Demonetization refers to cancellation of legal tender status of currency in circulation. Anticipating positive effects on the economy, nations often adopt demonetization policy. Government of India adopted demonetization policy on November 8, 2016. Prime Minister Narendra Modi announced this policy while addressing the nation in his Mann Ki Baat speech on November 8, 2016. Under this policy, high denomination Indian currency notes of Rs.500 and Rs.1000 were declared to be no longer in use as legal tender which means that these notes were not be acceptable for transaction. Demonetization is a generations‟ memorable experience and is going to be one of the economic events of our time. Its impact is felt by every Indian citizen. Demonetization affects the economy during the liquidity side. Its effect will be a telling one because nearly 86 percent of currency value in circulation was withdrawn without replacing bulk of it. Demonetization is the most important and necessary when there is a change of national currency. The old unit of currency must be removed and substituted with a new currency unit. Demonetization technically is a liquidity shock; a sudden stop in terms of currency availability. It creates a situation where lack of currencies jams consumption, investment, production, employment etc. In this context, the exercise may produce following short term, long term, consumption/investment, welfare growth impacts on Indian economy. The intensity of demonetization effects clearly depends upon the duration of the liquidity shocks. Demonetization in India was adopted to fight against various problems such as corruption, black or parallel economy, terror funding, fake currency, money laundering and hoarding, tax evasion etc.