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Impact of Demonetisation on Indian Economy: An Empirical Investigation
The demonetisation policy declared by the Government of India on 8th November 2016 was aimed at weeding out black money in the economy and putting a check on counterfeit currencies perceived to be used for terror funding. Expanding the base of the formal economy and achieving incremental changes in digital transactions were other two important objectives. But this policy shock was viewed unwarranted as it could potentially distort the economic activities at least in the short run. The pros and cons of this policy have been extensively debated and discussed in the print media and policy circles. However, it is found that there is dearth of empirical evidence on impact of this policy shock on economic activities. In this context, using econometric analysis, the present study found that there was no significant impact of demonetisation on the overall economic growth rather the impact was limited to a few sectors. Similarly, the impact of demonetisation on inflation was more pronounced in the case of food prices only. Nevertheless, an important policy implication of demonetisation has been revolutionisation of digital transactions during the post-demonetisation period.
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