Question

what was the effect of an Indian economy due to demonetization

Answer 1

·        To eliminate counterfeit currency;

·        To shrink the size of the parallel economy and black money in India; and

·        To reduce corruption.

While this is the third time in the Indian history that Indian high value currency has been stripped of its status as a legal tender, the first two instances of demonetization did not have an impact like the recent one. This is primarily because, this time, the demonetized currency represents 86% of the total currency in circulation.

In a country where 68% of the transaction are cash based (as per CLSA data), a move like this is definitely going to have several long- as well as short-term impacts.