EXECUTIVE SUMMARY

The government of India on 8th November 2016 announced demonetization of

existing INR500 and INR1, 000 currency notes. Scope and magnitude as these high-value

notes from around 86% of the total currency needless to say, it is bound to have significant

implications on various sectors and the economy as a whole even as long term implications

are positive over past few days

The reason for this move was finance claimed that 500 and 1,000 rupee notes are

being used to finance terrorism, fund illegal drug sales, fuel the black market, drive

counterfeiting, and pay bribes. Demonetization can be said as a 'surgical strike on black

money

The demonetization effects on Indian economy the sectors like agriculture sector,

manufacturing sector, service sector. Demonctization has impacted on FMCG sector

consumption and demand, and it is likely to persist for a few months until supply of new

currency notes normalises. While it may be a tad early to conclusively deduce changes in

consumer patterns, volume forecasts for Q3FY17 and Q4FY17 are likely to be pruned. While

the move is negative in the short term, demonetisation coupled with GST will lead to shif

from unorganised to organised segment, which will yield long-term benefits for FMCG and

retail companies.

Afer demonetization India moving to less cash economy .cash-less economy, but for

the development and making transparency in the economy I can say use of less cash is

possible. So for making people familiar with E-Payment and use of plastic currency.

INTRODUCTİONOFF AST MOVING CONSUMABLE GOODS

Indian PMCG sector is the fourth largest sector in the economy and creates
ployment for more than three million people in downstream activities. Its principal

constitucnts are households care personal care and food and beverage. The total FMC

market is in excess of Rs85000 crores. It is currently growing at double digit growth rate and

s expected to maintain a high growth rate.

Fast moving consumer goods [FMCG]- alternatively known as consumer packaged

goods(CPG) are products that are sold quickly and generally consumed at a regular basis. As

opposed to durable goods such as kitchen appliances that are replaced over a period of ycar.

The FMCG industry primarily engages in the production. Distribution and marketing

operations of CPG.FMCG product categories comprise of food and dairy products

pharmaccuticals. Consumer electronics, packaged food products, houschold's products

, some common FMCG include coffee, tea, detergents, tobacco

drinks and others. Meanwhile

and cigarcttes soaps and others. The big names in this sector includc Sara lee, Nestle, Reckitt

Benckiser, Unilevered, Procter and Gamble, Coca-Cola, Carlsberg, Kleenex, general mills,

Pepsi, mars and others

n recent years the fast moving consumer goods sector in witnessing increased use of

sales promotion activities all over the world. This sector is characterized by products having

low unit value and requiring frequent purchases and consumer behaviour reflecting less

loyalty. Impulse buying and low involvement on the part of consumer products which have

over and relatively low cost are known as fast moving consumer goods. FMCG

products are those that get replaced within a year. Examples of FMCG generally include a

toiletries, soap, cosmetics,

tooth cleaning products, and detergents as well as other non-durables such as glassware,

bulbs, batteries, paper products, and plastic goods. FMCG may also include pharmaceuticals

wide range of frequently purchased consumer products such as

consumer electronics, packaged food products, sof drinks, tissue paper, and chocolate ba

The fast-moving consumer goods (FMCG) sector is an important contributor to

india's GDP. It is the fourth largest sector of the Indian cconomy. The FMCG market is

estimated to treble from its current figure in the coming decade. Penetration levels as weill as

per capital consumption of most product cafegories like jams, toothpaste, skin care and hair

sh in india are low indicating the untapped market potential. The growing India population

particularly, the middle class and the Fural market with its vast size and demand base offer a

huge opportunity. For investment, rural India's middle class and 58 percent of the total

disposable

NEED OF THE STUDY

. The fast moving consumer goods (FMCG) sector is an important contributor to

India's GDP

FMCG constitute a large part of consumer's budget in all countries.

This study is aimed at to shed light on competitive conditions on competitive

conditions prevailing in the FMCG retail trade sector.

. This study also focused on the analysis of competitive within the sector and draws

lessons for competition policy

. FMCG industry is characterized by a well established distribution network. Low

penetration levels, low operating cost, lower per capital consumption and intense

competition between the organized and unorganizcd segments

An FMCG sector creates employment for more than three million people.

Indian buyers were a bit conservative partly due to lesser dissert disposable income

and partly due to fewer competitive and more variety of products.

