There is all round appreciation for the bold initiative taken by Indian Prime Minister Modi on the Rs 500 and Rs 1000 notes.India will withdraw high-denomination banknotes in the nation’s biggest crackdown against unaccounted wealth and corruption in almost four decades.
This is the first time since 1978 the government has withdrawn money from circulation, according to the central bank’s website.
The step by Modi, who is approaching the half-way mark of his term, is an attempt to fulfill his election promise of curbing tax evasion and recovering illegal income, locally known as black money, stashed overseas. Modi’s unprecedented move follows a similar step taken by the European Central Bank, which is discontinuing the use of 500-euro ($575) notes to stop their use in “illicit activities.”
Modi is “changing the narrative at a time when everyone was saying this government’s moves on black money were mainly hype,” said Milan Vaishnav, a senior associate with the Carnegie Endowment for International Peace in Washington. At the same time “the average Indian waking up to this is going to think ‘what is going on’,” he said.
The Indian Prime Minister had struck a chord with 1.3 billion Indians in the 2014 national polls by promising to give the impoverished as much as 2 million rupees each from such funds stashed abroad. There are about 16.5 billion of 500 rupee currency notes and 6.7 billion of 1,000 rupee bankbills in circulation, according to central bank Deputy Governor R. Gandhi.
“On one hand, we are number one in economic growth and on the other we are ranked 100 in global corruption rankings,” Modi said in his speech. “Despite various steps, we have improved only to 76.”
The timing of the move is critical. It comes just before key state elections. Money for votes is a common practice, as is handing out gifts, according to N. Bhaskara Rao, chairman of the New Delhi-based Centre for Media Studies, which published a report in 2014 on the topic.
This is a one-time chance to come clean on unaccounted wealth led to declarations of only about 25 billion rupees in tax last year, while an income declaration program this year had met with a mixed response.
“It is a very powerful measure to curb black money,” said Nirmal Jain, chairman of IIFL Holdings Ltd. “It will have a deflationary impact in general and more specifically on real estate prices and make homes affordable.”
