Food For Thought 1.0

Will the Abolishment of Rs. 500 and Rs. 1000 notes help curb black money in India? (For the topic)

Prime Minister Narendra Modi’s address to the nation was a surprise, but the prevalence of counterfeit currency notes in India is not. Neither is thousands of crores stashed as black money. This move is very bold and decisive, which will tremendously impact the circulation of counterfeit notes in our economy. More importantly, the money stashed in the black economy will become redundant, thereby sealing the cavity through which billions of dollars were being siphoned off.

Although arguments persist that persons hoarding black money do not necessarily do so in the form of liquid cash, it has to be acknowledged that even in a corrupt system like ours, it is not very simple to convert ‘black’ money to ‘white’. This process becomes more difficult when the hoards of liquid cash suddenly become redundant, making it illegal tender.

The move announced by the Prime Minister targets another group of criminals- counterfeiters. The prevalence of counterfeit or ‘fake’ notes in our economy is mind boggling. Foreign interests that are inherently against Indian economic growth and development seek to use this mechanism to cause havoc in the Indian economy. Estimates suggest that for every 10 lakh notes, 250 are counterfeit. David Headely, the criminal behind the 26/11 attacks on Mumbai used counterfeit notes to procure weapons and carry out attacks on India. With the introduction of new series of notes, that too abruptly, will have a great positive impact on the counterfeit market. The fake notes already in circulation are, again, redundant.

Many arguments also point out to the stash of black money overseas, especially in Swiss Banks. After the steps announced by Mr. Modi, the conversion of Indian money into a foreign currency, so as to make it legal will also become complicated, if not impossible. Round-tripping of black money is another issue. Round-tripping refers to the process by which black money stashed abroad is disguised as foreign capital and sent back to India. This process will become difficult as the conversion of Indian currency overseas, mostly stashed as 500/ 1000 rupees notes will no longer be valid.

Finally, to make this move more effective, the parliament must pass legislations that will impose harsher penalties on persons hoarding black money. The concessions given to defaulters must be stopped immediately and the black money hoarded by them should be fully seized.

Following the above arguments, it can be concluded that this move will help curb black money in India and prevent counterfeiting.