Demonetization In India To Reduce Black Money Is Ineffective

In 2016, the Indian government under Modi took an initiative that shook the Indian financial markets hitting the least powerful people the worst. The government in their vocal opposition to the black money, terrorist funding and counterfeit currency declared all notes with the 500 and 1000 denominations void. The government has so far collected 15 trillion Indian rupees in unaccounted funds at the cost of a major inconvenience for the people who were not the offenders. The government oversimplified the issue and declared a motivating offer for the owners of undisclosed excess wealth, a majority of who were politicians and affluent businessman in the country.

The short notice on exchanging deadlines and currency trigger warnings only benefitted the affluent people who did hide their income and gave them a clean slate in exchange for 50% of their illegal gains. This policy is essentially legal money laundering by the Modi government. This claim is not unfounded because the scenario leading someone to turn over their money allows them freedom from their criminal past and the ways they acquired the money.  For those who put their money in offshore accounts or were influential enough to exchange currency before the ban was instigated would have done so.

The Indian government instead allowed those whose illegal gains were hidden, and therefore not in circulation, and those whose illegal earning disclosures could have helped the government crackdown on such crimes, to get a way out of breaking the law and paying their way out of it. Just because the stated reason was to curb black money, such an act of blatant government corruption cannot be ignored. The government allowed 50% of the illegal wealth to be kept by the owners and therefore did not stop collection rather taxed the illegal earners. This policy does nothing to stop future unlawful earnings being made and hidden by the people who are now free of any previous charges of tax fraud.

Similarly, this policy does nothing to combat future funding of terrorist activities as the currency change does not address how to stop any future transfers by the illegal gains that will occur from now on. This only serves the purpose of slowing the epidemic of black money and unlawful funding for the time being. The policy will, however, make counterfeiting the currency much difficult in the country but is in no way guaranteed to stop these activities from happening in the future.

With the status of the most corrupt nation in the Asia- Pacific Region, the country is not likely to end any of these violations of the law going such ways. It will only encourage the outlaws from this point on with higher legal income than they had before. This also increases the amount of legal tender available in the market making the inflation of currency higher and leading to the necessity of printing the new 2000 rupee tenders.

The policy put forth by Modi’s government, therefore, seems to only have a negative impact mostly felt by the non-offenders in these cases. The general public who were not complicit in such illegal activities had to wait for days to get their currency exchanged. This disrupted the entire with money economy and allowed the offenders to go scot-free in exchange for half of their ill-gotten gains. Moreover, since the movement was not thought through properly, even if it was a good step, it did not focus on solving long-term issues.


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