Theaction done by the government was not fully in legal.
The announcementchallenges the legality and constitutional validity. Section 26(2) of the RBIact 1934, any note issued by RBI will no longer be legal tender is assailed onthe grounds of excessive delegation. Section 26A of the RBI Act clearly suggestthat demonetisation of this scale with such a draconian effect can only done bya statute of parliament and that was not done in the present case.
This was ahasty decision, taking without considering all the issues into consideration.In this case RBI did not give a recommendation independently after the detailedconsideration of all the issues. Introductionof new banknotes meant the ATM had to be altered to be able to dispense the newcurrency.
There are around 2,05,409 ATMs, all had to be recalibrated. Theexpnce is an additional due to the demonetisation. The country had to find outhuge amount of money only due the demonetisation. The move that was initiallyexplained to eradicate black money, corruption, terror funding and slowlyexplained as a step towards digital payment, making India a cashless economy.In the beginning the government kept certain rules for the withdrawal. So bankswere burdened with ques of customers to withdraw money and deposit oldcurrency. And this was also an extra expense to the banking sector.
Though thegovernment had to face certain extra expenses but it generally boosted digitaltransactions net banking, e-wallets to pay the daily transactions. Manybelieved the changes will be temporary but the data shows the other way. Forexample, Unified Payment Interface transactions shot up 68 million in October2017 from just 0.3 million at the end of November 2016. Similarly, IMPStransactions clocked an over 100 percent growth to 82 million in October 2017from 36 million in November 2016.Thevalue of banknotes in circulation declined by 20.2 percent over the year to Rs13,102 billion as at End-March 2017. The volume of banknotes however increasedby 11.
1 percent mainly due to demonetisation. Demonetisation:five positive outcomes for economy and markets. The announcementof demonetisation received a mixed reaction from the different sectors of theeconomy. Some believed reform would bring long term positive impact and othersfocused on the challenges caused by this announcement. As we mark one year ofthis disruptive move, let us have a look at some effects it had on the marketsand the economy.