Black Money in India

rupee

Surely one of the most curious–and potentially costly–monetary experiments is taking place right now in India, where Prime Minister Narendra Modi abruptly decided—without warning—that the 500- and 1,000-rupee notes in circulation were no longer valid currency, effectively turning 86% of his country’s paper currency into colorful scratch pads.  The Reserve Bank of India is printing new replacement bills to restock its banking system, but reports say it will take five or six months before the money removed from circulation can be replaced—in a country where cash represents 98% of all transactions by volume, and 68% by value.  Sales across the country have fallen by 20-30%, reducing estimates of India’s GDP growth this year.

The goal was to flush out vast hoards of undeclared wealth that had either escaped taxation or was acquired through illicit means—called “black money” in Indian economic circles.  Yet estimates show that about two thirds of the dark funds managed to escape the “demonetisation,” by finding their its way into “white” channels.  A more permanent solution is a proposed switch to electronic payments for most transactions.

About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years.  Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.

Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association. 

Source:

http://www.economist.com/news/asia/21711094-without-cash-indians-are-struggling-modis-attempt-crush-black-economy-hurting-poor?fsrc=scn/tw/te/bl/ed/modisattempttocrushtheblackeconomyishurtingthepoor

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