November 15, 2016

How Demonetization Will Help Curb Black Money Menace in India?

Black Money Menace in IndiaAs everyone knows, fake money in higher denominations is in wide circulation in the Indian market. These notes look genuine and can easily pass off for the real currency. Moreover, terrorist activities and other anti-national/illegal activities are largely funded by printing of fake currency as well as black money. By demonetizing the higher value notes, the government hopes to shut the funding of terrorist operations as well as the parallel ‘black’ underground economy by rendering these notes useless. 

Since it is easier to store huge amounts of black money in high denomination notes rather than smaller notes, most black money is kept in Rs. 1000 and Rs. 500 currency notes. For instance, it takes far less space and time to store Rs 10 crore in Rs. 1000 notes, than in Rs 100 notes. By making those high value notes illegal, the demonetization move will strike at those who produce or hoard fake currency or black money since most of their illegal money will be in these notes.  

When no tax is paid on a large proportion of the money circulating in the country, the government is deprived of funds to carry out its activities –whether it is funding much needed infrastructure in terms of roads or railways, healthcare, education, defence or any number of essential functions. Now no Indian can escape paying tax while leaving honest tax payers to bear the brunt of building the nation.

People hoarding black money in these high denominations have found that their cash is useless as of midnight of November 8th 2016. The restrictions on the amount of high value notes you can exchange or deposit means that these hoarders can only change a miniscule fraction of their black money. They cannot approach the bank to convert it, as they would have to account for it. The cash hoarded in black has literally turned to ash, as instances of cash being burnt, or thrown away continue to come in the limelight. They cannot invest, or otherwise spend the money in any legal way. All cash deposits in a bank account will be linked to the IT department.

India is a largely cash-based economy, and much of the general populace has had to deal with inconveniences due to the overnight ban. However, while these inconveniences will be temporary, the positive impact it will have on the economy and on the rule of law will have a permanent and transformational effect.