India's Demonetization: A Short-Term Loss or a Long-Term Gain?

India's Demonetization: A Short-Term Loss or a Long-Term Gain?
Case Code: ECON061
Case Length: 20 Pages
Period: -
Pub Date: 2017
Teaching Note: Available
Price: Rs.500
Organization : OnePlus
Industry : Smartphone
Countries : India
Themes: Demonetization, Counterfeit Currency,Cashless Society
India's Demonetization: A Short-Term Loss or a Long-Term Gain?
Abstract Case Intro 1 Excerpts

Abstract

The case discusses India's demonetization in 2016 which resulted in the scrapping of high value currency notes of INR500 and INR 1,000. This was the third time in the history of India that the government had junked notes of high denomination to attack black money. The primary objectives of the 2016 demonetization were to curb the circulation of counterfeit notes in the economy along with removing black money, corruption, and stopping funding of activities of terrorism. Though the move was intended to curb illicit activities, it ended up causing chaos among the common people of the country and suffering to small businesses and traders due to the cash crunch. There were serpentine queues of people outside banks and ATMs to exchange the junked notes and withdraw new currency of INR500 and INR 2,000. Some analysts believed that the 2016 demonetization would yield positive results in the long term; however, others considered it a temporary solution, and not a solution to counter the generation of black money. Many were skeptical about the success of demonetization as it led to tarnishing the reputation of the country's apex bank, the Reserve Bank of India, and all other banks along with slowing down economic activities. The result of this demonetization was a small fraction of black money coming back into the formal channels of the banking system and increased tax revenues for the government. There were loopholes in the implementation of the demonetization program which were expected to lead to the Indian government, the common people, and the industry facing challenges in the coming years. It was to be seen how the move would impact the economy in the long run.

Issues

The case is structured to achieve the following teaching objectives:

  • Critically analyze if the government will be able to achieve the desired objectives of controlling black money and curbing corruption through demonetization
  • Suggest what additional steps are required by the government to achieve these objectives
  • Analyze the short term and long term implications of demonetization on the economy
  • Analyze the decision of the government in the context of the experience of other countries who went for demonetization
  • Analyze the challenges involved in implementing a cashless economy

Contents

Keywords

Demonetization 2016,Rs.2,000,Black Money,Counterfeit Currency ,Government of India,Reserve Bank of India,Narendra Modi,Cashless Society,Terrorism,Illicit activities,Income Tax

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