Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : Demonetisation - Impact

Context

India’s overnight ban on high-value currency notes in 2016 was a shock. 

Studies

• According to a study published recently by the US National Bureau of Economic Research, demonetization reduced jobs by up to 3%.
• It also hurt economic activity by a similar magnitude in the first two months after it took effect. 
• Research has also found that the exercise—aimed at spiking black money, curbing corruption and depriving terrorists of funds—led to a 2% decline in bank lending in that period.
• The research paper examines the impact of demonetization across the country at the district level to make national-effect estimates.
• The paper concludes that figures put out earlier had underestimated the economic impact of the move.

Research

• The research method employed reveals that the note ban’s shock was felt unevenly across the country.
• Some regions were hit harder than others because they had a higher proportion of high-value notes in circulation. 
• The study’s period of analysis has not captured the secondary effects of the ban which are still being felt. 
• Late 2016 disrupted a recovery of India’s economy and sent it into a prolonged slump from which it is yet to emerge.