Page 1 of 8

Journal for Studies in Management and Planning

Available at http://edupediapublications.org/journals/index.php/JSMaP/

ISSN: 2395-0463

Volume 04 Issue 03

March 2018

Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 106

Demonetisation: Repercussions And

Aftermath (A Study)

ASHIMA GOEL

Department Of Commerce, Delhi School Of Economics University Of Delhi

(9582599920) (ashimagoel26@gmail.com)

ABSTRACT

“THE ROAD TO HELL IS PAVED WITH GOOD INTENTIONS”, if one could start with giving the

benefit of doubt to the star maker of demonetisation, could easily find solace in this old aphorism.

On the other side, one who is not fond of fancy fairy tales and sticks to facts would rather try to see

the empirical evidence. This “garden path “of the present government which seemed as the first

shot fired from the government’s armoury against the triple evils of Black money, Counterfeit

currency and terrorism, has deeply scarred the nation and its economy, which is still stumbling and

may never fully recover from the trauma. The main objective of this study is to closely look upon

the after-effects and the damage done to the economy through a glance at the banking sector,

agriculture, handloom, small traders, businessmen and analyse the extent the government has been

successful in fulfilling its promises and objectives of demonetising 86.4 percent of the entire value

of the currency in circulation. With the data available across the crucial sectors, the paper tries to

give a fair view of the aftermaths of demonetisation on the Indian Economy.

INTRODUCTION

On November 8, 2016, Prime Minister went

on all media channels to announce that his

government had decided to demonetise 500-

rupee and 1000- rupee currency notes to break

the grip of corruption and black money in

India and announced that these notes hoarded

by anti – national and anti- social elements

will become worthless piece of paper. It is not

that demonetisation has not been resorted to

as a measure by other countries. In fact, the

Economic Survey 2015-16 does refer to over

20 countries resorting to demonetisation with

different purposes, different rationales and

varying results. But the way this measure was

introduced created a certain sensationalism to

this move of the government. The effects of

this monumental blunder, undertaken in the

name of fighting black money menace, still

linger. Livelihoods in huge swathes of the

economy that were uprooted in the wake of

demonetisation have still not recovered. To

make matters worse, the imposition of an ill- designed (GST) Good and Service Tax,

whose impact fell disproportionately on small

manufacturing units and traders, has

compounded the crisis.

As the tragedy unfolded, the reasons for

undertaking demonetisation shifted. It moved

from fighting Black Money, which objective

was already being discredited by the growing

realisation that cash hoards are only a fraction

of ill- gotten wealth, to fighting terrorism and

counterfeiting and finally to reducing

proportion of cash relative to national income.

By early 2017, as the crisis gathered

momentum and it became clear that cash –

starved Indians were in for long haul, the

justification of demonetisation was placed on

the need to have a cashless economy. All this

leads to one fundamental question “what were

the motives of undertaking such an adventure

when nothing about demonetisation was

unseen : the great hardships , the 100 – plus

deaths at ATMs across the country , the

collapse of businesses and livelihoods and the

loss of employment .What appeared as

bungling , in this version of why

Page 2 of 8

Journal for Studies in Management and Planning

Available at http://edupediapublications.org/journals/index.php/JSMaP/

ISSN: 2395-0463

Volume 04 Issue 03

March 2018

Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 107

demonetisation was undertaken , was

expected but considered a desirable objective

clothed in the garb of “formalising” business

processes or of taking India on a digital

highway, The paper aims to retrospect the

effects of demonetisation, its impact and

challenges for the Indian economy supported

by two case studies from the agriculture and

industrial sector.

THE PREVIOUS NEO – LIBERAL

REGIMES

Corruption has an antiquity dating back to

ancient times, and Kautilya’s Arthasastra

indeed discusses its pervasiveness extensively

as social aberration with a long history even

by that time. By mid-1980’s there was a surge

in “corruption studies” rooted in the

developments that followed after unfolding of

“Washington Consensus”. It was not a mere

coincidence that “liberalisation, privatisation

and globalisation” and the global interest in

corruption research emerge from mid 1980s.

The World Bank established an Anti –

Corruption Knowledge Centre. The UN

Convention Against Corruption (UNCAC)

was adopted in October 2003 and its

provisions have legally binding international

anti-corruption instruments for countries that

ratify the convention.it was signed by 140

countries which was signed by India in 2005

& ratified in 2011. Broadly, corruption is

understood and defined in two ways. One is

the narrow sense of the term, viz. corruption

that “petty”, “street level”, “day- to- day”, or

“retail”. It is widely associated with the

“bribes”. The other is “grand” corruption

associated with large monetary sums or

transfer of resources generally involving high- level political leaders, bureaucrats and big

businesses. The widely used definition of

corruption – “misuse of public office for

private gain”- has been largely associated

with the narrow sense of corruption that is

familiar, since the time of Arthasastra, which

shows its pervasiveness even in those times.

