article on war on black money
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On November 8 Prime Minister Narendra Modi delivered a surprise reform to the nation: the government declared that the high-denomination 500 and 1000 rupee notes, which constituted more than 85% of currency outstanding in value, would be invalid as legal tender and could only be deposited into bank accounts until the end of the year.
This is a courageous and substantive economic reform that, despite the significant transition costs, has the potential to generate large future benefits.
India is largely a cash-driven economy, though a rapidly growing percentage of the population is becoming tech savvy. A shadow economy reliant on cash transactions and evading taxes, especially on high value transactions such as real estate purchases, gold, and intrinsically illegal activity, has taken deep and highly persistent root. Counterfeiting of Indian rupee notes and their subsequent use in funding of terrorist activities has also been an important concern.
While the pernicious effects of a large black economy and tax avoidance have been well recognised, no tangible policy action has been taken until now. Modi’s radical move to invalidate the high denomination notes, in which the black economy primarily transacts, is a daring step.
In any other time, one would have to be unreasonably idealistic to expect, from politicians, a major economic reform, which offers substantive benefits in the future, but comes with significant political costs in the transition period immediately following the reform.
India, however, seems to have voted in a prime minister who is prepared to take on political risk in his efforts to fulfill his commitment to root out corruption – and has promised even more. We await his next steps.
hope this helps you
This is a courageous and substantive economic reform that, despite the significant transition costs, has the potential to generate large future benefits.
India is largely a cash-driven economy, though a rapidly growing percentage of the population is becoming tech savvy. A shadow economy reliant on cash transactions and evading taxes, especially on high value transactions such as real estate purchases, gold, and intrinsically illegal activity, has taken deep and highly persistent root. Counterfeiting of Indian rupee notes and their subsequent use in funding of terrorist activities has also been an important concern.
While the pernicious effects of a large black economy and tax avoidance have been well recognised, no tangible policy action has been taken until now. Modi’s radical move to invalidate the high denomination notes, in which the black economy primarily transacts, is a daring step.
In any other time, one would have to be unreasonably idealistic to expect, from politicians, a major economic reform, which offers substantive benefits in the future, but comes with significant political costs in the transition period immediately following the reform.
India, however, seems to have voted in a prime minister who is prepared to take on political risk in his efforts to fulfill his commitment to root out corruption – and has promised even more. We await his next steps.
hope this helps you
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