In a move to clean up the economy, Prime Minister Narendra Modi has announced demonetization of Rs 500 and 1000 currency notes with effect from November 8 midnight, making these notes invalid in a major assault on black money, fake currency and corruption.
People holding notes of Rs 500 and Rs 1000 can deposit the same in their bank and post office accounts from November 10 till December 30. However, he said that all notes in lower denomination of Rs 100, Rs 50, Rs 20, Rs 10, Rs 5, Rs 2 and Re 1 and all coins will continue to be valid.
The move is described by experts as “very bold” and “path-breaking.” They said the task of taking out black money from easy circulation, which was so complicated, has now been resolved with one stroke.
The government’s decision to scrap Rs. 500 and Rs. 1000 rupee notes has however created panic among the common man.
Here are some points that are worrying as well as beneficial for the common man:
1. The step will be a big problem of people with illegally earned money as they will be afraid of deposit it in a bank. People having crore of black money, cash, earned through ways such as corruption and smuggling, will have a tough time dealing with the situation.
2. There are many shops (or traders) that deal only in cash like grocers, vegetable sellers, pharmacists and even textiles, and since ATMs will not spit money in the next few days, it will hurt the poor most.
3. Moreover, there are many shops and businesses that don’t accept bank cards, so people going short on money in Rs 500 and Rs 1000 denominations, will have to run hard to get Rs 100 notes. There are also many people who’ll not have liquid cash with them will be worried by the move.
4. Reduction in total currency circulation in the economy will lead to deflation, a decrease in the general price level of goods and services.
5. Surprisingly, you’d not be able to exchange other people’s cash. Given that all banks have CCTV cameras, for exchange of cash one would have to show their personal ID.
6. People who have a lot of legally earned cash will deposit in the bank, leading to rise in bank deposits. This will make loans easier and could lead to a possible reduction in interest rates.
7. This will also lead to a crash in home prices since most buyers in real estate are doing the transactions in black money. Since now the buyers will have use white money in buying homes, the demand for the land will go down further leading to downfall in its price. And because of lack of potential buyers, people will start selling at lower prices. Though it will not impact the primary residential segment as the buyer in this sector are driven by mortgage, the secondary market will take a hit and the unorganised developers community where there were still cash dealing.