Demonetization in India: 2016 - Political Risk Assessment
Added on 2023-06-15
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Running Head: Demonetization in India: 2016
Demonetization in India: 2016 1
Contents
Introduction......................................................................................................................................1
Background......................................................................................................................................2
Demonetisation in India: 2016.........................................................................................................2
Initial reaction on Demonetization..................................................................................................4
Impact of Demonetization...............................................................................................................5
Estimation of threat........................................................................................................................11
Event Occurred as Surprise.......................................................................................................12
Threat to Government................................................................................................................13
Conclusion.....................................................................................................................................16
References......................................................................................................................................17
Contents
Introduction......................................................................................................................................1
Background......................................................................................................................................2
Demonetisation in India: 2016.........................................................................................................2
Initial reaction on Demonetization..................................................................................................4
Impact of Demonetization...............................................................................................................5
Estimation of threat........................................................................................................................11
Event Occurred as Surprise.......................................................................................................12
Threat to Government................................................................................................................13
Conclusion.....................................................................................................................................16
References......................................................................................................................................17
Demonetization in India: 2016 2
Introduction
The paper is based on the recent past event that is relevant to the political risk assessment.
Political risk is a kind of risk that is confronted by corporations, investors, governments that
political decisions, conditions or events will considerably create the impact on the profitability of
a corporate businesses or the estimated worth of a given economic activity. The political risk
assessment deals with the evaluating and prioritizing of public, regulatory and political risks. The
aim is to manage these risks efficiently same like the companies who manage its own risk
(Zonis, et.al, 2011). The event that has been selected for the discussion is “Demonetization in
India”. Demonetization refers to as the act of stripping a currency unit of its position as a legal
tender. It takes places when the government decides to bring the variation in the countrywide
currency; the current form of currency is pulled from the flow in the market and gets replaced
with the new currency (notes and coins).
The reason behind the selection of the event of Demonetization in India is the economy of the
country and the importance of the event. Indian economy has held up better than other emerging
countries (Kepley, 2014). The government of India is mentioned to as a Union Government, it is
also known as the Central government which consists of 7 union territories with 28 states of the
nation. Moreover, there are 3 branches of India's government which are same to those of the U.S:
Judiciary, Executive and Legislative (Santander Trade Portal, 2018). Demonetisation in India
was one of the crucial decisions taken by the PM and the decision came us a sudden surprise for
the citizen of the country. Further, the paper will discuss the demonetization, how it came in
front of the citizen, and the details related to the demonetization that are essential for the
Introduction
The paper is based on the recent past event that is relevant to the political risk assessment.
Political risk is a kind of risk that is confronted by corporations, investors, governments that
political decisions, conditions or events will considerably create the impact on the profitability of
a corporate businesses or the estimated worth of a given economic activity. The political risk
assessment deals with the evaluating and prioritizing of public, regulatory and political risks. The
aim is to manage these risks efficiently same like the companies who manage its own risk
(Zonis, et.al, 2011). The event that has been selected for the discussion is “Demonetization in
India”. Demonetization refers to as the act of stripping a currency unit of its position as a legal
tender. It takes places when the government decides to bring the variation in the countrywide
currency; the current form of currency is pulled from the flow in the market and gets replaced
with the new currency (notes and coins).
The reason behind the selection of the event of Demonetization in India is the economy of the
country and the importance of the event. Indian economy has held up better than other emerging
countries (Kepley, 2014). The government of India is mentioned to as a Union Government, it is
also known as the Central government which consists of 7 union territories with 28 states of the
nation. Moreover, there are 3 branches of India's government which are same to those of the U.S:
Judiciary, Executive and Legislative (Santander Trade Portal, 2018). Demonetisation in India
was one of the crucial decisions taken by the PM and the decision came us a sudden surprise for
the citizen of the country. Further, the paper will discuss the demonetization, how it came in
front of the citizen, and the details related to the demonetization that are essential for the
Demonetization in India: 2016 3
assessment. The report also reflects the aspect that the event might be a threat of instability of
government (Dasgupta, 2016).
