Demonetization–Essay Topic for SBI PO 2017


Demonetization is the act of stripping a currency unit of its status as legal tender. It occurs whenever there is a change of national currency: The current form or forms of money is pulled from circulation and retired, often to be replaced with new notes or coins. Sometimes, a country completely replaces the old currency with new currency.
All currency notes of denominations Rs. 500 and Rs. 1000 were to lose legal sanction from midnight. While currency notes of Rs. 500 are now to be re-issued, Rs. 1000 currency notes will be completely done away with. Additionally, technologically advanced currency notes of denomination Rs. 500 and Rs. 2000 will be introduced in limited numbers from November 10. However, all notes in lower denomination will remain unaffected.
The main objective of this move was to curb the black money, corruption and fake money menace. All the people but those who were indulged in malpractices welcomed the move. The whole opposition shook hand against this move under one pretence or the other. They called this decision a draconian law and wanted the govt to roll back it. Tirades were made to target the decision. Govt also carried out counter attacks.

Cash withdrawals from bank accounts were restricted to ₹10,000 per day and ₹20,000 per week per account from 10 to 13 November.This limit was increased to 24,000 per week from 14 November 2016.
A daily limit on withdrawals from ATMs was also imposed varying from ₹2,000 per day till 14 November,and 2,500 per day till 31 December.This limit was increased to ₹4,500 per day from January 1,and again to ₹10,000 from January 16, 2017. Limits placed wide the circulars cited above on cash withdrawals from Current accounts/ Cash credit accounts/ Overdraft accounts stand withdrawn with immediate effect. The limits on Savings Bank accounts will continue for the present and are under consideration for withdrawal in the near future. Limits vide the circulars cited above placed on cash withdrawals from ATMs stand withdrawn from February 1, 2017. However, banks may, at their discretion, have their own operating limits as was the case before November 8, 2016.

Impact of Demonetization on Indian Society/ Economy –
1)Black Money
Black money stored in the form of Rs 500 and Rs 1000 notes will be taken out of our system. As predicted by ICICI Securities Primary Dealership the government’s plan to scrap 500 and 1,000 notes will uncover up to 4.6 lakh crore in black money.

2)Terror funding
Fake Indian Currency Notes (FICN) network will be dismantled by the demonetisation measures.Taking out 500 and 1000 rupee notes out of circulation will have a lasting impact on the syndicates producing FICN’s, thus affecting the funding of terror networks in Jammu and Kashmir, North-eastern states and Naxalite hit states.

3)Real estate may see significant course correction
The real estate sector is likely to see a significant negative impact in the medium- to long-term, particularly in the repurchase market. There are expectations of a revaluation of current real estate transactions across the board representing possible losses to players in the sector. Resale transactions in the real estate sector often have a significant cash component as it reduces incidence of capital gains tax.Black money was responsible for sharp appreciation of properties in metros; real estate prices may now see a sharp drop.

4)Political parties in crisis ahead of polls
With nearly five state elections in 2017, demonetization has stunned political parties.Especially, in large states like Punjab and Uttar Pradesh, cash donations are a huge part of “election management”.In one stroke, big parties will find themselves hamstrung as cash hoards are often undeclared money.Parties will have to completely rejig campaign strategies in light of expected cash crunch.

5)Moving towards digital payments
Demonetization will likely result in people adopting virtual wallets such as Paytm, Ola Money etc.: This behavioural change could be a game changer for India.

Global analysts cut their forecasts of India’s GDP growth rate due to demonetisation. India’s GDP in 2016 is estimated to be US$2.25 trillion, hence, each 1 per cent reduction in growth rate represents a shortfall of US$22.5 billion (Rs. 1.54 lakh crores) for the Indian economy.According to Society General, India’s quarterly GDP growth rates would drop below 7% for an entire year at a stretch for the first time since June 2011.

Demonetization step of central government will surely result into something good and help in reducing the black money. It will surely bring the clear view of every transaction within the country and promote cashless transactions. This step will affect general people to some extent but for the benefit of future generation such decisions are inevitable. We should welcome such brave step of Indian government which will curb black money to some extent.

  • Tathagat Ghosh

    too much statistics, seems like a thesis ! should have kept it more general ..