Food inflation could restrict consumers demand and pricing flexibility for FMCG
while lowering consumer's purchasing power that diverts purchases away from

ccrtain FMCG

SCOPE OF THE STUDY

The Indian FMCG industry witnessed significant changes through 1990s by the turn of 20th

century. Indian FMCG industries have changed significantly with the liberalization and

growth of economy. The back bone of the sector are the operations and supply chain

management jobs. Sales executives and store managers to merchandise planners and buyers,

conceptual understanding, analytical skills, detail-orientation fair understanding of

customer's, psychology, observations skills, project management operational skills, in-depth

product knowledge. The realization of the customer's growing interests and need to meet

changing lifestyle required the FMCG producing companies to formulate customer centric

strategies

OBJECTIVE OF THE STUDY

To study the process of FMCG sector.

To analyze the impact of demonetization on FMCG sector.

To analyze the future impact of demonetization on FMCG estimated revenue.

To analyze the demerits and benefits of demonetization.

LIMITATIONS OF THE STUDY

Time acts as major constraint for in depth study.

Since the study is of financial in nature the data collected for the study may be having

some biases.

The study is limited to selected FMCG sectors.

The study based on current year data.

RESEARCH METHODOLOGY

Research methodology is a way to systemati

various steps that are generally adopted by rescarch in studying research problem along with

the logic behind

techniques but also the methodology

cally solve research problem. In it we study

them. It is necessary for a research to know not the research methods

techniques but also the methodology.

SOURCES OF DATA

Secondary data the secondary data collected from fmcg sector companies records journals book and
websites, where by data may be used by research for their studie

LITERATURE REVIEW ON DEMONETİZATİON

INTRODUCTION

Demonctisation is a radical monetary step in which a currency unit's status as a legal

r is declared invalid. This is usually done whenever there is a change of national

currency, replacing the old unit with a new one. Such a step, for example, was taken when the

Monetary Union nations decided to adopt Euro as their currency. However, the old

cies were allowed to convert into Euros for a period of time in order to ensure a smooth

nsition through demonetisation. Zimbabwe, Fiji, Singapore and Philippines were other

de

European

curren

countries to have opted for currency demonetisation.

In India's case, the move has been taken to curb the mcnace of black money and fak
notes by reducing the amount of cash available in the system. It is also interesting to note t

this was not the first time the Government of India has gone for the demonetisation of hi

gh

currency. It was first implemented in 1946 when the Rcserve Bank of India

d Rs 1,000 and Rs 10,000 notes. The government then

introduced higher denomination banknotes in Rs 1000, Rs 5000 and Rs 10000 in a fresh

avatar eight years later in 1954 before the Morarji Desai government demonetised these notes

demonetised the then circulate

in 1978

In 2016, the Indian government decided to demonetize the 500- and 1000- rupee

notes, the two biggest denomination notes. These notes accounted for 86% of the country's

cash supply. The government's goal was to cradicate counterfeit currency, fight tax evasion,

eliminate black money gotten from money laundering and terrorist financing activities, and

promote a cashless economy. By making the larger denomination notes worthless, individuals

and entities with huge sums of black money gotten from parallel cash systems were forced to

convert the money at a bank which is by law required to acquire tax information from the

entity. If the entity could not provide proof of making any tax payments on the cash, a tax

penalty of 200% of the tax owed was imposed

In 2015, the Zimbabwean government demonctized the Zimbabwean dollar as a way

to combat the country's hyperinflation that was recorded at 231,000,000%. The 3-month

process involved expunging the Zimbabwean dollar from the country's financial system and

solidifying the US dollar, Botswana pula, and South African rand as the country's legal

tender in a bid to stabilize the economy

Another example of demonetization occurred when the nations of the Europcan

hetary Union adopted the euro in 2002. In order to switch to the euro, authorities first
fixed exchange rates for the varied national currencies into Euros. When the euro was

introduced, the old national currencies were demonetized. However, the old currencies

remained

MEANING OF DEMONETIZATION

Demonetization is 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

Thc opposite of Demonctization is remonetisation where a form of payment is

as legal tender. There are multiple reasons why nations demonctize their local units

Some reasons include combating inflation, to combat corruption, and to

restored

of currency.

