Sending the country into a tizzy, the Modi government demonetized the 500 and 1000 rupee notes overnight. The decision, which was kept under wraps for nearly six months by the government and the RBI, is aimed at fighting the massive levels of corruption prevalent in the nation.
This strategic move will not only bring out the black money circulating in the parallel economy, but also bring to light the fake money racket, curb inflation in the real estate, and most importantly, drive India towards a cashless economy.
The impact on the Indian economy is left much to speculation. While banks and ATMs will remain closed today and tomorrow, a ruckus is expected beginning next week. The government has restricted the exchange of cash to INR 4000 a day for the next two weeks. Accounts are to be opened for any amount beyond that, which leaves the bank with more than the minimum capital ratio. In an ideal scenario, banks will eventually slash lending rates, and encourage the flow of services.
The new notes of INR 2000 will increase the value of money in circulation, which will most likely have a positive effect on the GDP of the country and result in lesser inflation.
One of the longer lasting impacts of this move will be the transition of the country towards a cashless economy. Although new notes with denominations of 500 and 2000 will be issued very soon, digital payment and virtual wallet companies are rejoicing the move and are viewing it as a major boost to their business opportunities. Reports were claiming a 300% increase in digital payments as well.
While the country is rejoicing at this bold move by the government, most of the impact is left to be seen. The government has accommodated for most emergencies at the moment, but the banks have a mammoth logistical challenges ahead. The wait is definitely on to see the corruption free India we always dreamt of.