What do you think about Demonetization ?

In an address to the nation on November 8, India’s prime minister, Narendra Modi, declared that the two highest denomination currency notes—the 500 rupee note and the 1,000 rupee note—won’t remain legal tender.

Demonetisation is acting as an effective countermeasure against such activities. Now all such activities are expected to get reduced for some time.

The notes were demonetized at midnight on November 8. The move aimed to curb black money in the financial system. Black money is one of the factors holding back the economy.

The demonetization was a surprise. Since the announcement, the media discussed the pros and cons for consumers and the banking system HDB IBN.

Demonetisation has both advantages and disadvantages. Demonetisation alone cannot fight parallel economy and eliminate black money. Several other supportive measures are required by the government to change the economy for good

According to the RBI’s (Reserve Bank of India) Annual Report for April 2015 to March 2016, the value of the currency notes at the end of March 2016 was 16.42 trillion Indian rupees. The 500 rupee and 1,000 rupee currency notes formed 86.4% of the value. In one stroke, the government removed 86.4% of the currency in circulation by value.

In terms of volume, the currency notes of these two denominations formed 24.4% of a total 90.27 billion pieces.

Also, RBI data showed that as of March 2016, 632,926 currency notes were counterfeit—known as an FICN (Fake Indian Currency Note).

A taxpayer who has not opted for the PMGKY scheme but offers his black money in his Income Tax Return will have to pay tax and penalty at the rate of 77.25 percent. But those who do not file the return under the scheme and are caught later with undisclosed income in any scrutiny assessment will have to pay 83.25 percent of the undisclosed income as tax and penalty.

As a proportion of NIC (Notes in Circulation), the 1,000 rupee and 500 rupee notes were the highest. Nullifying these FICNs was also part of the demonetization move.

Let’s start by looking at the broad impact that the demonetization had on the Indian economy.

The demonetization of the 500 rupee note and the 1,000 rupee note—the two highest currency denominations available in India—will likely hit the economy hard in the short term.

The surprise move is expected to grind the consumption activity in the Indian economy to a virtual halt. The service sector, which dominates economic activity and involves a sizable chunk of cash transactions, will likely be hit the hardest.