discourage a cash system. The process of demonetization involves either introducing new

notes or coins of the same currency or completcly replacing the old currency

currency.

with new

on. Gold was

netization in this way when it ceased to be used as an every currency. Demonetization is

rrency units status as a legal tender is declared invalid.

rrency. Replacing the old unit

It is a process of removing a currency from general usage or circulati

a radical monetary step in which a cu

This is usually done whenever there is a charge of national cu

of currency with a new one

By: Trisha Ray, Columnist

On November 8, 2016, Indian Prime Minister Narendra Modi unexpectedly announced that

currency notes would no longer be legal tender, effective midnight.[il This

M The lack of

anied this policy is in many ways

of the Modi administration's modus operandi and while it may be considered a

declaration made valueless 86% of the currency in circulation at the time.[

transparency, forethought and planning that accomp

symptomatic

ster stroke by some, it does not erase the problems of terror financing and undeclared

wealth that it seeks to fix.

Lokendra Singh Chouhan

4 months ago

ecent

demonetization has shaken the whole Indian economy. Demonetization is going to

lea

ve its impact for short and long term on parallel and main economy as summarized belo

Parallel Economy:

# Parallel economy is mainly based on cash a transaction that's why has hit hard by recent

demonetization

* Some money of parallel economy is going to come in formal economy and will work as a

boost for main economy.

* Finance of terror and other unsocial organization have destroyed overnigh

sudden invalidation of cash.

It will be hard time further for parallel economy to sustain with limited cash availability
Main Economy:

ver main economy has also affected by lack of cash and it will result in deflation.

*Money coming from informal cconomy

which further decrease interest rate and help for banks to handlc their NPA

*Reduced interest rate will boost investment.

* Land prices will fall and people will be able to afford houses

* GST will effective from next year and combination of GST and demonetization will

increase the growth rate of Indian economy.

to formal economy will incrcase liquidity for banks

Cashless transaction will increases in upcoming time and it make ready

india to go for fully

beneficial step for main economy and will be helpful to

cashless country. Demonetization is

curb the corruption and black money.

New

fully recover from the hit taken post-demonetisation by the end of this fiscal, Godrej

Consumer Products Ltd (GCPL) MD Vivek Gambhir said on Wednesday."We are pleasantly

surprised by how things are recovering. Our expectation is that in 4-6 weeks the FMCo

Delhi, Dec 28 (IANS) The fast-moving consumer goods (FMCG) sector is expected to

industry should get back to full normalcy. By end of fourth quarter there will be full

recovery," Gambir said in an interview with BTVi."As lot of us saw that post the

announcement of demonetisation, few weeks afer November 8 were very bad. But pace of

normalcy was positive in December. Things are trending in right direction," he added. In

December the company postponed spending, but intends to increase it in Q4 to back all its

products, Gambhir said. The biggest slowdown has been in the rural sector. On back of good
monsoon, there was hope of rural demand picking up, which got derailed due to

demonetisation. But our hope is that it will soon pick up," he added. As a positive effect of

demonetisation, there is a move towards formal economy and organised national players

Regional players, who are not organised, will find it increasingly challenged.

And with Goods and Services Tax (GST) it will become more difficult for them to evade

indirect tax, " he added. Generally across the board, when consumers are constrained for cash

it affects t

see benefits sooner," Gambir said. He said that though the modern trade has done well post

demonetisation b

South and west India have been more resilient, but impact is m

wholesale-driven and driven by cash, he said. "But for wholcsale as well the expectation is

that things should return to normal in 4-6 wecks. For us 40 per cent dependency is on the

wholesalers," hc added. On GST, he said that though the April 1, 2017, deadline secms

difficult at this stage, hopes are there that it will get passed by Septcmber 16 next year. The

Government's recent demonetization move has definitely impacted the India retail industry in

the short term due to lack of liquidity in the economy

he demand. "But pick-up in demand starts positive impact. Our hope is that we will

ut it cannot compensate for the wholesaler channel that thrives on cash

ore on eastern India, that is

As Ruchir Sharma: chief global strategist and of emerging markets at Morgan

Stanley writes scrapping large bills may destroy some hidden wealth today. But the black

economy will start regenerating itself tomorrow in the absence of a country's per capital

income. Only as a nation gets less poor do corruption. Black moncy and the role of cash

decline, There is no shortcut.

