Impact of Demonetization (Cash Shock) on Economy

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International Journal of Research and Innovation in Social Science (IJRISS) | Volume I, Issue VI, June 2017 | ISSN 2454-6186

Impact of Demonetization (Cash Shock) on Economy

Dr. E. Hari Prasad* , Prof. G.V.Bhavani Prasad**

IJRISS Call for paper

  *Associate Professor, Dept. of Business Management Vaageswari College of Engineering, Karimnagar, Telangana State
**Professor of Business Management (Rtd.), Kakatiya University, Warangal, Telangana State.

Abstract: Block money and corruption are the vicious incentive structure in the Indian economy. This effects adversely and led many social, unethical and economic struggles in the country. This block money is the biggest crisis that erosion in human values. Eradication of corruption answers many social and economic evils. Demonetization was the step taken by government of India against corruption posits that the cashless would extinguish the block money. Therefore, the present paper, evaluates the impact of “demonetization or cash shock” on the Indian economy.

Keywords: Block money, demonetization, cashless transactions, corruption, credit, tax evasion

I. INTRODUCTION

Demonetization (cash shock) is the act of stripping a currency unit of its status as legal tender by central bank. Reserve Bank of India, central bank in our country, had withdrawn the old Rs 500 and Rs 1000 notes as an official mode of payment on November 8, 2016. The government of India had executed a major change in the economic environment by ceasing the high value currency notes – of Rs 500 and Rs 1000 denomination. 86% of country’s currency was nullified in a great cash shock effort that aimed to clean out the black market’s cash supply and counterfeit notes which completely disrupted the social, political, and economic spheres of the world’s second largest emerging market. People had been given up to December 30, 2016 to exchange their old notes held by them. The proposal by the government involves the elimination of these existing high value currency notes from circulation and a gradual replacement with a new set of Rs. 500 and Rs. 2000 notes. In the short term, it was intended that the cash in circulation would be substantially squeezed since there were limits put on the amount that individuals can withdraw.