daland theSamajwadi Party decided to observe Akrosh Diwas as, a protest campaign day on November 28and launch protests in front of banks, demanding that money be returned to people.

SupportThe decision met with mixed initial reactions. Several bankers likeArundhati Bhattacharya(Chairperson ofState Bank of India) andChanda Kochhar(MD & CEO ofICICI Bank) appreciated the move in the sense that it would help curb black money.Infosys founderN.R. Narayna Murthypraised the move.Finance MinisterArun Jaitleysaid that demonetisation would clean the complete economic system, increase the size of economy and revenue base

CriticismThe Indian Supreme Court while hearing one among a slew of cases filed against the sudden demonetisation decision in various courts,observed that it "appears to be carpet bombing and not surgical strike" which government repeatedly claims it to be.Nobel laureate Indian economistAmartya Sen, severely criticised the demonetisation move calling it a "despotic action" among other things.FormerSenior Vice-President and Chief Economist of the World Bank,Kaushik Basu, called it a 'major mistake' and said that the 'damage' is likely to be much greater than any possible benefits.

Facts and figuresIt has been reported that 97% of the demonetised notes are back in banks and banks have received Rs 14.97 trillion ($220 billion) as of December 30 out of the 15.4 trillion rupees that were demonetised. The return of 97% of money back in bank have a negative impact on government's move against black money.

Reasons for Demonetization IN INDIA

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.

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Percentage share of Denominations before Demonetization

IMPACT OF DEMONETIZATIONSinha's Presentation

POSITIVE IMPACT:The major decision which is made by the government will help us to eradicate black money, corruption to some extent by replacing the cash transactions in our daily activities. Also Financial Intelligence Unit will track all details of the transactions from the banks. So now it is really difficult to get rid of the black money.

The Demonetization has badly hit Maoist and Naxalites as well. The surrender rate has reached its highest since the demonetization is announced. It is said that the money these organizations have collected over the years have left with no value and it has caused them to reach to this decision.

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.

A huge fall in HUMAN trafficking. All the transaction of selling and buying used to happen through cash mainly in the form of 500 & 1000 notes but now there is no liquidity which has hit the business badly.

Hawala transactions Demonetisation has crippled the hawala rackets. Hawala is a method of transferring money without any actual money movement. Hawala is used as a means for facilitating money laundering and funding terror.

NEGATIVE IMPACT:The scarcity of cash due to demonetisation led to chaos, and most people holding old banknotes faced difficulties exchanging them due to endless lines outside banks and ATMs across India, which became a daily routine for millions of people waiting to deposit or exchange the500 and1000 banknotes since 9 November.

Several people were reported to have died from standing in queues for hours to exchange their old banknotes. By the end of the year 2016, opposition leaders claimed that over 100 people had died due to demonetisation.

The day after the demonetisation announcement,BSE SENSEXcrashed nearly 1,689 points andNIFTY 50plunged by over 541 points.By the end of the intraday trading section on 15 November 2016, theBSE SENSEXindex was lower by 565 points and theNIFTY 50index was below 8100 intraday.

AgricultureTransactions in theIndian agriculture sectorare heavily dependent on cash and were adversely affected by the demonetisation of 500 and 1,000 bank notes. Due to scarcity of the new banknotes, many farmers have insufficient cash to purchase seeds, fertilisers and pesticides.Farmers and their unions conducted protest rallies against the demonetisation.

Dumping of agricultural produceThe demonetisation led to unavailability of cash to pay for food products. The reduction in demand that arose in turn led to a crash in the prices of crops. Farmers were unable to recover even the costs of transportation from their fields to the market from the low prices offered. The prices dropped as low as 50 paise per kilo for tomatoes and onions.This forced the farmers across the country to dump their products in desperation. Some farmers dumped their produce in protest against the government.

BusinessBy the second week after demonetisation of500 and1,000 banknotes, cigarette sales across India witnessed a fall of 3040%,while E-commerce companies saw up to a 30% decline incash on delivery(COD) orders.The demand for point of sales (POS) or card swipe machines has increased.E-payment options like PayTM and, has also seen a rise.According to data of Pine Labs, the demand for its POS machines doubled after the decision..

List Of Countries That Have Tried DemonetisationNigeriaGhanaPakistanZimbabweNorth KoreaSoviet UnionAustraliaMyanmar

Various modes of Payment:

CASH :Indias 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 Indiansnearly half the countrys populationare without a bank account. Three hundred million have no government identification, necessary to open an account.

CASH (CONTD.) :

Electronic Paymentis a financial exchange that takes placeonlinebetween buyers and sellers. The content of this exchange is usually some form of digital financial instrument (such as encrypted credit card numbers,electroniccheques 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 31stDecember, 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 Modis currency reform. Barter economies have reportedly sprung up in many towns and villages.

Effect of Demonetization on Indian EconomyIt 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 20172018.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: Themarginal cost of funds based lending rate(MCLR) refers to the minimum interest rateof a bank below which it cannotlend), 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.)

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 YOUMADE BY:MAYANK(016)BPIBS(IP UNIVESITY)