As ramesh thakur reports for the Japan times. "Only 5 percent of Indian workers pay
income tax. Just 15% of the economy is inside the tax net and India's TAX-TO-GDP ratio at

17% is 5 points lower than comparable countries.

As the new York times explains plenty of Indians do use cash transactions to hide

her wealth and avoid taxes less than 3% of the population pays income taxes and the

authorities occasionally arrest business people or corrupt officials with currency hoards that

can fill trucks but plenty more people use cash because of habit poverty or a lack of eas

access to banks

VIEW: TEN WAYS TO SAVE DEMONETISATION AND STOP THE ECONOMY

FROM CHOKING

By Gurcharan das: 27 Nov 2016

Afer almost three weeks of demonetization, there is visible pain in the lives of

ordinary people, a noticeable slowdown in economic activity, and reports of job losses in

many sectors. The economy may contract by as much as two quartcrs-a colossal loss in

national wealth. However, there can be no rollback. The gains from a cleaner, whiter

economy are far bigger in the long run. Here's how Narendra modi can save demonetisation

Speed is of essenee:

don't depend only on our own printing press to replenish of

notes

· Speed is of essence

fricndly governments whose security levels are unimpeachable. Fly in the new

and

flood the system. The priority is to restorc liquidity in the market so people can

get on with their lives

Extend the income disclosure scheme: truc, the last amnesty scheme was only a

modest success, but afer the stick recently wielded by Modi, a little carrot might

work better now. Demonetization has given risc to new currency brokers who are

converting the old notes at 30 to 40% discount. Since government is threatening more

action against black moncy such as scrutiny of benami land titles, pecople will be more

inclined to convert their black to white via an amnesty scheme-say at a 50% tax rate

rather than the 60% it is considering-rather than convert old black money to new

black money via a broker.

Put black to use: offer a significant fiscal stimulus to the economy from the nites not

likely to be exchanged, black money that will disappear forever. Spending this non

inflationary money-an estimated Rs 3 lakh crore-on infrastructure and housing can

create masses of jobs and mitigate some of the jobs lost in demonetisation

Focus on real estate: demonetisation will not stop the corruption that creates black

money. For this you have to attack its underlying sources. In real cstate, every step is

mired in corruption-from buying land to getting approvals. Black money is also the

result of excessive stamp duty

Roll back the customs duty on gold: stnugeling of gold declined in India when

import restrictions were lifed afer 1991. A decent white business developed in gold

and jewellery. In 2013, there was a seiback when customs duty on gold was

reintroduced. Cash payments became common again beccause smuggled gold was

cheaper.

Reform the silly curbs on legitimate election donations to candidates: this has led

to the use of black money in elections. 1 do not favour state funding, where my hard-

earned taxes would finance candidates and family dynasties i despise. Instcad we

should follow the best practices in the US and Europe in funding elections.
e

. Reform the bureaucracy: black money is generated because of administrative

discretion. A good place to begin reform is to implement justice srikrishna's draf

Indian financial code.

Do not attempt to end black money: pcople should not break the law but we should

overlook small transgressions, just like we ignore pedestrians who cross on a red

light. Cash lubricates the system and a cashless socicty is the road to dictatorship.

Don't touch the aam aadmi's tender: finally, the next time you want to demonetisc,

flood the market first with 5,000 and 10,000-rupee notes; once the black money has

moved up to these higher notes, demonetise only the Rs 5,000 and Rs 10,000 notes

HISTORY OF İNDIAN CURRENCY DEMONETİSATION

INTRODUCTION

The Indian rupee (INR) is the olficial currency of the Republie of India. The rupce is

subdivided into 100 paise (singular paise), though as of 2011 only 50 paise coins are tender

ance of the currency is controlled by the India. The Reserve Bank manages currency

n currency management on the basis of the Reserve Bank of

India Act, 1934. The rupee is named afer the silver coin, rupiya, first issued by Sultan Sher

Shah Suri in the 16th century and later continued by the Mughal Empire In 2010, a nevw

symbol, Was officially adopted. It was derived from the combination of

the Devanagari consonant "" (ra) and the Latin capital letter "R" without its vertical bar

