Demonetisation

In November 2016 old ₹500 and ₹1000 notes ceased to be legal tender. Remember the date and denominations.

Demonetisation is primarily an economic-policy measure because it changes the legal status and usability of specified currency notes. Money supply, cash availability, purchasing power, banking transactions and business cash flows are all economic variables. Therefore, option B is correct. The natural environment concerns factors such as climate and natural resources; the cultural environment relates to values, customs and lifestyles; and the geographical environment concerns location and physical features. Although demonetisation may indirectly influence technology adoption and social behaviour, its direct governing dimension is the economic environment. The classification should therefore be based on the main nature of the government measure, not on every secondary consequence it may produce.

Controlling black money was a major stated objective. In exams write objectives and effects separately.

Cash shortage affected daily sales of small retailers. Remember the impact on cash-dependent businesses.

Higher demand for digital payments created opportunity for fintech and payment services. Identifying opportunity is an entrepreneurial skill.

Banks faced heavy workload due to exchange and deposits of notes. Such effects can be called short-term effects.

Demonetisation showed the need for alternative payment modes. Businesses should keep both cash and digital systems.

By discontinuing old notes an attempt was made to curb fake currency. This was one stated goal of demonetisation.

Due to cash shortage many consumers adopted digital and card payments. Change in consumer behaviour indicates business environment change.

Transactions through digital and banking channels create records. This improves tax compliance and transparency.

A business faces a threat when an external change creates a serious possibility of reduced sales, interrupted operations or weaker performance. Demonetisation can immediately restrict the availability of usable cash. Thus, a business that depends heavily on cash sales may experience fewer purchases, delayed collections and difficulty paying suppliers or workers. Option A correctly identifies this vulnerability. Existing online-payment facilities can reduce the difficulty rather than create it, so option B is not the best answer. Secure customer data and a strong accounting system are internal strengths or safeguards; they do not themselves represent a threat created by demonetisation. The answer depends on the firm’s exposure to cash dependence.

A business adopting digital payments can provide convenience to customers. This is an opportunity in a changing environment.

During cash shortage planning of payments and collections became necessary. Planning is very important in management.

Cash shortage made e-wallets a useful alternative. It was a combined effect of technological and economic change.

Cash shortage was a major short-term effect initially. Keep short-term and long-term effects separate.

Banking records make it easier to trace income and transactions. This was linked with the objective of widening the tax base.

Daily wages were often paid in cash so payments were affected. Social effects may also be written in answers.

Cash shortage reduced consumer spending for some time. Changes in demand affect business decisions.

Businesses with digital payment facilities could continue sales during cash shortage. Preparedness reduces risk.

Shops needed point of sale machines to accept card payments. This is an example of payment infrastructure.