Rs 500, Rs 1,000 note ban: Decoding India's biggest ever crackdown on black money

At 8 pm on Tuesday, when Prime Minister Narendra Modi began his first ever televised address to the nation, there was a great deal of curiosity among the people. This particular broadcast was not widely publicised, as is norm for any such broadcast, nor was it preceded by some occasion that would otherwise warrant a prime ministerial address of such a nature.

Halfway through his speech, Modi dropped the bombshell, which BJP Amit Shah later called as a “surgical strike against black money”, surprising the nation at large and shocking a large number of people across the spectrum who had hoards of unaccounted black money. He announced that at the stroke of midnight on 8 November, 2016, the Rs 500 and Rs 1000 currency notes ''would become waste paper.''

This is the biggest ever crackdown on black money; a shocker to black marketers, hoarders and corrupt persons of all hues and in all walks of life. No one could have ever imagined such a bold, brave or even harsh move.Perhaps, no such emergency measure has been employed anywhere else in the world.

Rs 500, Rs 1,000 note ban: Decoding Indias biggest ever crackdown on black money

PM Modi decided to discontinue the existing Rs 1,000 and Rs 500 currency notes with effect from midnight on 8 November. PTI

The prime minister needs to be complimented for showing this kind of courage and conviction, for the move may cut both ways – as it’s not like the guys in BJP or those supporting BJP didn’t have black money, or that they didn't have loads of cash stashed away at their homes, offices and their benami properties.

Modi, RBI governor Urjit Patel, Secy Department of Economic Affairs Shaktikanta Das and other senior officials who spoke on the matter, highlighted that the move was necessary as black money was being used to spread terror in the country.

They also pointed out that millions of fake currency notes were being smuggled into India from across the border to finance the menace of terrorism, in all its forms. When the prime minister and other topmost officials in the government narrow down on this terror financing mechanism, they are not joking; thus, this threat needs to be taken seriously.

Though the move will cause temporary inconvenience to even the most honest people living in India – short term restrictions on ATM usage, limits on maximum amount withdrawn from ATMs, banks being closed for public transactions on Wednesday, and so on.

In the currency based economy of the country, even the daily wage earners and causal low income group workers are paid in Rs 500 and Rs 1000 denominations. They will be hard pressed to understand the new mechanism and will end up knocking on banks doors in the days to come. Small traders and hawkers have to pick goods and pay cash, to sell or to sustain their livelihood. They would not know how to react to this move or how to survive in the next few days.

That is the collateral damage of the Modi government's fight against black money. This could possibly explain why Modi was so insistent on opening bank accounts for all Indians. He may or may not have planned it that way, but the move certainly had its own merits.

As one can perceive it, there would be no parallel economy in the country for the months and and years to come. It was all done away with in one single stroke. Real estate dealers and magnates, political parties of all hues – particularly those contesting in the elections due in a few months – the bullion market and so on, would be the worst affected by the move.

Those who kept cash beneath their beds, strong rooms, customised cavities in walls and wardrobes would be getting strokes of all kinds following the crackdown.

“There comes a time in the history of a country’s development when a need is felt for a strong and decisive step. For years, this country has felt that corruption, black money and terrorism are festering sores, holding us back in the race towards development. The magnitude of cash in circulation is directly linked to the level of corruption. Inflation becomes worse through the deployment of cash earned in corrupt ways. In spite of all these efforts, there may be temporary hardships faced by honest citizens. Experience tells us that ordinary citizens are always ready to make sacrifices and face difficulties for the benefit of the nation,” Modi said in his address to the nation.

The fact that a decision of this magnitude was kept under wraps, as a closely guarded secret, is a remarkable achievement on part of Modi and his select team. There was no leak, not even slightest hint of such an extreme measure.

The timing of the announcement was also critical. By the time he made this announcement, most shops usually shut down their shutters; thereby, leaving no time for black money hoarders to engage in high value shopping.

Over 60 years ago, when India was about to attain freedom on 14 August, 1947, Jawaharlal Nehru had said:

"Long years ago we made a tryst with destiny, and now the time comes when we shall redeem our pledge, not wholly or in full measure, but very substantially. At the stroke of the midnight hour, when the world sleeps, India will awake to life and freedom. A moment comes, which comes but rarely in history, when we step out from the old to the new, when an age ends, and when the soul of a nation, long suppressed, finds utterance.

It is fitting that at this solemn moment we take the pledge of dedication to the service of India and her people and to the still larger cause of humanity."

Interestingly, with a bit of paraphrasing, this part of Nehru’s speech would hold true for Modi and the nation he now leads.

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Updated Date: Nov 09, 2016 11:51:22 IST

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