This article was written by Shubham Mishra, a student of VIT School of Law, Chennai.


The decision of demonetization of the 500 and 1000 rupee, note which consists of 86% of the entire circulated currency, can be categorized as an adverse policy of the modi government. The intention of the government was to eradicate black money, counter tax evasion, and destroy counterfeit currency and stopping the funding of terrorism. Though the intention was noble the decision simply backfired because only 5% to 6% of black money is in the form of cash while rest is in the form of different assets. Thus, this decision had more negative implication rather than positive.

The negative implication of demonetization can be observed in different fields of business such as, FMCG (Fast Moving Consumer Goods) industry sales have dropped by one-third. Farmers had to confront difficulty in buying seeds, fertilizers, selling crops and perishable products. Fishing  and construction industry has been severely Affected with significant wage implication. Middle class people, street vendors, auto; rickshaw drivers had to stand in long queue for long duration for the withdrawal of their money.

There could have been better solutions for curbing the black money and other purposes which were involved in demonetization. A better solution would have been to shift the balance of economic decision-making away from the state to firms, rationalizing taxes and reducing the percentage of taxes, eliminating loopholes and widen the tax net. These are some solutions which could have been adopted instead of Demonetization.


There are other Problems in India which needs to be solved for being successful the concept of demonetization. The decision taken on November 8 was one of the biggest decision ever adopted in the history of India for finding out a suitable solution regarding prevalent problems like corruption, counter tax evasion, terrorism etc, and .this decision took wrong direction and exacerbated the situations which was supposed to be solved. There are number of areas Which got affected very badly and Elaboration is needed to understand the bad ramifications of demonetization.

In Country like India, where 90% transaction taken place in cash whereas only 40 % people have bank account and rest 60% are uneducated villagers and farmers whose livelihood is entirely dependent upon agriculture and all activities are carried out in the form of cash like after the sale of their crops and availability of money in the form old notes so they don’t have feasible solution of their problem. They have to unload their perishable stock of vegetables and fruits in lower price because people are having dearth of sufficient money to purchase.

People had to stand in long queue for hours in order to either exchange their old notes or in hope of obtaining new currency for satiating their daily needs. Number of people around 82 have lost their lives due to standing in long queue or in hospitals because of non-acceptance of old currency.[1]

Those affluent people who are having plethora of black money in cash are trying to find out different and unthinkable ways for transformation of their black money into white or they are making contacts with the bank officials in order to exchange their old notes with new ones. Fake accounts are being created or black money is being deposited in accounts of innocent people who have lack of knowledge of this banking system and they are flustered after watching huge amount of money into their accounts.

India’s huge number Of daily wage workers are not able to find out employers who could pay them in cash. Local industries have suspended the work due to lack of money. The informal financial sectors which consists of 40% of lending to the farmers in rural areas have collapsed. Fishing industry got hampered because people don’t have short amount of money to purchase or fisherman’s are having to sell their fishes in lower price since they don’t have any other source to earn money because something is better than nothing.

The main purpose of demonetization was to collect the accumulation of black money but the real problem is that only 5% to 6% of black money is in the form of cash while rest is   in the form of different assets and it is daunting task to find out the main sources of black money. Demonetization has severely affected middle class income families and they were encountering impediments for the management of their daily life activities due to lack of cash. Big businessmans, conglomerates or politicians were untouched from this decision because they make all payments through electronic or digital ways so they were not affected much.[2]

There was no proper coordination between the government and banks since they were encountering problems for bringing this situation on right track. Banks were not functioning and ATM’s were not calibrated with new currency .It was promised that around 8 lakh crores of new currency was supposed to be reached in banks but even after the deadline of 50 days given by Modi government, approximately 4 lakh crores of  money was somehow  managed to reach in banks.[3]

Modi government is willing to transform India into the cashless economy so government could earn more amount of tax revenue because in India number of taxpayers is very low, but there are many hurdles which are obstructing the way in transformation of cashless India.90% of financial transaction takes place in cash, 90% of retail outlets lack debit card reader and 85% workers are paid in cash and almost half of the population is unbanked. India’s majority of population lives in rural areas and people are entirely unaware of electronic world, non-availability of internet connection and dearth of knowledge in digital world. These all factors should have been pondered by government because until and unless, these problems are solved, there is no use of taking such decision which might hamper the growing economy. Dr. Manmohan Singh utterance about demonetization was that, this year GDP might reduce 1 to 2%.


The great economist and Nobel laureate Amartya Sen has called Modi government’s demonetization move as despotic action that has struck at the root of economy based on trust.It undermines notes, bank accounts and entire economy of trust.The decision of demonetization was daunting task for the government because 14 trillion of money in market was demonetized and the purpose was to curb black money, counter tax evasion, terrorism and transforming India into cashless economy. Fulfillment of these purposes is not a cakewalk because there are other problems and they need to be solved. Tax evaders and people who are having excess of money are indulging in various illicit actions for transformation of black money in white. Therefore it seems that no problem has been solved whereas more problems have come into existence like fake bank accounts, hordes of money in innocent villagers account, exchange of old currency with new ones. Middle class people situation has worsened and the targeted people are enjoying because only 5 to 6% of black money is in form of cash ad rest all in different form of assets and it is difficult to find out other resources of black money.



[3] “Demonetization in India: Who Will Pay the Price? – Knowledge@Wharton,” Featured, November 16, 2016, accessed January 21, 2017,

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