(similar to the R rotunda). The parallel lines at the top (with white spacc between them) are

said to make an allusion to the tricolour Indian flag,[6] and also depict an equality sign that

bolizes the nation's desire to reduce economic disparity. The first series of coins with the

in India and derives its role i

new rupee symbol started in circulation on 8 July 201

PARCENTAGE SHARE OF INR BEFORE DEMONETIZATİON

INR INR INR

10 20

1%

INR

50

1%

0%

2%

NR

100

INR

1000

39

10

20

50

100

500

1000

İNR

48%

HISTORY AND BACKGROUND

sudden move to demonetize Rs 500 and Rs 1,000 currency notes is not new. Rs

The

1.000

in 1978

and higher denomination notes were first demonetized in January 1946 and again

. The highest denomination note ever printed by the Reserve Bank of India was the Rs

10,000 note in 1938 and again in 1954. But these notes were demonetized in January

1946 and again in January 1978, according to RBI data

RBI Rs.10000 Note in, 1938

RBI Rs. 10000 Note in, 1954

Rs 1,000 and Rs 10,000 bank notes were in circulation prior to January 1946. Higher

denomination banknotes of Rs 1,000, Rs 5,000 and Rs 10,000 were reintroduced in

1954 and al of them were demonetized in January

RBI, Rs 1000 Note in 1954

RBI Rs, 5000 Note in 1954

The Rs 1,000 note made a comeback in November 2000. Rs 500 note came into

circulation in October 1987. The move was then justified as attempt to contain volume of

money circulation due to inflation

100

τη 電醡贰

RBI Rs. 1000 Note in Year 2000

RBI Rs. 500 Note in Year 1887

wever, this is the first time that Rs 2,000 currency note is being introduced.

. While announcing curremty circulated Rs 500 and Rs 1000 notes as invalid from

. Whi
. 2,000

midnight 8 Nov, Prime Minister Narendra Modi said new Rs 500 note and a Rs

denomination banknote will be introduced from November 10

Bank notes in Ashoka Pillar watermark series in Rs 10 denomination were issued

between 1967 and 1992, Rs 20 in 1972 and 1975, Rs 50 in 1975 and 1981 and Rs 100

between 1967-1979.

The banknotes issued during this period contained the symbols representing science and

technology, progress and orientation to Indian art forms.

in the year 1980, the legend Satyameva Jayate "truth alone shall prevail

incorporated under the national emblem for the first time

In October 1987, Rs 500 banknote was introduced with the portrait of Mahatma Gandhi

and Ashoka Pillar watermark. Mahatma Gandhi (MG) series banknotes 1996 were

issued in the denominations of Rs 5, (introduced 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).

was

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 contained some additional/new

security features as compared to the 1996 MG series.

Rs 1,000 denominations in October 2005 and Rs 10 and Rs 20 in April 2006 and August

2006, respectively

" In a major step to check undeclared black money, the Government of India on the &

November 2016 announced demonetization of Rs 500 and Rs1000 banknotes with effect
from the same day's midnight, making these notes invalid. Apart from combating black

money, the stated purpose is also to check fake currency (used to finance terrorism)

and corruption. A new redesigned series of Rs500 banknote, in addition to a new

denomination of Rs 2000 banknote is in circulation since 10 November 2016.The new

redesigned series is also expected to be introduced to the banknote denominations

of Rs1000,Rs100 and Rs50 in the coming month.

NEW NOTESOF INDIA

RBI issued Rs 2000 Note in 10Nov,2016

RBI Issued Rs 500 Note in 10Nov, 2016

HISTORY OF DEMONETIZATION IN THE WORLD

1) Ghana

SHAA

In 1982, Ghana rolled out the decision to demonetise their 50 cedi currency notes in

order to monitor money laundering and corruption. The change was not welcomed

warmly, creating chaos across the country and finally resulted in a move back to

physical

assets

foreign

an

currency

2) Nigeria

Nigeria's economy collapsed afer the 1984 demonetisation move that did not go as

planned. The military government of then President Muhammad Buhari introduced

different coloured notes to invalidate their old currency in order to fight black money

3) Myanmar
Around 80% of Myanmar's currency was demonetised in 1987 by the military to curb

black money, but the move resulted in a lot of protests and the country witnessed

several killings

4) Soviet Union

Under the governance of Mikhail Gorbachev in 1991, the then Soviet Uniorn

demonetised the higher denominations of rubble bill, the 50s and 100s. The move did

not go well and resulted in takeover of Mikhail's leadership within eight months of

the plan

5) North Korea

096017

처뭔

North Korea faced demonetisation of their currency in 2010, which led to major

economy breakdown with people lef to starve for basics.

