Demonetization In India, it refers to the Indian government's decision to invalidate ₹500 and
AIMS
1. To tackle black money in the economy.
2. To lower the cash circulation in the country which "is directly related to corruption in our country, "
according to PM Modi.
3. To eliminate fake currency and dodgy funds which have been used by terror groups to fund
terrorism in India.
OUTCOMES (+ve)
Black Money Recovery
Curbed Terrorism and Anti-National Activities
Increase in Tax-filers
Paved Way for Digital Transactions
OUTCOMES (-ve)
TANISHQ
Introduction to NEP, 1991
Globalisation
Effect of Globalisation in India
Advantages of Globalisation in India
Globalisation of Trade
Globalisation of Industry
Globalisation in Agriculture
₹1,000 banknotes on November 8, 2016. Here's an overview of its aims and outcomes:
**Aims:**
1. **Curbing Black Money:** One of the primary objectives was to crack down on black money,
which is unaccounted wealth often hoarded in cash to avoid taxation.
2. **Fighting Corruption:** Demonetization aimed to reduce corruption by making it difficult to
hoard large sums of illicit cash.
3. **Promoting Digital Economy:** The move was also intended to promote digital transactions
and formalize the economy.
4. **Countering Counterfeit Currency:** It sought to curb the circulation of counterfeit currency,
particularly high-denomination notes.
1. **Impact on Black Money:** The effectiveness of demonetization in curbing black money has
been debated. While it did lead to some unaccounted wealth being declared or deposited into
banks, critics argue that most of the black money may have been converted into other assets or
foreign currencies.
2. **Short-Term Economic Disruption:** The sudden withdrawal of 86% of the country's currency
in circulation caused significant short-term disruptions to the economy. There were reports of
cash shortages, long queues at banks and ATMs, and a slowdown in economic activity,
particularly in cash-dependent sectors.
3. **Promotion of Digital Payments:** Demonetization did lead to a surge in digital transactions
as people sought alternative payment methods. Mobile wallets, digital payment platforms, and
electronic banking saw increased adoption.
4. **Political Ramifications:** Demonetization had political implications, with both support and
criticism from various quarters. It became a major issue in Indian politics and was a significant
factor in subsequent elections.
5. **Long-Term Effects:** The long-term impact of demonetization on the Indian economy is still
being analyzed. Some argue that it laid the groundwork for a more formalized economy and
increased tax compliance, while others believe it caused lasting damage, especially to small
businesses and the informal sector.
AIMS
1. To tackle black money in the economy.
2. To lower the cash circulation in the country which "is directly related to
corruption in our country, " according to PM Modi.
3. To eliminate fake currency and dodgy funds which have been used by terror
groups to fund terrorism in India.
[Link] Digital Economy: The move was also intended to promote digital transactions and
formalize the economy.
4. Countering Counterfeit Currency: It sought to curb the circulation of counterfeit currency,
particularly high-denomination notes.
OUTCOMES (+ve)
Black Money Recovery
In accordance with the statements of the Reserve Bank of India, more than
99% of the invalid money was returned to banks by the individuals.
Demonetisation assisted government officials track the source of
unaccounted cash. Individuals with a huge chunk of money had to disclose
their source of income and pay taxes on them. In 2019, the then Finance
Minister Piyush Goyal announced Rs 1.3 lakh crore black money recovery
through all anti-black money measures, including demonetisation.
Curbed Terrorism and Anti-National Activities
Demonetization in India put a full stop to the funding of terrorist groups and all
unlawful activities. This was an effect of the demonetization in the country. It
also curbed the money laundering acts and it was now easy for the income
tax department to trace the cash, and made the path difficult for illegal money
laundering.
Increase in Tax-filers
Demonetisation in India also had the effect of widening the tax-payers base.
The Income Tax Department added 1.07 crore new taxpayers to its base
during the FY 2017-2018. Growth of approximately 25% was seen in the
number of returns filed in FY 2017-2918 compared to FY 2016-2017.
