Prime Minister Narenda Modi’s War on Black Money

In India, 500-rupee and 1,000-rupee bills have been banned by Indian Prime Minister Narendra Modi in an attempt to stop tax avoidance and corruption, and to catch and penalize people holding huge amounts of cash that could not be accounted for. The ban was also implemented to eradicate fake Indian currency produced domestically and abroad, and stop the flow of “black money.” Black money is illegal funds on which income and taxes have not been paid. Majority of black money are in 500 and 1000 rupee notes, hence their removal from circulation.

People are permitted to exchange the banned bills, but it can only be done at banks and post offices where the exchange will be monitored. People with cash amounting to more than 250,000 rupees need to show proof that taxes have been paid and explain the source of the bills. Upon compliance, people are allowed to keep the money. People who are unable to satisfactorily explain the source will have to answer to tax authorities. On the other hand, money that cannot be exchanged will be demonetized.

Black money has long been plaguing India. In fact, Indians have the most illegal funds in foreign tax havens compared to any other country. Most business transactions in India are done with illegal funds. Businessmen get away with their use of black money by bribing government officials to give them licenses and other permits. Many other daily transactions are unofficially recorded so that no tax is paid on it. Since black money is not saved in the banks and most poor Indians have no bank accounts, there is less money available in banks to lend.

The plan that is considered pivotal was top secret until it was announced by Prime Minister Modi. Financial analysts have high hopes that Modi’s plan can help eradicate corruption and tax evasion in India. However, many people consider the bold move troublesome. Many Indians ran out of currency for basic transactions. Some families had no money to buy food. Banks were filled with people queuing in long lines, worried that bills would run out.

Many economists are worried that the sudden disruption on the Indian currency will slow down the economy. However, many Indians have remained patient and understanding through the transition, hoping that it will achieve what it promised to do. They choose to trust their Prime Minister’s words that the disruption is only transitory.