. What is demonetisation? When a currency note of a particular denomination ceases to be a legal tender it is termed as demonetisation. But since our government is replacing the old Rs 500 notes with newer ones and doing away with the Rs 1,000 notes, it would be more appropriate to call the move as `scrapping' or `phasing out' of certain currency notes. 2. What has the government done? Prime Minster Narendra Modi's decision to scrap high value notes of Rs 500 and Rs 1,000 has created a shortage of cash in the system, leading to a lot of discomfort for the general public and businesses. Also, since there is a shortage of newly printed Rs 500 and Rs 2,000 notes, the situation has worsened. The move has also led to a shortage of lower denomination notes such as Rs 100 and Rs 50 that are still legal tender, as people have taken to conserving whatever cash they have in hand. 3. How will it impact the economy? Since our economy is heavily dependent on cash, as only less than half the population uses banking system for monetary transactions, demonetisation has hit trade and consumption hard. With people scrambling for cash to pay for goods and services, the move is likely to take a big toll on the country's growth and output during the current fiscal. Consumption makes up for around 56% of India's GDP, hence, a drop in spending will pull down growth. The current step could also lead to behavioural changes in households' savings and their consumption pattern, say economists. 4. What does lower growth mean? Growth in cash-intensive sectors such as real estate, construction and FMCG is likely to take a hit in the short term as consumers are deferring purchases. However, there is a positive side to the story: over the medium term, there would be benefits through higher government spending and greater financial inclusion. Also, the movement of household savings from physical to financial will help boost growth, according to Yes Bank BSE -0.41 % report. The near-term fall in growth on account of spending slowdown, could push inflation down. Also, an increase in fiscal headroom will allow the government to maintain fiscal discipline, which in turn will support inflation target in the medium term.