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November 8, 2016 a day when the Indian Government launched a surprise attack/ Surgical
strike/ Surgery against black money in the economy. The Honble Prime Minister of India, in
an unscheduled live televised address to the nation on November 8, 2016 at 20:15 Indian
Standard Time (IST) declared circulation of all INR 500 and INR 1000 banknotes of the
Mahatma Gandhi Series as invalid with immediate effect. Issuance of new INR 500 and INR
2000 banknotes of the Mahatma Gandhi New Series in exchange for the old banknotes was
announced. With the exchange of new denomination notes of INR 2000 and not INR 1000, the
conversion of black money would be curbed. Demonetization has been done in an effort to:
stop counterfeiting of the current banknotes allegedly used for funding terrorism crack down
1.2 BACKGROUND
Similar demonetization has been done in the past. In India, it has been done: 1.In January 1946,
wherein banknotes of INR 1000 and INR 10000 were withdrawn 2.In January 1978 wherein
banknotes of INR 1000, INR 5000 and INR 10000 were demonetized. In 2012 the Central Board
not to be a solution for tackling black money or economy, which is largely held in the form of
benami properties, bullion and jewelry. Difference with respect to demonetization in 2016 with
that of earlier once obviously is the size. Previous ones barely impacted common people but this
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1.3 THE DEMONETISATION DECISION: EVENT, IMPACT, NARRATIVE AND
MEANING
The original assumptions underlying the decision remain unclear, but it seems to be causing
considerable harm. Although popular right now, demonetization may not end up being a good
bargain.
On November 8, the government announced its decision to discontinue the legal tender status of
Rs 500 and Rs 1000 notes. The original objectives were stated as: eliminating fake currency;
inflicting losses on those with black money; and disrupting terror and criminal activities. Later,
new objectives were tacked on: enabling growth in bank credit, turning India into a cashless
economy. A cost benefit analysis I conducted suggested that the benefits were relatively small
A study by the National Investigation Agency and the Indian Statistical Institute, in 2016,
estimated that fake Indian currency notes in circulation have a face value of Rs. 400 crore. This
is an incidence of fake currency of 0.022%. The scale of counterfeiting of the Indian rupee is not
out of line with what is seen in other countries, and the procedures adopted worldwide to address
this include investigative actions against counterfeiters, phased replacement of old series of notes
with new notes that have better security features, etc. Demonetisation is generally not seen as a
tool for dealing with counterfeiting. We must also not forget that the counterfeiters will now get
to work on the new 500/2000 rupee notes, while India will likely never do a demonetisation
again.
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1.5 EXPECTED IMPACT ON UNACCOUNTED WEALTH A.K.A BLACK MONEY
The analysis presented in the finance ministrys White Paper on Black Money, 2012, shows (on
page 47) that, on an average, the amount of cash seized during raids by income tax authorities is
4.88% of total undisclosed income admitted in those cases. This data is from more than 23,000
warrants executed. Even if this decision inflicted a 100% loss upon holders of unaccounted cash,
this would imply a loss of only 4.88% of their total unaccounted wealth, which is not much of a
shock for those with such wealth. If, as is more likely, the demonetisation has imposed a 40%
loss upon holders of unaccounted wealth (who suffer a 40% discount when laundering their
Cash is a store of value (white or black), but it is also a medium of exchange. Most people in
India only transact with cash. More than 90% of shops accept only cash or very short-term credit.
Large numbers of laborers and small value suppliers are paid in cash. While these facts may
change over time, they mean that this sudden ban may be leading to disruptions in consumption
and production. Compared to the 10,000 yen note ($137 in purchasing power parity), the 1000
Swiss franc note ($775), the USD 100 note, or the 500 euro ($530) note, the Rs. 1000 ($31 in
purchasing power parity) and Rs 500 ($15.5) are practical notes that are used for daily
transactions. Hence, demonetisation of these notes is a large adverse monetary shock perhaps the
largest ever such shock in world history. The constraints of ATM recalibration and currency
printing are leading to a long transition period. Even ensuring 50% re-monetization in cash form
about Rs. 7.5 lakh crore by December-end appears hard. The Centre for Monitoring of Indian
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Economy has estimated that a few elements of the first-round impact give a reduction of GDP of
around Rs 1.3 lakh crore; the total impact will be higher owing to the multiplier effect, the
hysteresis associated with the monetary shock, the impact upon expectations, etc.
