In a historic move, Prime Minister Narendra Modi announced that all Rs 500 and Rs 1000 notes would be no longer accepted as legal tender. According to him, this has been done to control fake money circulation, curb black money, and terror financing. While some has openly criticized this move, there are some who feel it would only bring positivity in the time to come. India had carried out demonetization exercises twice in the past before i.e. in 1946 and 1978. However, in demonetization of 1978, the value was very small; it was only 0.1% of GDP while in the current demonetization the amount covered in 86% of total currency. Thus this would have far-reaching implications. Here are some facts about recent demonetization:
- ONLY BLACK MONEY IN THE FORM OF CASH WOULD BE CURBED
While this step would surely help in curbing black money, it cannot be assumed that all the black money held shall be curbed. People who have already converted their black money in form of real estate, gold, and dollars, would be least affected.
- AIM OF GOING CASHLESS
PM Modi urges people to go cashless and start using plastic money. That way the issue of not having enough money on hand, issue of standing in queues to withdraw money etc. would be solved. He aims at digitalizing India and hence improving the overall infrastructure. A village called Akodra in Gujarat is entirely digital and not a single person uses cash for any transaction. PM Modi aims at bringing this to entire India.
- A VOLUNTARY INCOME DISCLOSURE SCHEME
Before taking this step, the government ran a voluntary income disclosure scheme people had a chance to disclose their undisclosed income and convert it into white money by paying 45% tax on it. Hence it is very unfair to blame the government that people had not been given a chance beforehand to take care of their unaccounted cash.
- IMPACT ON REAL-ESTATE AND GOLD
It is foreseen that area where black money was actively used like buying of gold, diamond, and real-estate property would see a considerable downfall. Jewelers and real-estate brokers are seeing pretty harsh days. However, apart from this life would get back to normal in certain weeks. As PM Modi said, the harsh days would only last for approximately 51 days.
- LACK OF UNITY
It seems that common people have willingly accepted the step and are willing to face the difficulties of the upcoming better times, some leaders are not too happy about the decision was taken and criticizing it barely on the grounds of inconvenience to the common man. And all PM Modi is asking for is support.
- INDIA’S RESPONSE
There are huge lines at banks and ATMs. People are facing the cash crunch and they are having issues in carrying out day-to-day activities. However, it is not going to go on for long as RBI is working towards the creation of new currency and bringing it to public quickly. India is a cash economy and economy may crash. But as PM Modi says, he has got it all planned out and they were working on this step since last 6-7 months. All we can do now is wait and watch where time and circumstances take us.