Background
This is not the initial time when the government of India took the step for the demonetization of
the bank notes. Demonetization took place in the year 1946 and 1978, both the time the decision
was formed with the motive to track the records related to the money and to extract the black
money (Mali, 2016). The country has a long-standing relationship with demonetization. In the
year 1978 on January 16th, 1, 000, 5, 000 and 10, 000 rupees notes were argued through a
regulation and it impacts the 0.6% of the overall current in the flow at that point of time. Before,
this incident India had practiced demonetization in 1946 of high-value currency. Both the time
when the demonetization tool place it has created the impact on the minuscule segment of the
economy and the society (Mali, 2016). Later, in October 1987, the government re-introduced the
Rs.500 notes and Rs.1000 notes. Moreover, after 1978 demonetization government of India
didn’t a step for the demonetization again in India till the year 2016. In 2016 the demonetization
tool place and this decision were taken by the respected Narendra Modi prime minister of India.
Demonetisation in India: 2016
Demonetisation is a milestone in the past of the Economy of India. It was a practice which might
have created the threat and terror in the thoughts of the individuals who are involved in the
unlawful and unauthorized happenings such as tax evasion or money laundering of any kind
(Khanna and Dharmapala, 2017). On November 8th, 2016, the respected Prime Minister of India,
Narendra Modi announced the stripping of 500 and 1,000 rupees notes and this will be
assessment. The report also reflects the aspect that the event might be a threat of instability of
government (Dasgupta, 2016).
Background
This is not the initial time when the government of India took the step for the demonetization of
the bank notes. Demonetization took place in the year 1946 and 1978, both the time the decision
was formed with the motive to track the records related to the money and to extract the black
money (Mali, 2016). The country has a long-standing relationship with demonetization. In the
year 1978 on January 16th, 1, 000, 5, 000 and 10, 000 rupees notes were argued through a
regulation and it impacts the 0.6% of the overall current in the flow at that point of time. Before,
this incident India had practiced demonetization in 1946 of high-value currency. Both the time
when the demonetization tool place it has created the impact on the minuscule segment of the
economy and the society (Mali, 2016). Later, in October 1987, the government re-introduced the
Rs.500 notes and Rs.1000 notes. Moreover, after 1978 demonetization government of India
didn’t a step for the demonetization again in India till the year 2016. In 2016 the demonetization
tool place and this decision were taken by the respected Narendra Modi prime minister of India.
Demonetisation in India: 2016
Demonetisation is a milestone in the past of the Economy of India. It was a practice which might
have created the threat and terror in the thoughts of the individuals who are involved in the
unlawful and unauthorized happenings such as tax evasion or money laundering of any kind
(Khanna and Dharmapala, 2017). On November 8th, 2016, the respected Prime Minister of India,
Narendra Modi announced the stripping of 500 and 1,000 rupees notes and this will be
Demonetization in India: 2016 4
implemented from midnight (Kumar, 2016). The planning of demonetizing of notes was initiated
6-10 months earlier before it was announced by the government. The decision was kept as a
confidential with only 10 people being aware of the fact. The printing of new notes of Rupee 500
and 2000 was initiated from May 2016. Moreover, the union cabinet was not aware of the
planning they get known when the PM Narendra Modi called for the meeting on 8th November
2016 (BGR, 2017). PM selected notes of 500 and 1000 because these notes accounted for 86% of
the nation’s cash hoard by worth. The government of India has given time till 31st December
2016 to the citizen of country to credit their old currency notes in banks to convert them in the
new currency notes of 500 and 2000 rupees (Shepard, 2017).