While there is much talk about the GDP impact of this decision, a unique feature of this episode
is that there may considerable other costs that fall disproportionately upon the poor. The rich
have access to electronic payments, employees who will stand in queues to obtain cash, and
savings that are used to cope with a decline in income. The poor lack all these. If a poor person
suffers an income shock, or is not able to get medical treatment, the consequences are enormous
for the individual, but the GDP impact may be negligible. In terms of welfare implications, these
The benefits are primarily in the form of losses inflicted upon those with black money, while
costs are imposed on legitimate economic and social activities. Ordinary people, going about
their lives, have suddenly been asked to bear a burden associated with the project of imposing
costs upon people who have unaccounted wealth. Some of the costs are incurred by poor people,
whose welfare loss might be much more for a given level of rupee cost incurred. Given this
difference in the nature and incidence of benefits and costs, each rupee of cost should be given a
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It seems, thus, that the economic costs of this decision are likely to outweigh its economic
benefits.
Some have compared this decision with a surgical strike, but it is more like a nuclear strike. The
nuclear option has been exercised before exhausting other options. Although measures to help
people disclose their undisclosed incomes have concluded, the efforts to directly or indirectly
curb illegality have barely begun. This raises concerns about the wisdom of using this lever of
demonetization.
The mainstream media narrative around the decision is not as pessimistic as the analysis
presented above. There is a disconnect between the mainstream narrative and the facts emanating
from the ground . In this essay, I look at the discourse, analyse the arguments which are being
It is claimed that the decision is likely to have a smaller impact on the poor than what many,
The monetary shock can be, and will be, quickly overcome by the use of monetary policy
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This decision will expedite the process of making India a cashless economy, with benefits
Since the decision is popular, it must be good. This raises an interesting question: in a
democracy, can there be a better measure of goodness of a policy than its popularity?
Two ideas have been offered in the claim that the adverse impact upon the poor will be small:
Cash savings as predictors of impact on the poor: Estimates based on national surveys show
that cash earnings of the poor are small, and they usually lack cash savings. So, it is argued,
they are likely to seldom visit a bank branch or post office, and they are not particularly
inconvenienced.
Credit as a mitigant of the impact on the poor: It has been argued that since the rural economy
is significantly credit-driven, the impact on the rural poor will be small. If transacting parties
know each other, they would be willing to extend credit, which would make short-term non-
availability of cash less costly. Given the practices in rural markets, many commercial
relationships are indeed credit-driven, and cash calls are only made periodically.
Some commentators have argued that although the note ban has created a shock to the money
supply, the central bank could soon restore money supply through use of monetary policy
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instruments, such as open market operations, rate cuts, etc. It is argued that the Monetary Policy
Committee will, in some weeks, see the adverse shock to GDP, and vote in favour of large cuts in
However, it is important to keep in mind the distinction between Indias money supply in banks
and Indias money supply in cash. On 8 November, there was Rs.10.5 trillion of demand
deposits, and over Rs.96 trillion of time deposits, which are vastly greater values than the
Rs.14.2 trillion of 500/1000 rupee notes which was disrupted. The electronic money supply was
not disrupted; it was the cash money supply that was disrupted. This matters because cash is a
preferred medium of exchange (money) for most transactions. The constraint today is the
shortage of cash. To overcome the disruption, cash must be restored into the hands of people.
None of the instruments of monetary policy do that. They only enhance liquidity in the banking
system. Cash still needs to be printed and dispensed through bank and postal networks.
An additional objective has been appended: make India a cashless society. It reflects poorly on
the governments policymaking process to add such a big objective after beginning
implementation of such a momentous decision. If this was indeed an objective, much preparation
should have gone in before the decision was announced. There is no evidence of such
preparation.
Cash is expensive as a store of value it gives negative returns and is amenable to loss and theft.
Many households are forced to save in cash or other similar assets, because they do not have
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convenient and reliable access to the modern financial system. It would be beneficial for many
households and enterprises to move most of their store of value to financial instruments, but only
created.
payments cashless, but even there, the last mile problems of helping the recipients access and use
this money has yet to be solved. Several research studies show the poor quality of the last mile
For transactions involving only private parties, the case for going cashless for payments depends
on the context. It would be nice to have more cashlessness, but not in all situations, not for all
persons, and not for all purposes. Cash has many inherent advantages, and in many contexts,
cashless instruments are not superior to cash. For example, in an area with poor telecom
connectivity, cash is more convenient. People should have the freedom to choose, depending on
their context.
