Ten Big Impacts Of Demonetisation That You Must Know

by Saswat Panigrahi - Nov 22, 2016 12:22 PM +05:30 IST
 Ten Big Impacts Of Demonetisation That You Must KnowCustomers exchange Rs 500 and Rs 1,000 currency notes at a head post office in Hyderabad. Photo credit: NOAH SEELAM/AFP/GettyImages
  • From lootera netas to dishonest babus, from corrupt builders to mining mafias, from Maoists to terrorists, from hawala racketeers to fake note printers and pedlars, from Kashmiri separatists to North-East insurgents – all are having a tough time, thanks to demonetisation.

    The nation is on the cusp of a major change.

Prime Minister Narendra Modi is known for keeping his cards close to his chest. The maverick statesman spins audacious surprises which are beyond the range of speculations for political pundits. Modi’s announcement to demonetise the old Rs 500 and Rs 1,000 notes and replace them with new Rs 500 and Rs 2,000 series with advanced security features brings home this very fact.

In what could be termed as the mother of all reforms, Prime Minister Modi’s demonetisation move will have far reaching implications. This is not to dispute that the transformative step has brought some hardship for the citizens, but those are temporary and will blow over soon. For the larger benefit of the nation, we the citizens can bear such hiccups with a smile. After all, this is how we as citizens can contribute in policy making and nation building. While bank employees are working overtime to make Modi’s ambitious demonetisation drive a success, let’s discuss its many-fold impacts.

1. Black money: At one stroke the Prime Minister has choked the supply of black money stacked inside the country. Of the Rs 17 lakh crore of total currency in circulation in the country, black money is estimated at mind-boggling Rs 3 lakh crore. Black money is nothing but a plunder of the nation. Black money operators run a parallel economy which shakes the very foundation of the Indian economy. With Modi’s demonetisation move, all domestic black money will either be deposited into the banks with heavy penalty or be simply destroyed.

2. Economy: Demonetisation will have a huge resultant effect on the Indian economy. The clean-up of illegal cash will help turn around the economy. First, it will bring more borrowings to the exchequer, improve inflation outlook and increase India’s gross domestic product (GDP). Second, it will revive investment opportunities and give a fillip to infrastructure and the manufacturing sector. Third, it will help reduce interest rates and lower income tax rate.

3. Note bank politics: In the run up to the crucial assembly elections in Uttar Pradesh, Punjab, Goa and Uttarakhand, Prime Minister Modi’s demonetisation announcement has come as a shock and awe for the political parties and politicians for whom black money is a lifeline. The pulling out of the old Rs 500 and Rs 1,000 currency notes will help make the election process clean and transparent. But it has brought tough times for the political parties and politicians who believe in the idea of purchasing votes in exchange for notes. That is precisely the reason a rainbow coalition of a galaxy of regional parties and the Congress is building up against Modi, because their political interests are badly hurt.

4. Real estate cleansing: It is said that real estate is an industry built on black money. The extent of black money floating around in the sector is huge. According to an estimate at least 40 per cent of real estate transactions in Delhi-NCR are in black. Modi’s demonetisation move will curtail the flow of black money into the real estate sector. This will help in making the much needed correction in the sector. The impact: An unexpected dip in land and property prices.

5. Hawala transactions: Demonetisation has crippled the hawala rackets. Hawala is a method of transferring money without any actual money movement. Hawala route is used as a means to facilitate money laundering and terror financing. Hawala rackets run again on black money. With black money suddenly being wiped out of the market, thanks to demonetisation, hawala operations have come to a grinding halt. According to an India Today report, one of the hawala operators in Mumbai has destroyed currency notes worth about Rs 500 crores.

6. Counterfeit currency: Demonetisation has dealt a death blow to the counterfeit Indian currency syndicate operating both inside and outside the country.

Counterfeit currency seriously devalues the real worth of Indian currency. A study conducted by Indian Statistical Institute, Kolkata on behalf of the National Investigation Agency (NIA) suggests that fake Indian currency notes (FICN) amounting to Rs 400 crore are in circulation in the country at any given point of time and around Rs 70 crore fake notes are pumped into Indian economy every year. The estimation is based on recovery and seizure made by various agencies. But the actual figure could be much larger. A One India report, quoting an Intelligence Bureau dossier, says fake Indian currency worth Rs 12 lakh crore has pumped into Indian financial system over the years. Needless to say that most of the fake currencies circulated in India are of Rs 500 and Rs 1000 denominations. It is also pertinent to mention that the fake currency floating inside the Indian financial system is not counted within the Rs 17 lakh crore of total currency in circulation in the country.

