ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

A+| A| A-

Economic Consequences of Demonetisation

Money Supply and Economic Structure

The nature of money supply and its link with transactions in the economy are discussed, with necessary modifications on account of the presence of the unorganised sector and the black economy. This helps incorporate differentiation in the Indian economy that is useful to understand and analyse the impact of demonetisation.

Demonetisation, announced on 8 November 2016, has resulted in the withdrawal of the high denomination currency notes of 1,000 and 500 as legal tender. These are being slowly replaced by new currency. This has suddenly created a shortage of currency which has implications for the economy. The issue is whether the effects visible are short-term or long-term. Those who support the decision argue that there would be a temporary slowdown in the economy in the third quarter of 201617. Reports suggest that major sectors of the economy face a slowdown, be it agriculture, industry, services or the organised and unorganised sectors. The Reserve Bank of India (RBI) has taken a cautious stance in its recent monetary policy statement stating that due to the influences already visible in the second quarter, the economy would slow down by 0.5%, but due to the uncertainty created by the demonetisation, the full impact cannot be gauged at present.

Heart-rending accounts of people dying, of a father not being able to save his child because he could not get medical attention due to his inability to get new notes, or of people collapsing in the long queues at the banks have appeared. An economy which the government claimed as the fastest growing economy in the world is suddenly facing a crisis due to demonetisation.

Dear Reader,

To continue reading, become a subscriber.

Explore our attractive subscription offers.

Click here


To gain instant access to this article (download).

INR 59

(Readers in India)

$ 6

(Readers outside India)

Published On : 20th Jan, 2024

Support Us

Your Support will ensure EPW’s financial viability and sustainability.

The EPW produces independent and public-spirited scholarship and analyses of contemporary affairs every week. EPW is one of the few publications that keep alive the spirit of intellectual inquiry in the Indian media.

Often described as a publication with a “social conscience,” EPW has never shied away from taking strong editorial positions. Our publication is free from political pressure, or commercial interests. Our editorial independence is our pride.

We rely on your support to continue the endeavour of highlighting the challenges faced by the disadvantaged, writings from the margins, and scholarship on the most pertinent issues that concern contemporary Indian society.

Every contribution is valuable for our future.