Currency notes of Rs 500 and Rs 1000 denominations will not be legal tender beginning November 9. PM Narendra Modi announced the move on Tuesday evening. He said the move was aimed at curbing the negative impact of fake currency, black money, corruption and terrorism on the nation's economy. New notes of Rs 500 and Rs 2,000 would be released and circulated soon.
Here are the impacts of this decision and how it affects the common man:
Whom does it help?
The step helps national security, by choking down finances of terrorists and drug cartels. This step benefits the poor and middle class by reducing inflation in day to day life.
What will be impacts of this step for the common man?
This measure will not only make sure that this unaccounted money adds tax revenue to the nation and come into white economy but also help take action against corrupt. It will not only bring back parity in the market but also lower the prices of real estate.
Capitation fees have made higher education out of common man's reach. This step will also bring back parity in education sector and ensure no illegal cash transactions take place. This step will also lead to reduction in inflation with reduction in conspicuous consumption.
Why this sudden step of discontinuing existing notes of 500 & 1000? Why come up with a 2000 note?
Terrorists, drug cartels have been regularly counterfeiting rupees 500 & 1000 notes and a large portion also circulates in the form of black money. An element of surprise is essential, or else they would have made necessary arrangements.
This step would also make sure that existing unaccounted money would eventually come into white economy and help the common man. Over the years, proportion of high denomination notes in terms of value is as high as 86%, from 69% in 2007. High denomination notes are most convenient for criminals, people hoarding large amounts of unaccounted money and terrorists.
The 1000 note was introduced in 2001, since then its value has gone down. This along with the cost of printing makes it better to have a 2000 note.
How does this step fight black money, corruption & terrorism?
A large proportion of counterfeit notes exist today in circulation. Also the proportion of high denomination notes (500 & 1000) in terms of value is as high as 86%, from 69% in 2007. High denomination notes are most convenient for criminals, people hoarding large amounts of unaccounted money and terrorists.
The World Bank in July, 2010 estimated the size of the shadow economy for India at 20.7% of the GDP in 1999 and rising to 23.2% in 2007. There are similar estimates made by other India and international agencies. A parallel shadow economy corrodes and eats into the vitals of the country's economy.
According to a Harvard Study, by eliminating high denomination, high value notes we would make life harder for those pursuing tax evasion, financial crime, terrorist finance and corruption. Without being able to use high denomination notes, those engaged in illicit activities would face higher costs and greater risks of detection. Eliminating high denomination notes would disrupt the "business model" of tax evaders, criminals, terrorist and those who indulge in corruption.
Cash offers anonymity, leaves no transaction record and is universally accepted. High denomination notes are the form of cash which enable large sums to be paid, moved and stored with minimum cost and detection risk.