Demonetization and its impact on Indian economy with special reference to Indian banking sector

Abstract

Demonetization refers to cancellation of legal tender status of currency in circulation. Anticipating positive effects on the economy, nations often adopt demonetization policy. Government of India adopted demonetization policy on November 8, 2016. Prime Minister Narendra Modi announced this policy while addressing the nation in his Mann Ki Baat speech on November 8, 2016. Under this policy, high denomination Indian currency notes of Rs.500 and Rs.1000 were declared to be no longer in use as legal tender which means that these notes were not be acceptable for transaction. After this, RBI announced the release of redesigned new currency notes of Rs.500 and Rs.2000 which were released on November 10, 2016 by RBI and continue to be in circulation since November 10, 2016. Demonetization in India was adopted to fight against various problems such as corruption, black or parallel economy, terror funding, fake currency, money laundering and hoarding, tax evasion etc. In this paper, we are trying to explore the impacts of demonetization on banking and economy and how far is this policy able to curb the above-mentioned problems.