Paved Way for Digital Transactions
Demonetisation effectively turned India towards a cashless economy. Digital
payments have doubled since demonetization in most tier-II and tier-III cities
in India. This transparent way of transacting leads to more tax payments and
less untaxed money circulating in the market.
Reduce Government Liability
It will reduce the risk and cost of cash handling as soft money is safer than hard money. It will
also reduce government liability. Since every note is a liability for the government, the old
currency will become worthless for those people, who choose not to disclose their income.
Thus, this will extinguish government's liability to that extent. It is expected approximately Rs 5
lakh crore may come to the government in the form of extinguished RBI liability, taxes and
penalties. It will reduce tax avoidance.
Impact on bank deposits
Bank deposits will increase by a huge margin and this will increase their lending activities. The
banking system will improve as it will slowly head towards a cashless society. Cashless society
will increase credit access and financial inclusion. The existing white money of people will be
known to the government and it will remain with banks so that it can be put on loan, and interest
can be generated from it with a corresponding fall in Inflation
Impact on counterfeit currency
The real impact will be on counterfeit/fake currency as its circulation will be checked after this
exercise. It was previously estimated that 250 out of every million Indian bank notes were fakes.
The new 500 and 2,000 rupee notes are less vulnerable to counterfeiting, having advanced
security features with one report claiming that it will be “impossible” for Pakistan to fake them.
The Demonetization has badly hit Maoist and Naxalites as well. The surrender rate has reached
its highest since the demonetization was announced. The move also reportedly crippled
Communist guerrilla groups (Naxalites) financing through money laundering. The smuggling of
arms and dealing with the terrorist will not sustain further as all of the money will be on record
now.
OUTCOMES (-ve)
Business E-commerce companies saw up to a 30% decline in cash on delivery (COD)
orders. Several e-commerce companies hailed the demonetization decision as an impetus to an
increase in digital payments. They believe that it would lead to a decline in COD returns which is
expected to cut down their costs. The demand for point of sales (POS) or card swipe machines
has increased.
Black Money Hoarders Only a small portion of black money is actually stored in the form of
cash. Usually, black income is kept in the form of physical assets like gold, land, buildings etc.
Hence the amount of black money countered by demonetization depend upon the amount of
black money held in the form of cash and it will be smaller than expected. On the other hand,
black money holders either have to show their income source from which they earned their
black money to the department or to burn the stashed income. However people declaring their
income in excess of threshold limit will be subjected to scrutiny.
[Link] producers, lacking capital to stay afloat, are already shutting down.
2. India’s huge number of daily wage workers can’t find employers with the cash to pay
them. Local industries have suspended work for lack of money. Cash stringency will compel
firms to reduce labour cost and thus reduces income to the poor working class. The informal
financial sector which conducts 40% of India’s total lending, largely in rural areas has all but
collapsed.
[Link] BSE SENSEX and NIFTY 50 stock indices fell over 6 percent on the very next day.
[Link] goods sales are reported to have dropped by one-third.
TANISHQ
Circumstances in India during 2016 created a very challenging environment in which to
collect accurate data on gold demand. In Q1, the nationwide jewellers’ strike effectively
shut down the gold industry. Further difficulties arose when the government’s
clampdown on undeclared income – which reached its pinnacle in Q4 with the
demonetisation policy – drove an element of gold demand into the shadier grey market.
Should further information regarding demand come to light, we will revise the data
accordingly.
Demonetization effects on gold prices were seen immediately after the announcement
of demonetization on the 8th of November as there was an immediate rush to buy this
precious metal which lifted the gold prices to 3-year highs. With investors now fearing
that the Income Tax department will tighten the noose around the jewellers who are into
money laundering using gold as the route, the prices of the precious metals started to
witness a downward trend. From rising to more than Rs. 31, 700 for 10 grams on the 9th
of November, the gold price has dropped to about Rs. 27350 across major markets in
India.
