Why was this decision taken? What impact will it have on India's population and economy?

Taking a firm stand on corruption, Prime Minister Narendra Modi on 8 November 2016, announced the scrapping of all Rs 500 and Rs 1,000 notes with immediate effect. This announcement has been somewhat of a surprise to everybody, the citizens, the nation and even within most of the government! It might sound a defective decision but it is true and will be a staunch decision of striking off usage of 1000 and 500 Rupee notes currency in India. These currency notes will be just worthless pieces of paper with no value.

Who are the most affected?

This move deeply impacts the working sections of society: drivers, maids, cooks, electricians, plumbers, and anyone who provides services in the informal sector and depends on monthly or bi-monthly cash payments. Also, the people in rural India who doesn’t have access to a bank account (roughly 200-300 million people) and depends on high-value cash transactions will be crippled until new notes come through. It will also be difficult for more than half the population who are not well versed with the card and online transactions. But for others who are worrying what to do with the stacks of 500 and 1000 notes, need not glaze and run punching on the government. Here’s what you and I can do with the Rs 500 and Rs 1,000 notes in hand: Deposit old notes at your nearest authorized banks or post offices between November 10 and December 30 (50 days) without any limit. There will, however, be a limit on withdrawal — Rs 10,000 per day and Rs 20,000 per week. This particular limit will be increased in the coming days.

What are the benefits of this move?

With this one single decision Indian government can hit black markets down and can also fight corruption, terrorism, and counterfeit currency. The strict decision of banning regular 500 and 1000 rupee notes from circulation will immediately stop the hoarding of black money, and a huge amount of money will come back into the economy.

Arms smuggling and espionage will also be choked due to lack of funding, Thus national security will be better as financing terror through smuggling currency and money laundering can be controlled now.

This move will drive our economy to cashless economy. With the new limits on ATM withdrawals being restricted to Rs 2000 per day, withdrawals from bank accounts limited to Rs 10000 a day and Rs 20000 a week, it will drive the card and online payments across the country.

This decision will also help institutionalize the real estate sector bringing more transparency in the Indian real estate industry. Also, the housing prices would witness downward pressure, helping revive demand in the sluggish housing segment. This will result in bringing the more credibility to the Indian real estate sector and making it more attractive to the foreign as well as domestic investors.

Looking at the long term benefit of this move, it will help the common man by putting an end to the artificial increase in Real Estate, Higher Education and Healthcare transactions bringing them within the reach of the common man.

What would be the impact of this move?

The initial immediate impact of this move will be heavy deflation as people who have earned money through illegal means such as smuggling, corruption would be afraid to declare the money as they might be prosecuted by Government/Income Tax Dept on the legitimacy of their income, which will reduce the total currency circulation in the economy. Thus, deflation will increase the value of money leading drop in gold prices, stocks & commodities.

This move will also lead to the inflation, but slowly, not overnight. There will be a number of people who have a lot of cash in hand which they have earned legally earned and now will deposit it in the bank. Thus, bank with more deposits can do more lending. Credit/loans will become easier and interest rates may come down. As more loans will be given out that will increase broad money supply creating inflation. And in future deflation and inflation will balance out each other

Could this move have been timed better?

Needless to say, this news comes as a huge surprise to the public. Considering humanitarian grounds and stave off outright panic, the government has given a 72-hour-long window before the announcement is put to action. But it still puts quite a number of people in a pickle if the supply of smaller notes is constrained in the days and weeks ahead. The timing is also curious for other reasons: the UPI (unified payment interface) system is likely to be fully operationalised only by January 2017. Would it have not been better to wait until then, if this move was to also spur India’s shift towards a cashless economy? On the other hand, if this had been announced in advance it could have been self-defeating in nature; allowing holders of black money to convert their cash for gold or other forms of wealth instead. The secrecy surrounding this decision – coming as it did as a shock to journalistic, policy and even most government circles – only reaffirms this.