A conceptual study on Demonetization: An analysis of impact of Demonetization on Rural India

Demonetization technically is a liquidity shock; a sudden stop in terms of currency Demonetization effects clearly depends upon the duration of the liquidity shocks. It is generations‟ memorable experience and is going to be one of the economic events of our time. Its impact is felt by every Indian citizen. In the long term, the economy will benefit from the reduction of the black money, which will lead to higher tax collection, better business environment, less corruption & transparency. It will improve the situation of Fiscal Deficit of the Country and hence reduce the fiscal deficit. Interest rates will decline further because of decrease on Inflation as banks are flushed .One of the reasons that prompted the Government to demonetize Rs. 500 and Rs. 1000 notes is that their circulation was not in line with the Economic Growth. As per the Finance Ministry, during 2011-2016 periods, the circulation of all notes grew 40% but the circulation of Rs. 500 and Rs. 1000 notes went up by 76% and 109% respectively. Relatively speaking, the economy has grown only by 30% which is way below the money circulation.