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November 09, 2016

It is tough to not like an honest attempt and even tougher if the attempt is a courageous one. The move by the Indian Government to withdraw the presently used high denomination currency notes is such an attempt. These currency notes are one of the key enablers in the generation, storage and movement of domestic black money and its movement across our country’s borders. This money is often used to carry out illegal acts in the country such as bribing and terrorism.

This move will render most of the black money currently held as Indian currency unusable. This would include money that is just stashed away for use at a later date, money that has been converted to cash to be moved abroad through the hawala channel, or money that is sitting abroad but destined for use in the country for one of a myriad of illegal activities. It will also render the present infrastructure for printing counterfeit currency – both within the country and outside – worthless.

Though some, or even many, of these activities may well find new routes for their conduct, such ‘innovation’ will impose fresh costs on their practitioners in terms of money, quality of people and time. Till these new methods are found and perfected, the nation will get a breather. And, as and when these activities recommence, they will be rendered more costly than before as the risk of a repeat of this move will have to be priced into their cost of operations.

This “re-pricing” of black money transactions will render some, or even many, of them unviable and cause them to move into the formal (white) economy. This will cause the formal economy to be larger than what it may have been without this move. This will, in turn, improve tax collections and provide greater fiscal capacity to the government for spending on improving the country’s physical and social infrastructure.

Author –

Ajay Dwivedi

(Ajay Dwivedi is one of the founders of AskHow India. Blogs are personal views.)

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