Question 4

The government of India announced Demonetization of ₹ 500 and ₹ 1,000 currency notes with effect from the midnight of November 8, 2016. As a result, the existing ₹ 500 and ₹ 1,000 currency notes ceased to be legal tender from that date. New currency notes of the denomination of ₹ 500 and ₹ 2,000 were issued by Reserve Bank of India after the announcement.

This step resulted in a substantial increase in the awareness about and use of Point of Sale machines, e-wallets, digital cash and other modes of cashless transactions. Also, increased transparency in monetary transactions and disclosure led to a rise in government revenue in the form of tax collection.

a. Enumerate the dimensions of the business environment highlighted above.
b. State the features of Demonetization.


a. Dimensions of business environment highlighted in the above case are:

1. Economic environment: Demonetization is highlighting the economic dimension as it happens due to change in the system that is because of changes made by the government in economic policies. That is RBI (Reserve Bank India) which is the regulator of economic development.

2. Political environment: It highlights the political dimension as the government involved in the above case because the government of india announced Demonetization of RS 500 and RS 100 currency notes with effect from the midnight of November 8, 2016.

3. Technological environment: It also highlights technological dimensions. As a result of the above case it increases the awareness and knowledge of technology among the citizens of India by introducing point sale machines, e-wallets, digital cash and other modes of online cashless payment.

b. Features of demonetization are:

1. Measure of tax administration: Demonetization is viewed as a tax administration measure. Because the cash holders with black money had to declare their unaccounted wealth and pay taxes at a penalty rate at the time of exchange of currency.

2. Measure to avoid tax evasion: Government indicating that tax evasion will no longer be tolerated or accepted.

3. Demonetization also led to tax administration channelizing savings into the formal financial system. As most of the cash has been deposited in the bank and is bound to be withdrawn. So new deposits schemes offered by the banks will continue to provide a base loan, at lower interest rate.

4) Create a cashless economy: Another feature of demonetization is to create a cashless or cash-lite economy by channeling more savings through the formal financial system and reducing tax evasion.

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