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Indian Rupee Demonetisation: Why It Cannot End Corruption Or Even Black Money

Rupee Demonetisation

It was November 8, when Prime Minister Narendra Modi, in a dramatic announcement, decided to scrap or demonetise two high-value Indian currency of the denomination of ₹500 and ₹1000. It means 85% of currency in circulation will no longer be a legal tender. All that precious notes have been converted into wastepaper overnight. It became the biggest talking point in every Indian household  from Kashmir to Kanyakumari and from Kutch to Arunachal Pradesh. After all, in a country where 98% of all transactions are conducted in cash, it was a big jolt.

Demonetisation is usually associated with degrading economies and hyperinflation and often done by military dictatorships. It was surprising that a popular and democratically elected prime minister of a booming economy has resorted to demonetisation.

Black money is the money held by people that have evaded taxation. It is illegal hoarding of unaccounted money which tends to exacerbate inequality because the biggest evasions occur at the top of the income spectrum. It deprives the government of money to spend on infrastructure and public services like healthcare and education.

India has a huge amount of black money the "kala dhan". But, the bulk of this kala dhan is not in cash form but kept in gold, real estate and overseas bank accounts. Thus, demonetisation is not going to impact the major share of Indian black wealth.

There is no doubt that the government's dragnet will catch some illicit cash. Some people will surrender their black money and pay a penalty; others will destroy part of their hoarded cash in order not to draw attention to their businesses.

The collateral damage from this move has been huge. It has caused massive unrest in the country. Though people have accepted this inconvenience without a single complaint, in hope of a better corruption-free India, their plight cannot be ignored. While the impact of demonetisation can be seen among people from almost every field, in one form or another. But, the daily bread-earners and those without easy access to banks or post offices are the biggest sufferers. From Agriculture to Industry, the damage has been caused to every business which runs only on cash. Demonetisation is mostly hurting people that aren't its intended targets.

Corruption has nothing to do with currency, cash or banking. It requires changing institutions and, most importantly, mindsets. To weed out black money, more comprehensive reform is needed. Without tackling the reasons for black wealth, just demonetisation cannot make India successful to get rid of corruption and black money.

Demonetisation, as it appears, is one of India's biggest economic blunders, but it could have been a great achievement had it been implemented with planning.


Also Read: Cashless Economy: The Key To A Reform

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