The fall of prices in precious metals has also spurred up the demand
October festival demand and a timely price dip lifted jewellery demand, before a
liquidity squeeze kicked in. The steep drop in the gold price, which coincided with the
festival of Dussehra, supported gold demand in the first two weeks of October. Lower
prices also added lustre to the key gold-buying occasion of Diwali. Then came the
government’s shock withdrawal of high-denomination (Rs500 and Rs1000) banknotes.
The announcement on 8th November caught the market off-guard. Demand spiked in
the few days immediately following the move. In a frantic bid to exchange now-obsolete
banknotes, consumers rushed to buy gold: this pushed the local price to a premium over
the global spot price. For many, gold had become the preferred route to channel their
unaccounted wealth; prices for these ‘grey market’ transactions were reportedly as high
as Rs50,000/10g, compared with a market price of Rs31,000/10g. This rush drained
retailers of their stocks, before a severe liquidity squeeze took hold.
Rural communities were hardest hit by the cash crunch, but the effect is likely to be
temporary; healthy incomes from the good monsoon should support gold demand
going forward. Demand from the cash-reliant rural population fell sharply as liquidity
dried up. But this is a temporary phenomenon. As the invalid currency is returned, via
bank deposits, to the financial system and gradually replaced with new Rs500 and
Rs2,000 notes, liquidity will improve. The latest monsoon was good and rural incomes
correspondingly healthy: this is positive for gold demand. The number of digital
transactions should start to creep higher on the government’s push to increase
transparency in the gold market. This may already be taking effect: national jewellery
chain stores outperformed smaller, independent stores during the quarter.
The second half, however, saw a much better consumer sentiment despite
demonetisation, driven largely by good festive and wedding seasons (October-March)
and low inflation. Neilsen’s Consumer Confidence Index in the October-December period
showed a steady gain from the previous period, demonstrating this. The impact of some
of the headwinds was offset due to implementation of the 7th Pay Commission
recommendations which spurred domestic consumption in FY 2016-17. The overall
retail inflation tapered down to 3.8% in March 2017, from 5.6% in April 2016. The
dollar-rupee exchange rate too came down favourably to `64.5 levels. All of these augur
well for consumer spending, which is likely to surge forward. The GDP growth estimate
is a strong 7.1% (Source – Central Statistics Office) for the year in review and is
expected to further strengthen in FY 2017-18, helping India retain its status as the
world’s fastest growing large economy. The revival of consumer interest, hopes of a
good monsoon, and India’s underlying economic strength are factors supporting growth
prospects.
The government’s tough stance on black money and cash transactions has manifested
in multiple ways through FY 2016-17. Some of them are: 1. The implementation of the `
2 lakh PAN card rule. 2. The demonetisation exercise, its impact on cash transactions
and the Income Tax department’s raids on many jewellers. 3. The ‘No cash beyond’ ` 2
lakh rule from 1st April, 2017. The Company believes that the above measures have
made operations very difficult for medium and small jewellers across the country,
whose dependence on cash transactions was exceedingly high. Simultaneously, the
customers of such jewellers have become wary of shopping with them, for the fear of
being dragged into the Income Tax Department’s enquiries. Titan has seen quite a
visible improvement in new customer acquisition since November 2016. Multiple
conversations indicate that these recent customers are much more comfortable with
organised jewellers (like the Titan brands) since the last remaining key disadvantage
(payment mode inflexibility and PAN card insistence) has virtually disappeared. Thus a
very positive situation for Tanishq is being propounded, since it is the leading organised
sector brand in network, sales and profits, being the most desired brand by far.
Consumer Sentiment Over the last many quarters, an improving consumer sentiment
with respect to discretionary consumption is seen. The consumer desire for jewellery
ownership has also continued to remain very high. Given the adornment, cultural and
wealth angles of jewellery, substitutes for share of wallet remain somewhat weaker and
this would continue to help the business significantly.
