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Big Supreme Court Verdict On Centre's Note Ban Decision | Demonetisation | Aj Ias Academy Indore
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Causes and impact of demonetization in India
भारत में नोटबंदी के कारण और प्रभाव

Lesson Plan
Why is it in the news?
What section 26 B RBI act says ?
What is demonetization?
Causes for demonetization in India
Impact of demonetization
Conclusion

Why is it in the news?
SC on 2nd January 2023, approved demonetization resorted by Central Government by 4-1
It said that whether the objective was fulfilled or not, it does not matter now because we can only enquire into the legal issues involved in demonetization.
We can not inquire into the economic impact of demonetization
The dissenting justice Nagratna said that the RBI acted according to the wishes of the central government.
Neither it gave opinion not it recommended for demonetization
Inspite of no recommendation by RBI, demonetization was resorted to by central government

What section 26 B RBI act says ?
On recommendation of central board the central government may declare that any series of bank notes of any denomination shall cease to be legal tender
In the demonetization case of 2016, there was no such recommendation by RBI to central government

What is demonetization?
It is used to stabilise currency and fight inflation
To facilitate trade and access to market
Push informal economic activities into more transparency and away from black markets
It is a drastic intervention into the economy by the government involving removal of the legal tender of a certain category of currency.

Causes for demonetization in India
PM declared that the purpose of demonetization of Rs.500 and Rs.1000 banknotes was to curtail the black money, increase cashless transactions, reduce the use of illicit and counterfeit cash to fund illegal activities and terrorism
Thus government withdrew 86% of its banknotes from market

Impact of demonetization
Thousands of deaths on account of lengthy queues for getting money from ATM
Failed to curb black money
At the time of demonetization 15.41 Trillion rupees banknotes were in circulation
After demonetization 15.3 trillion rupees banknotes came back to banks. This means that 99.3% banknotes came back to bank. It meant that the efforts had failed to remove black money from the economy
1.5 million jobs were lost
The move reduced the country’s industrial production and its GDP growth rate
But the digital and cashless transaction increased throughout India
Demonetization adversely affected transactions in the agriculture sector
Due to scarcity of new banknotes many farmers had insufficient cash to purchase seeds,fertilisers and pesticides needed for the plantation of ruby crops
Farmers and their union conducted protest rallies in Gujarat, Amritsar, and Muzaffar nagar
Shortage of cash led to a crash in the prices of crops
Some farmers dumped their produce in protest against the government
Demonetization resulted in the relative erosion of agricultural wages and the weak bargaining power of farmer for their produce
Demonetization caused loss of jobs and decline in wages in unorganised sector
Migrant workers were adversely affected
Before demonetization the RBI had spent 34.21 billion rupees to print bank notes in 2015-16. The cost of printing new banknotes rose to 79.65 billion rupees in 2016-17 and 49.12 billion rs in 2017-18
This resulted in the decline of dividend paid to the government from 658.76 billion Rs in 2015-16 to 306.59 billion rs in 2016-17 and 500 billion rupees in 2017-18
Demonetization impacted negatively the midday meal scheme
However, BJP government came to power in UP, Uttarakhand, Goa, Manipur, after demonetization

Conclusion
Although demonetization caused severe problem to poor but digitalization of the economy increased
People by and large supported the demonetization policy of the government of India by voting BJP into power in UP by more than 2/3rd majority
But unorganised sectors could not cope up with demonetization and so majority of them were shut down leading to acute unemployment in our country