How the ban on 500 and 1000 notes will help Indian economy ?
Many black money holders will be under radar: People who have black money are mostly in pithole. Either they have to go to banks to exchange their money into new forms of notes and get under the government radar. Else they forget the money because it will turn into useless paper soon.
Nullifying fake currency notes: As of April 29, 2016 fake notes worth Rs. 16.50 Lakh crore has been circulating in the country. Recent studies have suggested that fake notes of Rs. 70 crore are infused into the system every year and law enforcement are able to curb only one third of them. 90% of fake notes are released in bigger notes like 500 and 1000. So this step will nullify all the fake notes.
Decrease inflation: If I have black money or I have fake notes, I can even pay Rs. 600 for an item costing Rs. 500. This is because, this money is not my hard earned money and I have enough fake money. When a person purchase an item by giving extra money, this increases the cost of the money. Hence inflation increases. With this step, black money and fake notes will be nullified. Hence it will impose a check on price inflation.
National security will increase: A huge amount of black money is used in funding terrorism which is direct threat to the national security. This step will curb black money. Arms smuggling, terrorist activities, etc will be reduced. Hence activities like 26/11 or Uri attack will be reduced a lot due to lack of funding for terrorism. This will stop funding to Kashmiri separatists. This will also reduce the “pelting of stones” by Kashmiri kids and youths who are asked to throw stones for Rs. 100.
Reduce crime carried out by underworld: The black money and fake currencies are used by underworld and mafia too. From abduction to killing contract to a sharp shooter, black money is used to fund crime too.
Reduction in activities of Land mafia and real estate corruption: Black money are used by lot of people in real estate business. This hikes the price of real estate. This step would be beneficial in controlling inflation in property related transactions. Also, real estate sector would get institutionalized. When housing price would go down, this will force the demand of reviving the sluggish housing segment.
Reduction of inflation will be overall: Inflation are always overall. So reduction of inflation will be overall too including Higher studies and medical treatments.
Cashless transaction will be encouraged: The new limits on ATM withdrawals has been restricted to Rs 2,000 per day. Bank withdrawals have been limited to Rs 10,000 per day and Rs 20,000 per week. hence it will increase cashless transaction like online payment and card payments. Countries with more cashless transaction face very less fake note threats because most transactions are digitized. Since more transactions are digitized, they need less printed currency and low quality paper for currency notes. That’s why US dollars are of low and thinner paper quality and Indian rupee are better and thick paper quality comparatively. US spends less in printing currency notes than India.
Since cashless transaction will be encouraged, it will reduce the use of printed currency and hence reduce the use of fake notes.
Since cashless transactions are digitized, government will be able to keep track records.
Less use of currency note means less cost in printing currency notes.
Indian economy is hurt max by bogus currency which inflows from the cross border by Pakistan. We must be aware of the news that ISI somehow managed to get the ink and currency paper used for printing our notes and was supplying exact notes cross border which was difficult to differentiate from original notes. Definately Pakistan will take ages to print these new format notes.
All the unaccounted stacked black money mostly used by people in power is wiped out. These people don’t have the courage to get it exchanged or deposit in their account.
As per recent RBI revelation only 86.4 % of Rs 500 and 1000 notes were in circulation. This means the rest of about 13.6 % of these high value notes are stacked and not used. This amounts to 14 trillion ruppes. Government of India is directly going to gain this much of huge money.
The middlemen (agents) engaged in trades of household commodities use their cash power to reduce or shoot the prices by stacking the items of common commodities like onion, pulses etc. They are stripped now of their power and we may expect the black marketing of these commodities and price shoot will reduce.
This move will definitely cut-off the cash distribution to woo the public votes during recent election campaigns.