Demonetisation: Great Move, But…

This week, Prime Minister Narendra Modi in partnership with the Reserve Bank of India pulled off a carefully planned strike on India’s parallel economy responsible for the generation of black money.

The move had taken several months of planning and needed the cooperation of several wings of the government as well as the banking system. It is commendable that everyone involved with the project managed to keep the secret so well.

The demonetisation is the latest in a series of attacks by the NDA government on black money, starting with the Black Money and Imposition of Tax Act of 2015, and then the Income Declaration Scheme in 2016 in which those hoarding black money were given amnesty and asked to come forward and declare their wealth and escape punishment later. The introduction of the GST Bill will also bring a larger number of transactions under the tax radar.

We are confident that the move to demonetise 500 and 1000 rupee notes will cut down the menace of fake currency as well as reduce black money in circulation. This will also add a great deal more liquidity to the formal banking system, which will benefit immensely from the legal flow of liquid cash. This is the right time to go cashless, as it is both highly transparent and accountable, making life easy for the government and the common man.

There will, of course, be short term difficulties. There are two thoughts to consider here.

One: the demonetisation of older notes are causing difficulties to people from all strata of society, but especially to those who do not have easy access to banks and post offices. As of today, despite banks and ATMs reopening, new currency notes continue to be in short supply, making it difficult for citizens to carry out basic, day-to-day transactions. The situation is especially difficult for citizens who need hard cash and do not have netbanking, smartphones or even debit cards. We hope the government addresses this liquidity crunch soon and also extends help to those who would be most affected by this sudden disappearance of liquidity.

Second: would this move ensure that black money does not proliferate again? This isn’t the first demonetisation of a currency note. Prime Minister Morarji Desai had acted similarly in 1978. Since then, the five hundred and the thousand rupee notes have been prolific contributors to growth of black money. Now, with the arrival of a two thousand rupee note, questions are being asked. Did we take two steps forward and one step back?  We hope the government will keep taking incremental steps to ensure that black money does not proliferate again.

Closing thoughts: the cash crunch during the coming days would affect all us. Let’s be generous and help anyone who is getting hit the hardest.

BankBazaar is your one-stop shop for your personal finance needs! Visit our website to search, compare and apply for financial products in your city.