This is What Will Happen When the Indian Government Demonetizes ₹500 and ₹1000 Notes

What do you think of the decision by the Indian Government to demonetize ₹500 and ₹1000 notes? originally appeared on Quora - the knowledge sharing network where compelling questions are answered by people with unique insights.

Answer by Awdhesh Singh, IRS officer with 25 years of expereince in Government, on Quora.

The decision by the Indian Government to demonetize ₹500 and ₹1000 notes is a great step for curbing black money (acquired legally but tax not paid) and dirty money (acquired through illegal source) in India.

The move is so unexpected that people have no time at all to remove their black money, so this would become simply a waste of paper for them. I can't imagine any better move than this to eliminate black money from the country.

However, its immediate impact is likely to be very adverse on the stock market and the sectors like real estate where lot of black money is used. Its impact on the other sectors would be as following.

  1. The sale of gold and diamond jewelry would drastically decline. This means less outgoing foreign currency, hence a better balance of payment situation.
  2. Corruption would be reduced drastically.
  3. Credit card and other legal transactions would go up.
  4. Taxes (Income Tax, Excise, Service tax and Sales Tax) would go up substantially since more transactions would be in white.
  5. Criminal activities would reduce.
  6. Use of illegal money in elections would be reduced drastically.
  7. Property rates would reduce drastically.

There would, however, be a lot of chaos in first few days. Then everything would fall in its place.

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