But during the past three decades there has

been a gradual change in the corruption

perception of the public from the concerns of

“petty” corruption to that of “grand”

corruption .The push and spread of structural

adjustment programmes rolled out across the

countries at the behest of “Washington

Consensus” and the resulting restructuring of

development strategies from state level

process to corporate- driven agenda that

ripped open the natural resources and key

industrial infrastructural sectors to

privatisation is at the root of this “gestalt” in

corruption from what people encountered as

“petty” , “day to day”, “retail” , “street level”

notion to that of “grand” scams . In reality,

neoliberal reforms gave birth to “crony

capitalism” with powerful self-interested

actors gaining control over the state to their

advantage, a process that has come to be

known as “state capture” or “regulatory

capture”. The capital can create policy

strategies like special economic zones.

“Crony Capitalism” gains the ability to get

laws consciously “adjusted” to its advantage

and to the detriment of public good. When

business interest succeeds in shaping the

legal, political or regulatory environment to

suit their own interests and distort public

policies, it would provide unlimited

opportunities for corruption. Thus, economic

reforms and the resulting “crony corruption”

are at the root of eruption of corruption as

“grand scams” that has come to occupy the

public notion of corruption, and revulsion to

those associated with it.

OBJECTIVES AND RESEARCH

METHODOLOGY

The paper, with the help of primary data from

literary, ministry and other sources tries to

find possible challenges which

demonetisation has created for the Indian

economy. The paper also tries to examine the

impact of demonetisation with the help of two

small case studies on agriculture and

industrial sectors which were completely cash

dependent and the impact of demonetisation

on these sectors. Further, the aim of the paper

is to emphasise the objectives for which

demonetisation has done and present a

scorecard after one year with the help of

conclusion to this study.

Page 3 of 8

Journal for Studies in Management and Planning

Available at http://edupediapublications.org/journals/index.php/JSMaP/

ISSN: 2395-0463

Volume 04 Issue 03

March 2018

Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 108

Demonetisation and Agriculture

One of the most debilitating impacts of

demonetisation was the systematic attack on

the rural cooperative banking sector. The

Reserve Bank of India (RBI) said through a

notification that district central cooperative

banks could not allow their customers to

exchange demonetised notes or even to

deposit such notes. The pretext for the next

move was that cooperative banks did not

follow KYC norms for their customers.

According to a report , 33 state cooperative

banks and 367 district cooperative banks

catered to the needs of over 12 crore

customers A large number of them were

farmers who had received loans against their

Kisan Credit Cards and were now unable to

pay back their loans .Farmers’ cooperatives

also suffered irreparable damage because of

demonetisation .Long , winding queues were

witnessed outside banks and ATMs in Andhra

Pradesh , Telangana , Maharashtra , Madhya

Pradesh , Uttar Pradesh and Haryana .

Delayed wheat sowing and reduction in the

acreage of wheat were a direct result of

demonetisation. Only a 60 days interest

waiver was announced for farm loans taken

from district cooperative banks and societies

for rabi farming. This was a period when the

government decision had irreparably damaged

cooperatives and their disbursal of farm loans

was minimal. The announcement that three

crore Kisan Credit Cards would be converted

into RuPay debit cards was a scheme that was

in existence after 2012 and millions of cards

had already been issued by 2013-14 .Yet

another announcement about NABARD being

given Rs 41,000 crore for provision of low

interest credit to cooperative banks had also

been routinely happening from much earlier

.In 2015-16 , NABARD sanctioned credit

limits aggregating Rs 71, 497 crore under a

short term refinance portfolio and Rs 48,064

crore in long – term refinancing.

COLLAPSE OF PRICES AND

LIVELIHOODS

The All India Kisan Sabha (AIKS) team that

visited Mandsaur in Madhya Pradesh found a

situation of acute distress in the region as

prices of most crops had crashed to about 60

per cent below last year’s prices.

Demonetisation had led to this crash further

aggravated by faulty policies such as the

import of wheat and pulses in a year of good

harvest. After demonetisation traders are

paying 2 percent less for cash transactions. In

this period input costs increased manifold.

Undoubtedly, the crash prices have had a

cascading effect on indebtness, which is the

main cause of farm suicides. The incessant

fall in prices and the lack of government

procurement or purchasing centres renders the

MSPs as notional figures unable to boost the

confidence of the peasantry. This was one of

the major reasons of protest in Maharashtra,

Madhya Pradesh and Rajasthan, which

snowballed into a massive movement with the

farmer’s organisations exhibiting

unprecedented unity. However , instead of

promising public procurement at MSP , the

government offered Bhavnagar Bhugtan

Yojana ( Price Deficit Financing Scheme )

which literally meant that government would

pay the difference in price if a crop was sold

below the MSP .It claimed that more than a

quarter of the 64 lakh farmers in the state had

registered themselves under the scheme and

the expenditure likely to be incurred by the

government .After the Price Deficit Finance

Scheme , big traders are bidding as low as Rs

1500- 2000 a quintal , which was below the

earlier biding price of Rs 2800-2900

aquintal.Before demonetisation , the farmers

got between Rs5000- Rs 6000 a quintal . The

MSP announced for 2017-2018 was only Rs

2850 a quintal and plus a bonus of Rs 200 a

quintal. If demonetisation was a beginning of

onslaught on the poor, it is now evident that

the battle has been well and truly joined by

the victims of extra ordinarily callous

misadventure.

DEMONETISATION AND INDUSTRIES

(Micro, small and medium enterprises in

Gujarat)