This is an open secret that Pakistan has been printing fake Indian currency at its government printing press in Quetta and its security press in Karachi. The enemy nation funnels the counterfeit currency through the frontier at Jammu & Kashmir and via India’s porous border with Bangladesh and Nepal. With Prime Minister Modi’s decision to pull out the old Rs 500 and Rs 1,000 notes and replace them with new Rs 500 and Rs 2,000 series has completely stalled the circulation of counterfeit Indian currency. Experts say the new currency notes have come with advanced security features which are almost impossible to replicate. So Pakistan has no option but to shut shops of its fake Indian currency.

7. Terror financing: Terror financing is sourced through counterfeit currency and hawala transactions.

This is how terror financing works. Fake currency circulation is routed through a multi-layered network of hawala operators which are closely linked to satta (gambling) and smuggling of drugs, opium and arms. Indirectly, they all end up financing terrorism.

In addition, the terrorists collect huge donations and then route the money through hawala transactions.

With the circulation of counterfeit Indian currency completely stalled and hawala transactions stopped, all windows for terror financing are closed.

8. Maoism: Maoist sympathisers call Modi’s demonetisation move an “undeclared financial emergency”. There are reasons to it. Demonetisation has hit the Maoists and their movement hard.

Black money is the oxygen for Maoists. According to an estimate, Maoists manage to raise Rs 300 to Rs 400 crore annually through donations, levy and extortions. The illicit money is used to purchase arms and ammunition, food and medicine and daily essentials, apart from distributing it among the ranks and the cadre.

Police sources in both Chhattisgarh and Odisha have told the writer that the Maoists have stashed old high denomination notes to the tune of over Rs 10,000 crore at their dumps in the dense jungles of Odisha- Chattisgarh boarder. No wonder, with Modi’s demonetisation drive, all those illegal money are reduced to paper scrap.

Maoists are in a state of coma and Maoist activities see a crippling blow. Ever since the demonetisation announcement was made, no major violence was reported from the Maoist infested states like Chhattisgarh, Odisha, Andhra Pradesh and Telangana.

9. Kashmir unrest: The four-month-long unrest in Kashmir valley is on a backburner, thanks to demonetisation. No stone pelting on security forces has been reported in Kashmir ever since the demonetisation announcement was made.

An intelligence estimate suggests that Pakistan sends Rs 1,000 crore annually to the separatists for fuelling unrest in Kashmir. The money is transferred through hawala route. With hawala transactions completely choked up, the separatists are now clueless. It won’t be wrong to say that “stone pelter” Modi completely shattered the Kashmir unrest with his stone called demonetisation.

10. North-East insurgency: Demonetisation has severely affected the multiple militant groups operating in the North-East.

According to intelligence estimate the north-eastern insurgent groups together have a corpus of Rs 400 crore annually.

The insurgents source their funding in two ways. They raise funds through levy and extortions like the Maoists do. But unlike Maoists, the leaders of North-East militant outfits do not live in the jungle. Their English speaking high ranking leaders run operations from their dens in Myanmar, Bangladesh and Nepal. From there they also transfer huge illegal money via hawala route to their cadre for running the militancy. With the extortion money stopped completely in the absence of cash inflow and hawala operations coming to a complete halt, all activities of North-East militants have shuttered down.

Post Script: Narendra Modi is a great disrupter. His decisive move has ruffled a lot of feathers. From lootera netas to dishonest babus, from corrupt builders to mining mafias, from Maoists to terrorists, from hawala racketeers to fake note printers and pedlars, from Kashmiri separatists to North-East insurgents, all are having a tough time. And Modi is coming out with some more tough steps. The next round of surgical strike would be on benami property holders and unregulated deposit takers.

The nation is on the cusp of a major change.

The writer is a senior journalist based out of Delhi. He writes on politics, policy, national interest and cultural nationalism. He tweets at @SaswatPanigrahi.

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