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Demonetization
affects the economy in different ways. First and foremost, it affects demand shock,
the reason being the reduction in the supply of money which in turn affects
private wealth. Secondly, economic activity depends on cash and hence supply
also is affected. For example, agriculture production is affected. Thirdly
uncertainty, it means what is in future? The immediate effect of demonetization
was felt in all the sectors of economy. Some sectors of economy started growing
at very fast whereas some others suffered a considerable loss. While the
immediate boost was seen in digital payment companies and in the banking
sectors, MSME sectors saw a considerable downfall.

Supply of cash and
interest rate

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Demonetization
is very unusual in its monetary consequences. Demonetization reduced the supply
of money, on the other hand it increases the demand of deposit. It further
cause to the interest rate. When the people deposit the money in the bank, they
need to provide to the investors the interest rate. Because of the
demonetization the demand for supply of money reduced. The other reason for the
decrease in the demand for the supply of money is the introduction of GST,
which came into the existence on July 1st. the purchasing power of
the consumer has become less because of the uncertainty. The consumer is not
known what is next if they go for more purchase.

Financial Inclusion

The
poor people are excluded from the formal financial services. To meet their
needs, they need loans which they would repay in course of time. The commercial
banks have also realized the need of serving the poor. The financial inclusion
is the delivery of banking services at an affordable cost to the vast sections
of disadvantaged and low income groups (Financial Inclusion, B Sujatha, 2007,
p20). Some percentage of the population is enjoying certain facilities from
banking services. Despite of all efforts still large percentage of the
population does not have the basic functions of the banking services. Therefore,
RBI has taken initiatives in its annual policy of the year 2005-06 to promote
financial inclusion. Personal and cultural characteristic of the people have
the role of encouraging and discouraging the use of financial services to the
poor people. Even to prove their ownership they do not have their identity
cards. Globally over a billion poor people are still without access to formal
financial services and some 200 million of them live in India. Every efficient
society should ensure easy access to public goods.  About 73% of the households in India are
estimated to be located in the rural areas. About 60% of them are cultivator. 

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