6) Zimbabwe

RESERVE BANK OF ZIMBABWE 0 00 08000 000

ONE HUNBRED

DOLLARS

A 43905431

Zimbabwe once had hundred trillion dollar note, which was demonetised and was

exchanged in a mocking way dropping trillion dollars to $0.5 dollars.

DVANTAGES OF DEMON ETI ZATION

Unearthed of cash which is not in circulation and locked within few hands?

Common man also can afford to buy the immovable assets

, Curb of black money and fake notes

.Protection from the illegal activitics

, Increase the transparency in earnings which may favourable impact on the revenue of

govt. in terms of taxes

Increase the subscribers under the upcoming tax regime (GST).

Reduction of Intercst rates may be the favourable move in start-ups and making India

. Increase the job opportunities in future.

, Ease of recovery of long term dues in public sector and banking Sector from public.

. India is developing as best investment destination with the view of ease of doing

business, reliability and strong govt. administration system.

Increase the transactions in digital system.

LONG TERM GOAL OF DEMONETIZATION

People are still missing the wood for the trees and are concentrating on short term effects like

long queues at banks and ATMs thanks to the Indian government's recent #Demonetization

initiative where old Rs 1000 and Rs 500 notes were phased out. This latest move merely

happens to be part of a larger grand plan that was put into effect when Narendra Modi

became Prime Minister Way back in 2014. Here's looking at 10 long-term

Demonetization...

1. Surgical Strike on the parallel black economy: This is the most obvious one. India has a

huge parallel black economy which the governnent can't tax and which forms an island awa

from the main economy. Nobody knows the exact figure but it has been estimated to be in the

range tens of thousands of crores of Rupces in the past to lakhs of crores today. You can be

sure

that a good chunk of this will come into the main economy. It is a Herculean task to
merge the two streams of white and black money and a great beginning has already taken

place.

make the corrupt lose their money: You may have heard of so many scams in the past

ranging from Bofors to the one lakh crore plus 2G and Coalgate. A simple question. How

much of bribe money has been recovered? Miniscule one must say. Well this is for the f

time that the corrupt are losing their money in large numbers. Huge sacks of money are being

burnt, thrown or caught. Some of it is also percolating down as commission for the poor who

are converting the old money into new, so it's an unexpected benefit for them too. You may

remember that earlier also the recent tax amnesty scheme yielded tens of thousands of crore

Rupees. The hoarders of black money will always be wary in the future

ITm

3. Get everyone to have a bank account: The bank scheme for the poor under the UPA was

a quict affair but it really picked up under Modi's Pradhan Mantri Jan Dhan Yojana. This is

other push towards that direction. Money deposited afer #Demonetization has been

phenomenal. Moreover if you had your own bank account, you could withdraw Rs 24,000 in

one stroke in relatively shorter queues. Those without a bank account rcally had to struggle to

convert their old cash. This is another scheme that pushes more and more Indian citizens into

the banking system and this is exactly what the government wants

4. Get every citizen in India to be monitored online: A cashless economy is not just

convenient for citizens, but also for the government to monitor. The government wants each

and every transaction in India to be online so it can be casily tracked and taxed. Credit card

and net banking usage is up; debit card transactions have soared while PAYTM has struck a

virtual goldmine. This is a huge step forward in India becoming a cashless economy. Some

may complain that Big Brother is watching, but like it or not, this is the future. Expect many

more Modi schemes which will push ordinary citizens online. Of course all this will be
rendered ineffective if we don't become a Broadband Nation soon

es: The Rs 500 notes came out in 1997 and the Rs 1000 one

ecking of counterfeit not

in 2000. Afer 9/11 Pakistan entered into a new partnership with America and they looked the

other way as our arch nemesis set up a grand counterfeiting operation. However now fake

notes have been removed from the system and new counterfeits will be difficult. Pakistan is

5. Ch

ing US President Donald Trump is not that favourable towards

Paki

akistan and they won't be able to operate with impunity,. Moreover the new notes are much

more difficult to counter

feit. It was none other than Babasaheb Ambedkar, the father of the

s economy afer Independence, who said that notes should be changed every 10 years