(Source: Dutta, 2017)
The objective of the decision was to root out counterfeit currency, curb inflation, removal of
black money and terror-funding, fight tax evasion and to enhance the cashless processor system
in Indian economy. Narendra Modi shared the same reason with the general public for the
demonetization (Dutta, 2017). The government had followed the standard process after
announcing for the demonetization on 8th November 2016.
implemented from midnight (Kumar, 2016). The planning of demonetizing of notes was initiated
6-10 months earlier before it was announced by the government. The decision was kept as a
confidential with only 10 people being aware of the fact. The printing of new notes of Rupee 500
and 2000 was initiated from May 2016. Moreover, the union cabinet was not aware of the
planning they get known when the PM Narendra Modi called for the meeting on 8th November
2016 (BGR, 2017). PM selected notes of 500 and 1000 because these notes accounted for 86% of
the nation’s cash hoard by worth. The government of India has given time till 31st December
2016 to the citizen of country to credit their old currency notes in banks to convert them in the
new currency notes of 500 and 2000 rupees (Shepard, 2017).
(Source: Dutta, 2017)
The objective of the decision was to root out counterfeit currency, curb inflation, removal of
black money and terror-funding, fight tax evasion and to enhance the cashless processor system
in Indian economy. Narendra Modi shared the same reason with the general public for the
demonetization (Dutta, 2017). The government had followed the standard process after
announcing for the demonetization on 8th November 2016.
Demonetization in India: 2016 5
Exchange of old notes: - The RBI offered the time period of 50 days to the public to
deposit their old currency in banks. The banks also kept the limit of 4,000 per person
from the 8th to 13th November which later on increased by 4,500 from 14th to 17th
November but later on the amount reduced to 2,000 as maximum number of people
started visiting banks and at a time it was not possible for the banks to maintain the cash
among all. At airports, the facility of exchange of notes was offered to foreign tourists
and to travelers accounting to Rs.5, 000 to each person.
Limits on Withdrawal of cash: - RBI also imposed the restriction on the withdrawals of
cash from the bank from 10, 000 rupees for a day and to 20, 000 rupees for a week from
10th to 13th November. Later the daily limits reduced to 2,000 rupees for a day till 14th
November and 2,500 rupees for a single day till December 31st, 2016. On 1st January
2017, the limit was increased to 4,500 for a day. The RBI removed all the withdrawal
limits from the saving bank accounts.
Initial reaction on Demonetization
Support
The decision of demonetization faced the mixed reaction from the different persons. Some of the
people belong to the banking and finance field appreciated the decision taken by the government.
Though, some opposed the decision considering the problems which lead to the demonetization.
The large international response on the demonetization was positive because they believe that
this is the move with the help of which the government can break down the corruption in the
nation (Sinha and Rai, 2016). International monetary fund presented the support for the decision
taken by the Prime Minister Narendra Modi for the betterment of the nation.
Exchange of old notes: - The RBI offered the time period of 50 days to the public to
deposit their old currency in banks. The banks also kept the limit of 4,000 per person
from the 8th to 13th November which later on increased by 4,500 from 14th to 17th
November but later on the amount reduced to 2,000 as maximum number of people
started visiting banks and at a time it was not possible for the banks to maintain the cash
among all. At airports, the facility of exchange of notes was offered to foreign tourists
and to travelers accounting to Rs.5, 000 to each person.
Limits on Withdrawal of cash: - RBI also imposed the restriction on the withdrawals of
cash from the bank from 10, 000 rupees for a day and to 20, 000 rupees for a week from
10th to 13th November. Later the daily limits reduced to 2,000 rupees for a day till 14th
November and 2,500 rupees for a single day till December 31st, 2016. On 1st January
2017, the limit was increased to 4,500 for a day. The RBI removed all the withdrawal
limits from the saving bank accounts.
Initial reaction on Demonetization
Support
The decision of demonetization faced the mixed reaction from the different persons. Some of the
people belong to the banking and finance field appreciated the decision taken by the government.
Though, some opposed the decision considering the problems which lead to the demonetization.
The large international response on the demonetization was positive because they believe that
this is the move with the help of which the government can break down the corruption in the
nation (Sinha and Rai, 2016). International monetary fund presented the support for the decision
taken by the Prime Minister Narendra Modi for the betterment of the nation.
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