Today, on 8 November 2016 Indian Prime Minister Narendra Modi made a historic announcement on Live TV in India that the government was withdrawing the 500 and 1,000 rupee notes as legal tender with immediate effect.
The main impact of this will be:
- Rendering the illegal hoarding of cash by the corrupt in India useless
- Significant effect in reducing the impact of counterfeit cash from Pakistan
- Beginning the transformation of the Indian economy into a cashless and paperless one.
Finally, India has a brave and innovative prime minister willing to take a stand against corruption, terrorism and drugs.
With his bold move to remove the existing 500 and 1,000 rupees as legal tender and to replace it with a new 500 and 2000 rupee notes, Modi has launched a crippling assault on corruption. For years the Indian economy has been severely hampered by the twin issues of black money (hoarded by corrupt individuals in paper form) and fake money (counterfeit currency frequently printed in places like Pakistan with the explicit aim of supporting anti-Indian activity).
Although there may be a price to pay in terms of short term economic slowdown as transactions become more chaotic and complex, this will be beneficial in the long run. At a stroke, Mr Modi has transformed India for the better.
The shock announcement, kept in almost total secrecy by the Indian government will no doubt cause some pandemonium in the short run. Many will face inconvenience as they frantically exchange their 500 and 1,000 rupee notes. However, it will be devastating to the corrupt. Almost overnight, their untaxed and illicit gains will be destroyed.
They will have to either hand the cash over to banks or subsequently face the resultant financial criminal investigations which may ruin them. This will make the Indian financial system more transparent, giving greater incentives to reduce black money transactions.
Political parties which have in the past relied on illicit cash for funding will now be in serious trouble, especially with elections due in Goa and Punjab. This is without a doubt a brilliant way for the Indian PM to circumscribe and constrain his political opponents, many of whom benefited from corruption in India prior to today’s historical announcement.
Politicians in India who profited from leakages in India’s creaky welfare system are now severely curtailed by this action.
The psychological impact on Modi’s political opponents will be tremendous. While the rush to exchange old notes for new ones and the inconvenience may cost Modi some votes in the short run, he can objectively and truthfully claim to have kept his promise to reduce corruption and black money. Little wonder he insisted that as many Indians as possible open a bank account. It begs the question: what other nasty surprises does this government have in store for the corrupt?
The other major impact is on the funding of illegal and destructive activities in India. The flourishing drugs trade for example, notorious for ruining many lives in the Punjab, will now face a severe setback. Better still, from the standpoint of Indian security, will be the devastating impact on cross-border terrorism. The insurgency and terrorism in places like Kashmir have had much of their illicit funding removed at a stroke making it harder to pay for the recruitment and supply of terrorists in Kashmir and elsewhere. The stockpiles of fake Indian money printed by the Pakistani ISI (Inter-Services Intelligence) - long seen by India as a major security concern - are now redundant. Their ‘investment’ in destabilising India will no longer be as effective. It will take them some time to find an alternative avenue to attack India.
The overall effect of this bold move is to make illicit paper money unviable and risky. There is no telling when Modi - or his successors - might strike again. Many of the corrupt individuals who hoarded money illegally and paid no taxes while millions of Indians lived in poverty will now have to face up to a devastating new reality.
The new 2,000 rupee denomination will come with satellite trackers, enabling the government to track which is real currency and which is fake. The satellites do not have to be on location to physically check the currency. This will also make life very difficult for terrorist counterfeiters in Pakistan to carry out their activities. Furthermore all interactions will be encouraged to be cashless and digital. For those of us who may be holding currency in 500/1,000 rupee denominations, the government has given until 31 December to deposit it into a bank or post office account.
Modi has made a radical decision that will transform the Indian political, economic and social landscape for good. India’s standing in the international community has also gone up a notch or two!