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86 Business Studies Demonetisation: The Government 2. Demonetisation is also of India, made an announcement interpreted as a shift on the part on November 8, 2016 with profound of the government indicating implications for the Indian economy. that tax evasion will no longer be The two largest denomination notes, tolerated or accepted. `500 `1,000, were ‘demonetised’ 3. Demonetisation also led to tax with immediate effect, ceasing to be administration channelizing legal tender except for a few specified savings into the formal financial purposes such as paying utility bills. system. Though, much of the This led to eighty six per cent of the cash that has been deposited in money in circulation invalid. The the banking system is bound to people of India had to deposit the be withdrawn but some of the invalid currency in the banks which new deposits schemes offered came along with the restrictions by the banks will continue to placed on cash withdrawals. In other provide a base loans, at lower words, restrictions were placed on interest rates. the convertibility of domestic money 4.Another feature of demonetisation and bank deposits. is to create a less-cash or The aim of demonetisation was cash-lite economy, i.e., channeling to curb corruption, counterfeiting more savings through the formal the use of high denomination notes financial system and improving for illegal activities; and especially tax compliance. Though there the accumulation of ‘black money’ are arguments against this as generated by income that has not digital transactions require use been declared to the tax authorities. of cell phones for customers and Point-of-Sale (PoS) machines Features for merchants, which will only 1. Demonetisationisviewedasatax administration measure. Cash work if there is internet holdings arising fr om declared connectivity. On the contrary, income was readily deposited these disadvantages are in banks and exchanged for counterbalanced by an new notes. But those with black understanding that it helps money had to declare their people into the formal economy, thereby increasing financial unaccounted wealth and pay taxes at a penalty rate. saving and reducing tax evasion. Digitalisation has broadly impact three sections of society: the poor, who are largely outside the digital economy; the less largely outside the digital economy; the less affluent, who are becoming part of the digital economy who have been covered under Jan Dhan AccountsandRupaycards;andtheaffluent,whoarefullyconversantwithdigitaltransactions. Reprint 2026-27