Prime minister Narendra Modi’s announcement on Wednesday night to stop the circulation of ₹500 and ₹1000 notes has led to widespread chaos across the country. People are struggling to deposit money into their bank accounts owing to the long queues at various bank branches. Even withdrawing money out of ATMs has become a bit of a headache, and people face long queues here as well. As the Government tries its best to solve this mess, we look at four key issues which Prime Minister Modi had in his mind when he took this bold, bold step in his long ensuing battle against black money.
1. To curb Black Money.
The prime objective. By giving as less as three hours (the announcement was made at 9pm IST) before the of ₹500 and ₹1000 notes became obsolete, the Prime Minister had ensured that the people who had black money hoarded up in their homes would not have enough time to replace it. And these people cannot complain, they had been offered enough chances under the Income Declaration Scheme to come clean. And those who did not were warned of the consequences. And now the Prime Minister had dealt the punishment, out of the blue, when no one was expecting it.
2. To stop Illegal Counterfeiting.
Another big problem that this step hopes to tackle. Counterfeiting Indian currency abroad (read: Pakistan) and then using it to fund terrorist actions, amongst other similar activities, has been a big issue for India in recent times. This move to demonetize ₹500 and ₹1000 notes hopes to stop, or at least greatly reduce, illegal counterfeiting of Indian currency.
3. To promote Cashless Transactions.
Along with the Jan Dhan Yojna which was launched in 2014, the move to demonetize of ₹500 and ₹1000 notes hopes to promote a cashless and a much more transparent economy. Going cashless is not only more convenient, it also helps to keep illegal transactions in check.
And one important thing one should know about before using online wallets is UPI, or Unified Payment Interface. 3rd party payment wallets like PayTM, etc. have a transaction fee of about 4%, whereas UPI is cheaper (has 50 paise flat fee) and is a better option to support local shops which really depend of these small profit margins for their daily livelihood.
4. The need for a Higher Currency.
The effect of the rise in inflation over the last decade has led to the need for a higher denomination note. The value of the 1000 rupee note (which was introduced in 2000), after adjusting for inflation, in today’s time would be around 3000 rupees. So, in essence, if we compare the value of the ₹1000 note in 2000 and the value of the ₹2000 note in 2016, the prior actually has greater value. Hence, one can see that there actually was a need for a higher denomination note right now.
5. To regulate the Amount of Higher Currency Notes.
The government this time around will have a stricter procedure in place to regulate the amount of higher denomination bills going into the market. This will help both to promote cashless transactions and to stop hoarding of black money.
So, to cap it off, yes the whole country is facing a lot of difficulties at the moment, but the long-term benefits that our country can potentially gain from this move are enormous. We should work patiently with the bank officials and the local shops and come through this difficult time the best we can. The benefits are already beginning to show, even small sabziwallas are moving towards cashless transactions, as we can see from the pic below, which went viral on social media.