Introduction to NEP, 1991
Five‐year plans directed not only public but also private investment.
Government permits were required for any production, import, technical
collaboration, or access to foreign exchange. Industrial capacity was limited to
meet domestic demand, leading to tiny factories lacking scale economies.
Over 800 industrial products were reserved for production by small‐scale
industries. The government owned banks, insurance companies, and other
term‐lending institutions.
At the peak of the socialist phase in the 1970s, the top income tax rate was
97.75 percent—buttressed by a wealth tax of 3.5 percent. Prime Minister
Indira Gandhi’s slogan was “garibi hatao,” meaning “abolish poverty.” Alas, the
poverty ratio did not fall at all in three decades after becoming independent,
during which the population virtually doubled, so the absolute number of
people who were poor practically doubled. Creeping liberalisation began in the
1980s. This facilitated faster GDP growth and some poverty reduction but
depended on massive, unsustainable fiscal deficits. Foreign debt piled up, and
India went bust in 1991. Clearly a new policy was needed. The USSR’s
collapse showed that more socialism was not the answer. And so the
government turned from autarky to globalization and from public‐sector
domination to an economy driven by the private sector.
After 2003, the cumulative impact of years of reform and globalization helped
Indian GDP to average more than 7 percent annually, making India a “miracle”
economy.
Per capita income rose from $304 in 1991 to an estimated $2,600 in 2023. In
purchasing‐power terms, India now has the third‐largest GDP in the world
after China and the United States. Poverty has plummeted, and an IMF
working paper suggests that the proportion of people in extreme
poverty—defined by the World Bank as those living on less than $2.15 a day
at 2017 prices—has fallen below 1 percent. India has graduated from being
the biggest beggar of foreign aid to a substantial donor. It has become an
economic power to reckon with. An op‐ed in The Guardian says India is
quietly establishing itself as an economic superpower.
Globalisation
Globalisation refers to the integration of the economy of the nation with the world
economy. It is a multifaceted aspect. It is a result of the collection of multiple strategies
that are directed at transforming the world towards a greater interdependence and
integration.
Independence and Integration– a paradox?
It includes the creation of networks and pursuits transforming social, economical, and
geographical barriers. Globalisation tries to build links in such a way that the events in
India can be determined by the events happening distances away.
To put it in other words, globalisation is the method of interaction and union among
people, corporations, and governments universally.
Effect of Globalisation in India
India is one of the countries that succeeded significantly after the initiation and
implementation of globalisation. The growth of foreign investment in the field of
corporate, retail, and the scientific sector is enormous in the country.
It also had a tremendous impact on the social, monetary, cultural, and political areas. In
recent years, globalisation has increased due to improvements in transportation and
information technology. With the improved global synergies, comes the growth of global
trade, doctrines, and culture.
Advantages of Globalisation in India
Increase in employment: With the opportunity of special economic zones (SEZ), there
is an increase in the number of new jobs available. Including the export processing
zones (EPZ) centre in India is very useful in employing thousands of people.
Another additional factor in India is cheap labour. This feature motivates the big
companies in the west to outsource employees from other regions and cause more
employment.
Increase in compensation: After globalisation, the level of compensation has
increased as compared to the domestic companies due to the skill and knowledge a
foreign company offers. This opportunity also emerged as an alteration of the
management structure.
High standard of living: With the outbreak of globalisation, the Indian economy and
the standard of living of an individual has increased. This change is notified with the
purchasing behaviour of a person, especially with those who are associated with foreign
companies. Hence, many cities are undergoing a better standard of living along with
business development.
Globalisation of Trade
Economic reforms reduced import duties gradually from over 300 percent in
1991 to a simple average of 12 percent by FY 2010–2011 (Figure 1). Curbs
on private‐sector investment and imports were lifted rapidly. Pessimists
predicted that opening up the economy would lead to a flood of imports and
chronic balance‐of‐payments crises. Instead, India thrived. The ratio of
foreign trade to GDP had already risen from a low of 8.5 percent in 1965 to
17.0 percent by 1991 but then soared to 49.4 percent by 2022.
