There are a few things which are still unclear regarding the Government’s decision to ban Rs 500 and Rs. 1000 currency notes from November 9, 2016 onward.
It’s still difficult to understand why the Government took the step.
According to Experts, the Rs. 500 and Rs. 1000 currency constituted 85 percent of currency notes in India. This means that in one executive decision, the Government removed 85 percent of cash money from the country. Thus until full replacement takes place, the country is running on just 15 percent of cash money.
According to experts, the cost of replacing banned currency with the new ones will cost the Government around Rs. 15000 to 16000 crores. Add to this the money loss due to lack of business activity in cash intensive businesses. This cost of currency replacement is huge in contrast to the money which various news reports say Pakistan pumps into India annually (around Rs. 500 crores or Rs 1500 crores).
After that there’re some U-turns yesterday. The replacement limit for housewives has been increased. The Government again plans to bring Rs. 1000 note.
In addition, the recent statements from Government seem to presume that cash money is needed just to people in metropolitan cities, who can withdraw more money once the ATMs with new currency are fully functional. The Government’s decision has hit the poorest of Indians the most, who many a times have savings as small as Rs. 1000.
The rationale behind the Government decision is still to be fully understood. If it’s about black money, then lets see how it pans out.