Question

The demonetization policy announced on 8th November 2016 was an unexpected decision taken by the Indian government. The policy has been criticized as well as appreciated, but its impact on businesses has been a bigger concern. The policy affected the purchasing power of major population of the country, which led to decline in demand for products. Many industries were unaffected and maintained steady growth, while some industries suffered the wave of demonetization. Which characteristic of business is being exemplified in the above case? Explain​

Answer 1

Answer:

On November 8, government announced the decision to discontinue the legal tender status of Rs 500 and Rs1000 notes. The original objectives were stated as: eliminating fake currency; inflicting losses on those with black money; and disrupting terror and criminal activities. Later, new objectives were tacked on: enabling growth in bank credit, turning India into a cashless economy. A cost benefit analysis suggests that the benefits were relatively small when compared with the costs:

Expected impact on fake currency

A study by the National Investigation Agency and the Indian Statistical Institute, in 2016, estimated that fake Indian currency notes in circulation have a face value of Rs 400 crore. This is an incidence of fake currency of 0.022%. The scale of counterfeiting of the Indian rupee is not out of line with what is seen in other countries, and the procedures adopted worldwide to address this include investigative actions against counterfeiters, phased replacement of old series of notes with new notes that have better security features, etc. De-monetisation is generally not seen as a tool for dealing with counterfeiting. We must also not forget that the counterfeiters will now get to work on the new 500/2000 rupee notes, while India will likely never do a de-monetisation again.