Demonetization in India: A Critical Appraisal

Demonetization of currency means discontinuity of the particular currency from circulation and replacing it with a new currency. It refers to the decision of RBI/Government to recall the status of a currency note to be used as a legal tender and at the stroke of the hour on midnight of 9th November 2016, India lost 86% of its monetary base. In this single move, the Government has attempted to tackle all the three issues affecting the economy i.e. a parallel economy, counterfeit currency in circulation and terror financing. Demonetization is an established practice in monetary policy to tackle black money. In the past also, demonetization has taken place twice but not achieved the envisaged success. This time though the government has taken few steps in this direction much before its announcement and has stated multiple objectives behind the demonetization policy. The demonetization policy is being seen as a financial reform in the country but this decision is fraught with its own merits and demerits. So the rationale of paper is to critically analyse the policy with all pros and cons.