At 7.50 p.m., Doordarshan announced that Prime Minister Narendra Modi will address the nation at 8 p.m. It seemed like an ordinary address but the Prime Minister came up with something, which was unprecedented, groundbreaking and historic.
PM Modi announced that all the currency denominations of 500 and 1000 will be banned from midnight. (i.e. from November 9). In technical terms, the ‘legal tender’ of these denominations wouldn’t exist. In India, where major chunk of illicit money exists in 500s and 1000s, Modi undoubtedly maimed the parallel economy without recourse, in a single stroke.
The Prime Minister said that this exercise was concealed from everyone in the government and the bureaucracy. Rolling back or demonetising currencies of higher denomination has always been counted as a major step to curb domestic black money. The use of higher denomination currencies increased to 40% during 2011-16 while the circulation of 1000 rupees note increased to 109% during this period, the economy grew just by 30%. These high denomination currencies were in turn often used for domestic and cross border terror funding and were largely counterfeited.
The sudden embargo on the use of these currencies needed immense political will power, considering the fact that the Uttar Pradesh and Punjab polls are approaching ahead and elections in India are largely bankrolled by massive amounts of black money, typically in cash that are often used as direct bribes to the voters. After the income declaration scheme, this is the most serious bolt from the government against the black money.
This initiative of the government is being appreciated by everyone, (and it should be) cutting across the party lines; though the transition period isn’t going to be easy. Implementation of this mammoth task, in an ill stretched network of financial institution, all across the country is a big challenge. When the concept of cashless economy is still a mirage in India and only the urban elites have the access to digital products, it’s interesting to see how rural India reacts to this. This path breaking step is also going to put humongous pressure on the bank authorities.