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CHAPTER-II: LITERATURE REVIEW
Pradhan Mantri Garib Kalyan Yojana, 2016 (PMGKY) is an amnesty scheme launched by
the Narendra Modi led Government of India in December 2016 on the lines of the Income
declaration scheme, 2016 (IDS) launched earlier in the year. A part of the Taxation Laws (Second
Amendment) Act, 2016, the scheme provides an opportunity to declare unaccounted wealth
and black money in a confidential manner and avoid prosecution after paying a fine of 50% on
the undisclosed income. An additional 25% of the undisclosed income is invested in the scheme
Valid from December 16, 2016 to March 31, 2017, the scheme can only be availed to declare
income in the form of cash or bank deposits in Indian bank accounts and not in the form of
Not declaring undisclosed income under the PMGKY will attract a fine of 77.25% if the income
is shown in tax returns. In case the income is not shown in tax returns, it will attract a further
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CHAPTER-III: METHODOLOGY
3.1 OBJECTIVE
The study was conducted with sample size of 30 students selected at convenience.
A detailed and well-structured questionnaire was presented to the students. Copies of the
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2.5.2 Secondary Data:
2.5.3 Analysis:
The data collected through questionnaires distributed to the student was analyzed and interpreted
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CHAPTER-1V: DATA ANAYSIS AND INTERPRETATION
QUESTIONNAIRE ANALYSIS:
120
100
100
90
80
60 No. of Respondents
Percentage
40
27 30
20
10
3
0
Yes No Total
Interpretation: Most of the student thinks that Black money exists in India.
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Q2) Do you think the evil of corruption and black money needs to be fought and eliminated?
Table No. 2: Corruption and Black money needs to be fought and eliminated
120
100
100 96.66
80
60 No. of Respondents
Percentage
40
29 30
20
1 3.33
0
Yes No Total
Figure No. 2: Corruption and Black money needs to be fought and eliminated
Interpretation: Most of the student thinks that the evil of corruption and Black money needs to
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Q3) Overall, what do you think about the Governments moves to tackle Black money?
120
100
100
80
60 50
40 33.33 30
No. of Respondents
15 16.66
20 10 Percentage
5
0
Interpretation: The student likes online transaction as the best Governments moves to tackle
Black money.
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Q4) what do you think of the Modi Governments efforts against corruption so far?
120
100
100
80
60
46.66
40 No. of Respondents
26.66 30
20 Percentage
20 14
8 6 6.66
2
0
00
Interpretation: Most of the Student likes Modi Governments efforts against corruption.
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Q5) What do you think of the Modi Governments move of banning old 500 & 1000 notes?
Table No. 5: Modi Governments move of banning old 500 & 1000 notes
120
100
100
80
66.67
60 No. of Respondents
Percentage
40
30
20 20
20 13.33
6 4
0
Great move in the right Total
Figure 5: Modi Governments move of banning old 500 & 1000 notes
Interpretation: Most of the student thinks great move of the Modi Governments of banning old
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Q6) Do you think demonetization will help in curbing black money, corruption & terrorism?
Table No. 6: Demonetization will help in curbing black money, corruption & terrorism
120 100
100
80 63.33
60
40 23.33 30
19 13.33
20 7 4
0
0 0
Figure 6: Demonetisation will help in curbing black money, corruption & terrorism
Interpretation: Most the student thinks Demonetisation will help in curbing black money,
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Q7). Demonetisation will bring real estate, higher education, healthcare in the common mans
reach?
Table No. 7: Demonetisation will bring real estate, higher education, healthcare in the common
mans reach
120
100
100
80
60 No. of Respondents
50 Percentage
40
30
23.34
20
20 15
6.66 7 6
2
0
Completely Agree Maybe Total
Figure 7: Demonetisation will bring real estate, higher education, healthcare in the
Interpretation: Most of student agrees that Demonetisation will bring real estate, higher
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Q8) Did you mind the inconvenience faced in our fight to curb corruption, black money,
Table No. 8:
120
100
100
80
66.66
60
40 30
20 16.66 16.67
20 No. of Respondents
5 5
Percentage
0
19
Interpretation: Student faced not at all inconvenience in the fight to curb corruption, black
Q9) Do you believe some anti-corruption activists are now actually fighting in support of black
Table No. 9: Some anti-corruption activists are now actually fighting in support of black
money, corruption & terrorism
120
100
100
83.33
80
60 No. of Respondents
Percentage
40
30
25
20 13.34
1 3.33 4
0
Yes No Cant say Total
Figure 9: Some anti-corruption activists are now actually fighting in support of black
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Interpretation: Most of the student thinks that some anti-corruption activists are now actually
Q10)Do you have any suggestions, ideas or insights you would like to share with PM Narendra
Modi?
