Prime Minister Narendra Modi on Tuesday evening stole the limelight from the much-awaited US Presidential elections with his special announcement. As soon as people got to know about the announcement from PM Modi that RBI is demonetising Rs 500 and Rs 1,000 notes from November 9, panic erupted across social media.
Before you panic, everybody needs to understand why the sudden move? According to Prime Minister Narendra Modi, this move is targeted at curbing corruption, fake currency, and black money.
One may wonder, how? A few facts help understand this better. Currency circulation has been increasing at a rapid rate, especially in 2016. Till April 29, Rs 16.50 lakh crore worth of Indian rupee has been circulating in the country. This is a 15% percent increase compared to last year. Many reasons have been cited for this spike such as the five state elections and increase in gold imports using black money.
Taking fake currency out of circulation
More than 80% of currency circulated in India is in the form of Rs 500 and Rs 1,000 notes. And most of the fake currency are found in these denominations. The PM’s move banning notes of the denomination ensures that all fake currency plaguing our markets go out of circulation. Bankers can easily figure out if you are handing them fake currency notes. The fake buck will stop there. Even if you account for a few lapses, a major chunk of these notes will be rendered useless for racketeers.
It is well known to people that one needs to furnish their PAN details for depositing any amount above and including Rs 50,000. Understandably, black money holders cannot use Indian banks nor buy financial assets with hoarded cash. However, they can purchase gold and real estate properties. As a result, the government imposed a 10% import duty on gold. Though the imports have reduced, the number smuggling cases have reportedly increased.
How will banning these notes help?
Cinematically speaking, if a corrupt politician has a bed full of black money, he will have no other choice but to take them to a bank or cash in their stash on gold or immovable properties. It will alert the government to the high-value transactions, and be immediately able unearth the black money. Getting rid of high denominations will also curb the future prospects of black money hoarders as cash transactions that run into crores will be hard to deal in.
It helps fight terrorism?
In a way, yes it does help our national security as many terror outfits take the black money route to fund their arms. And no, they can’t go to the bank either. It has also been reported that terror outfits are behind the issue of much of the fake currency circulating in the market.
Decision just a month after black-money disclosures
The PM’s decision comes 39 days after the biggest-ever black money disclosure in which Rs 65,250 crore of undisclosed assets was declared. The government was even able to collect Rs 29,362 crore in taxes. Eleven days later, Andhra Pradesh Chief Minister Chandrababu Naidu wrote a letter to PM Modi seeking abolishment of big currency notes. Around the same time, he even mentioned that Rs 10,000 crore rupees from the Rs 13,000 crore black money that came from Andhra belonged to a single Hyderabadi individual.
Some call it a masterstroke, while others are questioning how they are going to survive without Rs 500 and Rs 1000 denominations. Only time and Modi can tell when the new notes are going to be released.