6. Crackdo

Naxalism

Ind

down on terrorism and Naxalism: It is an open secret that both terrorism and

ism run on counterfeit a

notes coupled with black money. They bave been severely hit

their funds have dried up. They are currently down and now is the chance to land a decisive

and finish off these menaces once and for al

blow

7. Change the mindset of everyone: Since Independence, we have led a fatalistic "chalta

hai" policy. Corruption can't go. The black money cconomy can't be hit. And so on. That

hanged overnight. Now the citizens of India know that Modi is serious and any other
governments too can crack down if they really want to. More and more people will choose to

come onto the white money stream to play it safe

8. Keep everyone on their toes: Modi has been coming out with a slew of schemes afer he

became Prime Minister and this one was a Surgical Strike. What next? Already there is a

buzz that the real estate industry will be targeted. People are also guessing that the Rs 2000

note itself may be demonctized in the future. Then there was the rumour of the high value

note having GPS tracking. That's not possible because the bank note doesn't have a power

source. However technology is there for notes to be RFID. RFID technology can be

embcdded into a currency note. That mcans that if you have a stack of high value notes, the

can be detected with an RFID reader. The long range ones can do so at a distance of 100

mctres. So the tax man can stand outside your home and detect your notes! However all this

is very expensive and may lead to privacy issucs and misusc and hence seems unlikely, but

you never can predict the future!

9. Boost the economy: For one a good amount of black money will make its way into the

white economy and that will only boost the latter. Then with people burning their notes and

counterfeit ones being taken out of the system, the value of the Rupee will become stronger.

The more the notes there are in the market, the higher the inflation. If bad notes are taken out

of the market, priccs will fall and the Rupee's buying power will marginally increase. The

online industry has also received a huge boost.

10. Crack down on black political campaigning: it is an open secret that most of the

political parties use black money for election campaigning all over India. It has been very

difficult to crack down. In fact in some areas, political parties openly distribute Rs 500 and

Rs 100

0 notes. Well the timing of the current #Demonetization couldn't be more perfect.

There are upcoming elections in Uttar Pradesh, Punjab, Goa and many other States go to the polls
in 2017. Black money election funding will be severely hit in these States and parties

be forced to raise white money and use their white money reserves. This will be a good

beginning and all Modi has to do is introduce a Bill to regulate campaign spending afer that

TAGESOF DEMON ETİZATİON:

are encountering with the loss due to limited cash circulation

Business

money holders arc searching the alternative ways for come out of the situation.

Overwhelming move in notes. H

expectation

Unfavourable impact on GDP growth

High scarcity of money change.

owever implementation is not in par with the

THE PROBABLE COSEQUENCESOFTHEDE MONETİSATION

TAX: having closed the voluntary disclosure window for undisclosed money, it has been

ould mean increased tax net, higher tax collection and a better tax to GDP ratio. Philips

around 24-30% of GDP. As the money gets accounted and more taxes are collected

orted that government will keep a close watch on deposits over Rs 2 lakh in cash. This

rep

tal in a report says that the extent of parallel economy, which was 23.2% of GDP, is now

government might be tempted to reduce tax rates going forward

of the biggest impacts of demonetization would be high value

ctions, especially land and gold. This would result in lower inflation, tempting the
INTEREST RATES: One

transa

central bank to reduce interest rates. But the bigger impact on interest rates will be the

liquidity with which banks will be flushed. Banks would benefit with higher CASA (current

account savings account) growth as a part of the S 190 billion cash pile gets deposited with

them. Higher deposit growth and continuing weak credit growth would create opportunities

for lending rate cuts and investment activities to pick-up.

LIQUIDITY: movement of goods and money will be hit in the short. A Bank of America

Merrill Lynch note says that wholesale channel forms over 40% of sales for the Indian

consumer firms. This could disrupt the supply chain and impact growth in the December

the

quarter. T

he report further adds that consumer firms typically provide tight credit terms to

l tightening of the cash-liquidity in the supply chain, consumer firms may be forced

r easier credit terms to the distributors in the near term. As a result we expect a

tors, who in turn provide credit to the wholesalers/ outlets on their own accounts

lo overal

to offer

increase in their

eir receivable in the December quarter.