Table No. 10: Suggestions, ideas or insights you would like to share with PM Narendra Modi
120
100
100
80 76.66
60 No. of Respondents
Percentage
40
30
23 23.34
20
7
0
Yes No Total
Figure 10: Suggestions, ideas or insights you would like to share with PM Narendra Modi
Interpretation: Most of the student wants to express their views , suggestions, ideas or insights
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CHAPTER-V: FINDINGS AND CONCLUSION
China and India are the two leading sources of international students coming to the U.S.
As at November 2016, American universities and colleges enrolled over 202,000 students
from India and 314,000 from China, according to the latest data released by the Student
and Exchange Visitor Program (SEVP), part of U.S. Immigration and Customs
Enforcement (ICE).
Any major shift in the number of students coming from these two countries can have
serious implications for international enrollment at many American institutions. With the
increase in concerns about the China slowdown, institutions have been banking on India
However, a recent change in the Government of India policy can negatively affect the
growth of Indian students going abroad. On November 8, the Prime Minster of Indian
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One of the key motivations for demonetization was to flush the black money generated
through tax evasion and corruption and take India towards a cashless economy.
However, cash was also the mechanism of short-term borrowing for many Indian
students.
Visa approval processes for international students requires showing proof of availability
of funds for the first year of tuition and living expenses. Given that total annual expenses
can range from US$ 30,000 to US$ 70,000, many Indian students were using short-term
The timing of demonetization could not have been worse for many institutions who were
February creating further time pressure as there is a lot more uncertainty about the
external environment.
Clearly, in this context demonetization is likely to affect the willingness and ability of
Indian students to study abroad, however, the impact will differ by the level of education.
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Nearly 80% of all Indian students in the U.S. enroll at the masters level. This is the
traditional segment of Indian students who seek to minimize the cost of education and
5.2 LIMITATIONS
As the project is prepared for academic purpose only, it suffers from the limitations of
time and money, due to which analytical study into all the was not possible.
The study was completed within short span of time that was available.
The report also suffers from the limitations of exhaustiveness as far as the information is
concerned.
The limitations could be mentioned in terms of data insufficiency, time & expertise
constraints etc.
5.3 SUGGESTION:
Internet services connectivity is improvised in every part of our country for better
cashless transaction by one and all for internet, mobile and other type of e-banking.
Reserve Bank be asked to make free the banks from pay-slip and cheque especially to
those who hold accounts and use thumb impression and provide them biometric cards to
deposit and withdrawal in all branches of state owned and private banks etc.
All ATMs should have both withdrawal and deposit facilities, regular and biometric
facility
5.4 CONCLUSION:
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The advantages are much dominating and it will be in the long term interest of our
QUESTIONARE
Yes
No
Q2) Do you think the evil of corruption and black money needs to be fought and eliminated?
Yes
No
Q3) Overall, what do you think about the Governments moves to tackle Black money?
Demonetization
Online transaction
Cashless
Q4) what do you think of the Modi Governments efforts against corruption so far?
Outstanding
Very good
25
Good
Ok
Useless
Q5) What do you think of the Modi Governments move of banning old 500 & 1000 notes?
Good move
Q6) Do you think demonetization will help in curbing black money, corruption & terrorism?
Minimal impact
Dont know
Q7). Demonetisation will bring real estate, higher education, healthcare in the common
Mans reach?
Completely Agree
Partially Agree
Maybe
Cant Say
Q8) Did you mind the inconvenience faced in our fight to curb corruption, black money,
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Not at all
Yes
Q9) Do you believe some anti-corruption activists are now actually fighting in support of black
Yes
No
Cant say
Q10) Do you have any suggestions, ideas or insights you would like to share with PM Narendra
Modi?
Yes
No
27
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