India and Indians went crazy as soon as Indian PM Narendra Modi announced ₹500 & ₹1000 notes are no more legal. Yeah! Take that. It’s a big f*ck you to the black money hoarders and people who love keeping notes at home. There’s one more category more upset, our homemakers who preserve that precious green. All in all considered, this is a welcome step and a master stroke. When self-declaration of black money did not happen, this is indeed going to pull out such people out of the hole or they lose all their worth. I feel, we are still missing the bigger picture.
Petrol Pumps, hospitals, travel ticket booking are just some places where they are still valid for sometime before the aforementioned notes lose value. I felt happy that high valued notes are discontinued but was equally saddened by introduction of ₹2000 note. The highest value of currency note in public circulation in US is $100 while in UK it is £50. In UK, it may be £50 but generally we don’t see it, never seen it come out of ATM and even some shops have policy not to take them. The safest bet is to go to a bank and convert to lower dominion.
With ₹500 & ₹1000 gone from picture, people will have to carry big, fat purses. That’s inconvenience to public and the shop owner (imagine counting of notes and maybe people will avoid such stores). This was a great opportunity in India to bring in new changes in banking but sadly is missed.
Advent of card payments
When we hear about card payments, it is not always Credit Card but Cash Cards & Debit Cards as well. This would’ve forced people to use cards. The big stores still have cards machine but this will then cover even those who take in cash for those “kachha” bill or discounts.
Adoption of mobile payment solutions
With mobile payment solutions like PayTM, MobiKwik & host of others and Unified Payments Interface (PhonePe, ICICI Pockets), will enable people without cards to carry high value transactions without hardware cost to shop owners. Most urban people have a smart phone to cover these off.
Banking services changes
Having a worst scenario of card usage in India where you pay bank for Debit Card, you pay bank for usage in ATMs, some shopkeepers are happy in taking away additional 2.5% on cards and even all bargaining goes in vain when card is pulled out (cough! black money). People might prefer to switch banks with no card fee, usage of ATM to reduce if cards accepted widely, people will be more aware not to pay 2.5% extra and no wasted bargain effort. Considering urban setup, everything is covered but not in villages. This will push banks give debit cards to all (for free) and ATMs to pop-up in non-urban areas. This would be necessary jolt to banking services to improve at various levels (we still hope Government Banks like SBI improve service).
The short-term goal is to flush out all ₹500 & ₹1000 notes and the step is really heartily welcomed. But bringing in ₹2000 note is starting of a new cycle. Now those hoarders will be able to reserve more money using less space – effectively 2 to 4 times. With available resources at hand, it would’ve been a bold move to control the notes in circulation. Whatever may be claimed that number of ₹2000 notes will be controlled and distribution will be limited but this is in very narrow view. In long run, the notes will keep on minting, black money will keep on piling, purses may flatten but inflation may increase.
The need of the hour is to reduce the flow of money through unofficial channels. It may be harsh but will have long-term benefits:
- Money will reside with banks more
- Less circulation of notes – easier to control and maintain
- Less exchange of hands for notes – long life for notes
- All money accounted for, provided PAN details are validated and maintained
- Bribing to be difficult. Imagine bribing a person 1 Lakh (₹100,000) which is 1,000 notes of ₹100 and that’s FAT bundle
We still have some time. Hope decision for ₹2000 note is rolled back and we are left with maximum ₹500 note. Do provide your comments and feedback below.