Study Material | Test Series
Drishti IAS
call1800-121-6260 / 011-47532596
Drishti The Vision Foundation
(A unit of VDK Eduventures Pvt. Ltd.)
prelims Test Series 2019
बेसिक इंग्लिश का दूसरा सत्र (कक्षा प्रारंभ : 22 अक्तूबर, शाम 3:30 से 5:30)
Q. Impact of demonetization on GDP: Discuss the impact of demonetization on nation’s gross domestic product.
Mar 02, 2017 Related to : GS Paper- 3

Ans :


Recently the Central Statistic Office (CSO) has released the data of gross domestic product (GDP) of the country for third quarter of current financial year. According to data released by CSO GDP growth rate is 7% (though lower than 7.4% in the previous quarter) and the gross value added (GVA) was 6.6%. The above data shows that the demonetization has not affected as thought earlier. 


  • When about 86% of the currency in circulation in the form of ₹500 and ₹1,000 notes was abruptly removed out of the system, it was expected that it will affect gross domestic product due to demand shock.
  • Even economic survey and the Reserve Bank of India will referring it as aggregate demand shock and the demand compression associated with adverse wealth effects said that for short run demonetization has adverse impact on GDP.
  • GDP Growth in the third quarter, when the impact of demonetisation would have been the worst, is estimated to have been 7% and the estimate for 2016-17 as a whole is 7.1%. 
  • The above data suggest that the financial shock of removing 86 per cent of the currency from circulation in an economy where more than 90% of transactions were in cash has not hurt economic growth.
  • The data released by CSO categorically suggests that the demonetisation effect on GDP is less than the apprehension shown by many economist and financial institutions. 


Demonetisation was one of the most comprehensive economic reforms that India has been undertaken. Many thought that due to cash crunch it will have short term impact on economy, but the data released by CSO categorically suggests that the demonetization does not have that impact on GDP as it was feared earlier.

Helpline Number : 87501 87501
To Subscribe Newsletter and Get Updates.