action done by the government was not fully in legal. The announcement
challenges the legality and constitutional validity. Section 26(2) of the RBI
act 1934, any note issued by RBI will no longer be legal tender is assailed on
the grounds of excessive delegation. Section 26A of the RBI Act clearly suggest
that demonetisation of this scale with such a draconian effect can only done by
a statute of parliament and that was not done in the present case. This was a
hasty decision, taking without considering all the issues into consideration.
In this case RBI did not give a recommendation independently after the detailed
consideration of all the issues.
of new banknotes meant the ATM had to be altered to be able to dispense the new
currency. There are around 2,05,409 ATMs, all had to be recalibrated. The
expnce is an additional due to the demonetisation. The country had to find out
huge amount of money only due the demonetisation. The move that was initially
explained to eradicate black money, corruption, terror funding and slowly
explained as a step towards digital payment, making India a cashless economy.
In the beginning the government kept certain rules for the withdrawal. So banks
were burdened with ques of customers to withdraw money and deposit old
currency. And this was also an extra expense to the banking sector. Though the
government had to face certain extra expenses but it generally boosted digital
transactions net banking, e-wallets to pay the daily transactions. Many
believed the changes will be temporary but the data shows the other way. For
example, Unified Payment Interface transactions shot up 68 million in October
2017 from just 0.3 million at the end of November 2016. Similarly, IMPS
transactions clocked an over 100 percent growth to 82 million in October 2017
from 36 million in November 2016.
value of banknotes in circulation declined by 20.2 percent over the year to Rs
13,102 billion as at End-March 2017. The volume of banknotes however increased
by 11.1 percent mainly due to demonetisation.
five positive outcomes for economy and markets.
of demonetisation received a mixed reaction from the different sectors of the
economy. Some believed reform would bring long term positive impact and others
focused on the challenges caused by this announcement. As we mark one year of
this disruptive move, let us have a look at some effects it had on the markets
and the economy.