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Reserve Bank of India, Wikimedia Commons

November 9, 2016: Prime Minister Narendra Modi’s move of scrapping Rs 500 and Rs 1000 notes to curb ‘black money’ is undoubtedly impressive but it came as a shock to the nation when it was announced on Tuesday night. It was maintained as a closely guarded secret until the PM Modi himself announced it.

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No wonder, such a move has got huge ramifications for the country and it would be fair just to say that nobody really has an idea of the entire range of effects that the move can bring. However, there are certain things which can be gleaned easily. Let’s take a look:

The intended consequences:

If we turn the clock back, we will see Prime Minister Modi’s election campaign largely focused on fighting against black money. The steps which were taken in this direction did not yield fruitful results and thus this bold step was inevitable which PM Modi decided to take, to give rise to New India.

The legal holders of cash can easily deposit their large denomination notes with their banks by providing the accounted source and identification. This means that most legal holders will not be losing the money, while for the black money holders it would be extremely wary of depositing their money as it will leave a trail for the income tax authorities.


New 500 and 2000 rupee note.

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It is important to note that this is an important step and necessarily a one-time clean sweep of black money that will go a long way to reducing the stock of black money in the economy. Then again, it would be totally meaningless if strong measures are not taken in order to curb the sources and the flows of black money. Which we hope would be taken care of.

“This is the golden age to be a tech entrepreneur in India. Specially a fintech one,” tweeted Vijay Shekhar Sharma, the founder of Paytm, whose investors include Alibaba Group Holding Ltd.

Unintended Consequences:

When a huge step of curbing black money is taken, it is sure to have some unintended consequences as well. But, undoubtedly those will be of temporary nature, while the others will have long lasting effects.

Like FirstPost said, “Despite the pain for the public in the short-term, Modi’s Tuesday evening bitter pill is precisely what the doctor ordered.”

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The unintended consequences started on the Tuesday night itself, as people witnessed long queues in front of the ATMs, at petrol stations, and supermarkets where the people could exchange their high denomination notes. Mini bank runs, long queues at the banks, and a general liquidity crunch is to be expected in the few days.

– by Pinaz Kazi of NewsGram. Twitter: @PinazKazi


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