Money monster

With high denomination currency notes out of circulation, will underground economy come to a halt? What are the immediate effects of the ban? Here are some pros and cons.

November 24, 2016 06:23 pm | Updated 06:23 pm IST

On November 9, Prime Minister Narendra Modi announced that Rs. 500 and Rs. 1000 currency notes would be banned. It was hoped that with the ban on these notes, black marketeering and hoarding would be forced out into the open. A black market is an underground economy, or shadow economy which is not legally recognised and it goes against the rules set by the government. Also, the move is the first step to a cashless economy.

How does this decision translate into our lives?

* On the way to a cashless economy, India will gradually have lesser access to money and there will be a preference to plastic money. The recent restrictions on ATM and bank withdrawals is but the first step.

* Fake currency that is being smuggled into India and is used to fund terrorism will find no takers.

* The real estate market will be hit and it is predicted that property prices will plunge.

* People who have aspirations of standing for elections will not be able to buy their votes.

* In six to seven months, deflation would be noticed in not just real estate or construction material, but also unorganised trade and services as well.

* Gold and jewellery has gained more popularity after the demonetisation and seems to be a wiser investment.

* The education sector will be equally influenced by the decision that pitches hard work and competence to securing admission and jobs in the industry.

On the other hand...

* The rural economy has been hit. Urban India claims to have 10 lakh bank branches across the nation, however, this population also comprises villages and close to 6.8 lakh villages today do not have a bank. Encasing money or exchanging it for these rural people is nothing less than a nightmare. Most of the people do not have a proof of identity either.

* Everyone has one or more Rs. 500 and Rs. 1000 currency notes with them. All this has to be taken to the bank and exchanged for smaller denominations. With people flocking to banks, the queues are long and unmanageable.

* Tax havens and offshore accounts or even black money in the form of foreign currency or gold has not been affected.

The writer is founder and CEO of Youth4work

Word list

Demonetisation: The act of stripping a currency unit of its status as legal tender. Demonetisation is necessary whenever there is a change of national currency. The old unit of currency must be retired and replaced with a new currency unit.

Tax haven: A country or independent area where taxes are levied at a low rate.

Offshore accounts: An offshore bank is a bank located outside the country of residence of its depositors, with most of its account holders being non-residents of the jurisdiction. An account held in a foreign account, especially in a tax haven country, is often described as an offshore account.

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