Indian decree targeting ‘black money’ fails as most cash re-enters system

  • Sumo

The cash was removed from circulation to target corrupt politicians and business people but left millions of citizens in turmoil.

A decree designed to make “black money” worthless in India has failed after most of it re-entered the financial system.

Prime Minister Narendra Modi said in a suprise announcement in 2016 that some currency would be taken out of circulation, with the aim of rooting out illegal stockpiles held by corrupt politicians and business people.

India’s prime minister Narendra Modi said he wanted to

The move, which was designed to destroy the value of billions of dollars of untaxed cash hoards, caused an economic slowdown and months of financial chaos for tens of millions of poeple.

The rich managed to find their way around the decree as it caused turmoil for those in India who have always depended on cash – the poor, the middle class, and millions of small traders.

Mr Modi announced in a November 2016 TV address that all 500-rupee and 1,000-rupee notes, then worth about $7.50 and $15, would be withdrawn immediately from circulation.

Banned notes could be deposited into bank accounts but India’s government said it would investigate deposits over 250,000 rupees, or what was then $3,700.

The government eventually released new currency notes worth 500 and 2,000 rupees.

Bank employees count old 500 Indian rupee banknotes inside a bank in Jammu

Bank employees count old 500 Indian rupee banknotes in 2016

In the months after the decree was introduced, business people said that even large amounts of banned currency notes could be traded on the black market, though middlemen charged heavy fees.

The cash is known in India as “black money”.

The reserve bank said in a report on Wednesday that 99.3% of the $217bn in notes withdrawn from circulation had come back into the economy.

Officials had originally predicted that number could be as low as 60%.

When he announced the order in 2016, Mr Modi said: “A few people are spreading the corruption for their own benefit.

“There is a time when you realise that you have to bring some change in society, and this is our time.”

Gurcharan Das, a writer and the former head of Proctor & Gamble in India, said: “Frankly, I think demonetisation was a mistake.

“He said that while it did broaden the country’s tax base, it was a nightmare for the immense, cash-dependent informal economy.

“You can’t overnight change that in a country which is poor and illiterate.

“Therefore, for me it’s not only an economic failure but a moral failure as well.”

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