Someone rightly called it the surgical strike on the parallel economy, but I call it the mother of all wars on terror! While this change was brought about to combat counterfeiting and terror activities we need to take a step backward and look at the larger picture. Yes, while it will effective curb the flow and creation of black money what we also should understand is the fact that it will increase circulation of money in the market. This can only mean more demand, enhanced purchasing power in people and last but not least a certain boost to the employment segment. Yes, I said it! This will increase job opportunities and when you have all of the above together in one basket, it can only mean a stronger, long lasting and faster economic growth, GDP growth >7%.

Let’s go a little deeper to see how farsighted this huge step is! My personal favorite is riddance of a snob from the society. Tu jaanta nahi mera baap kaun hai dialogues would certainly phase-out since none of these so-called spoilt brats of rich fathers will be able to lay hands on luxury cars without it leaving a trail. It has always bothered me, rather hurt me deeply to see honest taxpayers driving small and mid-segment cars while corrupt politicians and businessmen driving fancy luxurious cars paid for using their dubious unaccounted money. Deep inside I do believe that this will also pave the way for economic equality in our society, which in other words means no more favoritism. For that, thank you very much Mr. Prime Minister!

We are a nation that relies heavily on cash transactions, be it restaurants, groceries, even gold and automobiles in some cases! And almost 90% of these transactions are carried out using high-value denominations of Rs.500 & Rs.1000. So how is this move going to affect the nation in general?

This move will certainly affect the working middle class and lower sections of our society: Anybody who provides services in the informal sector and depends on monthly or bi-monthly cash payments. In the long-term, though, this is likely to drive several benefits for the economy, but what we need to bear in mind is the fact that the hitch is only temporary. India has made the first move from a cash economy to a digital economy. A Larger amount of savings and cash will find a way into the mainstream economy and be deployed for physical and financial asset creation. Use of digital currency and payment systems driven by UPI, wallets and cards will create enormous transparency. Modi has made the right investment for the next generation. This move should improve India’s position on transparency and corruption in the global league table enabling higher capital flow (FDI/FII) into India.

The most gravely impacted medium in the long run I believe is going to be the real estate industry which works predominantly on cash. In almost all the cities properties are sold on 60:40 basis which ideally means 40% black money is generated on every property sale. What does this mean to us? In simple words real prices would come down making housing very affordable. The same will apply to all aspects of consumerism. This move also shows the intent of the government to come up with game changing ideas and will represent a threat to all future operations in the black economy and hoarding of cash.

A coin has two sides and similarly so does this move of Modi’s. The issue of black money is the key to this change which renders all that unaccounted money people hold useless and any third party transaction to legalize it will fail since it will leave a trail at every turn. But I believe the government should have done away with high-value denominations all together and stuck to Rs. 100 and may be printed a Rs.200 currency note. It does take quite a bit of time for a parallel economy to rise again but would it be difficult with high-value denominations still in circulation? There has to be systems in place to ensure that these new denominations do not generate a new black economy, meaning there must be a process to track every high-value currency note or do it the Australian and Kiwi way by printing plastic currency since counterfeiting is an issue for us.

A question that remains is whether Rs 500 or Rs 1,000 denomination is high from the standpoint of black money? Probably not because with high prices a Rs 1,000 note cannot get you a month of milk while a couple of kilos of pulses and edible oil will exhaust a Rs 500 note. Hence almost all households will be stacked with such currency notes and sifting the black money holders from genuine households will be difficult. Further, all households, especially inhabited by senior citizens store at least Rs 3-5 Lakhs, as an emergency operation for this class requires cash to be paid upfront at hospitals. How will the income tax officials decide the genuine senior citizens from the hoarders? The experience has been that the IT department invariably sends notices to all assesses with a certain amount dealt as a thumb rule which will lead to harassment. Curiously, the money deposited will have to be withdrawn repeatedly by the senior citizen given the restrictions put by the government as they need to have this buffer at home. This aspect does not seem to have been thought through. Only time will tell if we have a winner on hand or now!