10 Nov 2016

e-Khaliyan

What are the Pros and Cons of Banning and Replacing ₹500 and ₹1000 notes in India?

Pros
  1. Complete curb of Fake Currency circulating in the market, alteast for some years.
  2. Decline in Black Money - However this will not be 100% as big defaulters are still away from the reach of law as they have money deposited abroad or they have already converted to white money via alternative mean. This is big blow to medium range Black Money Culprits as their stored money will have no use now.
  3. Reduce in Corruption for some time - It will take some time for people to find the way to pay huge amount of money as corruption - till they make sure that new notes are safe.
  4. Hoping to get Real Estate Price go down since most of the black money are invested here.
  5. Collection of Tax via Black Money - People having black money will deposite the money in the bank and pay taxes however penalty will add up to almost 90% of their money will be paid as tax.
  6. Cashless Economy - This is still just hope since people will move to online/card transaction however it will take some time, there is no infrastructure at merchant level also rural population or even city people are not tech savy right now.
  7. Increase in Amount in Savings Account - People will deposit money in bank accounts thus increasing the total amount in bank account.
  8. Increase in Online Transactions thus helping Fin- Tech Startups like Paytm, Freecharge etc.

    I have detailed complete effect of this on daily lives of indian in my earlier post - How will scrapping currency notes of INR 500 and INR 1000 affect the daily lives of Indians?
Cons
  1. Inconvenience to common people - Common people are suffering due to unavailability of cash. Banks has huge rush, there are not enough bank counters or even post office to accommodate the exchange request of people. It will take some months to completely ease issue.
  2. Rise in Corruption - A New Hawala Way - People having Black money will offer the commission to people like farmers, drivers, i.e. people who do not pay taxes so that they can deposit the money in their account and convert it into white money.
    Source - Know All About Ban on Rs 500/1000 Notes - How to Exchange, Limits of Exchange , New notes
  3. Financial Emergency in Cash Transaction Economy - 70% of Indian transactions are still cash only as Rural population do not even go to bank, towns and even capital cities also transact in Cash only. This market is already in fear due to scarcity of cash in initial days.
  4. Big Players of Black Money Defaulters are escaped as they do not have money as hard cash.

Conclusion - This is definitely bold and game changer step of Mr. Modi however its effective implementation will give fruitful results over the period of time.
source -
  1. How will scrapping currency notes of INR 500 and INR 1000 affect the daily lives of Indians?
  2. 9/11 And the Historical Step Against Black Money
  3. Everything You Need To Know About The Demonetization Hoax