India leapfrogged richer developing countries to become a services exporter.
This started with call centers and computer software in the late 1990s, leading
to a swift rise up the value chain. During the Indian fiscal year 2022–2023
(which began in April 2022 and ended after March 2023), India’s services
exports rose by more than 27 percent to $325 billion while merchandise
exports rose by just 5 percent to $452 billion (Figure 3). Services exports look
set to overtake merchandise exports within a few years. India currently
accounts for only 1.5 percent of global merchandise exports but 4.1 percent of
global services exports. India’s top software exporters—Infosys, Tata
Consultancy Services, and Cognizant—are world‐famous.
Globalisation of Industry
His 1956 Industrial Policy Resolution committed India to a socialist pattern of
society, reserving 17 economic areas for the public sector. His socialist
thinking was carried forward by his daughter, Indira Gandhi, who became
prime minister in 1967. She nationalized several industries—banks, coal,
copper, and general insurance. The export and import of thousands of items
had to be channeled through public‐sector trading corporations. Indian
private‐sector companies remained pygmies by global standards, and foreign
investment was rarely permitted and never wooed.
true liberalization had to wait until the reforms of 1991 that ended the era of
industrial and import licenses and made the rupee convertible on current
account. Critics claimed that globalization meant Indian companies would be
crushed by multinational corporations or converted to their vassals. But
foreign investment was allowed only gradually, notably in automobiles and
telecommunications. Virtually all the multinational auto corporations entered to
take advantage of what was going to become the most populous country in
the world in the 21st century. Suzuki and Hyundai emerged as the top foreign
brands. Two Indian companies, Tata Motors and Mahindra, came up as
competitive producers and exporters. By the 2000s, India became a major
exporter of cars, scooters, motorcycles, and auto parts.
Most Indian political parties strongly opposed the new patent rules flowing
from the creation of the World Trade Organization (WTO) in 2015. Indian drug
companies had come up using reverse engineering to produce drugs under
patent in the West and feared being bankrupted by the new patent regime. In
fact, the WTO rules created a huge global market for generics in which Indian
companies soon became one of the biggest global players. They now supply
40 percent of the U.S. generic market.
India’s most unexpected success was in computer software and other
business services. India’s software exports picked up steam in the 1990s. So
many U.S. jobs were outsourced to India’s top software city, Bangalore, that
the phrase “Bangalored” came to mean jobs lost to outsourcing. India’s
information technology industry during FY 2022–2023 accounted for 5.4 billion
jobs and $194 billion of exports.
Globalisation in Agriculture
In the 1960s, India was the biggest recipient of food aid in the world.
Environmentalist Paul Ehrlich predicted mass starvation. A best‐selling book
declared that the world lacked enough food for all needy countries, arguing
that unviable countries such as India should be left to starve, conserving food
aid for viable countries. India’s green revolution in the 1970s proved that to be
nonsense.
After economic liberalization, India has gradually become a major food
exporter. In 2022, it exported 22.26 million tons of rice, more than the next
four largest rice exporters put together—Thailand, Vietnam, Pakistan, and the
United States.
The 1995 creation of the WTO subjected India to new patent laws on
agriculture. Opposition parties claimed this would kill Indian farming by forcing
expensive patent costs on farmers and flooding the country with cheap
imports. In fact, Indian agriculture fared very well. Foreign seed companies
such as Cargill became major providers of hybrid seeds, which facilitated the
production and export of maize. Monsanto brought in genetically modified
cotton that made India a major cotton exporter, exporting a peak of $10.8
billion in 2021. New shrimp farming techniques made India one of the world’s
biggest shrimp exporters. Meanwhile, India has become the world’s largest
importer of vegetable oils and a significant importer of fruit. So globalization
has expanded both exports and imports.