Black Money: Troubled waters in India

The demonetization policy targets “black money,” which is the illegal hoarding of cash, an issue that is rampant in India. In India, most transactions—both big and small—are done in cash, which leaves no record. (Dar Yasi/AP Exchange)

On the night of Tuesday, Nov. 8, 2016, the people of India were given a rude awakening as Prime Minister Narendra Modi declared that 500 and 1,000 rupee notes (about $8 and $15, respectively) would be wiped out of circulation. The government’s goal of this demonetization is to stop the flow of “black money” and the intense corruption that prevails in India, the seventh-largest economy in the world. However, the fact remains that most of the transactions in daily life are done with those very rupee notes. The sudden removal of these notes created a panic among ordinary citizens, because most of the people only keep 500 and 1,000 rupee notes with them. Now, the situation has become so dire that people cannot even buy the smallest of things, like a cup of tea.

The demonetization policy targets “black money,” which is the illegal hoarding of cash, an issue that is rampant in India. In India, most transactions—both big and small—are done in cash, which leaves no record. As such, it leads to huge, illegal exchanges of money.

The “Hawala Scheme” facilitates the avoidance of taxes and money laundering. The transactions of money are done anonymously. This system is used for various nefarious activities indulged in by corrupt politicians, criminals and terrorists. In fact, black money accounts for 20 percent of India’s annual $2 trillion GDP. The country itself ranks third in a list of countries with money hidden abroad, with $94.76 billion discovered in Swiss banks and other money centers back in 2012. Counterfeit currency is another reason for this demonetization. Though the government has informed the people that the mints are working full-time, still, there are delays and lines are queueing up at banks and ATM machines that are leading to frustration and rage.

To gain a firsthand perspective of how this policy is affecting people, I spoke with my aunt who resides in India. She gave me a thorough accounting of the chaos prevailing there. She had to search for smaller bills and notes at home which are usually kept for emergencies.

The banks are overflowing with people while shops and other facilities are no longer accepting the Rupee notes. I can well imagine people unable to purchase their daily needs. Means of conveyance, like taxis and trains, have all been disrupted. Even hospitals, which can still accept the outdated cash for the time-being, are refusing.

People are frustrated after being thrust into an unknown situation and are accusing the Modi-government for this quagmire. As it is, government policies are hugely complicated in India and this just brings an added nightmare for the common people. Together with that, animal shelters are also suffering because of the lack of donations and shortage of staff who have to take care of their own money concerns.

Demonetization is a good policy adopted by the present Modi-government and has been lauded by most people. Of course, when something new of this level is introduced, chaos and turmoil is bound to follow. However, the government hopes that this will be over within a few weeks as Dec. 30, 2016 is the last date for depositing extra cash in the bank.

Henceforth, any huge transactions will leave paper trails and be accounted for. There is indeed a large amount of black money, extreme corruption and tax evasion, which are hampering the country’s growth. However in my view, it is the common man and India’s huge rural population, together with the daily wage-earners and the poor, that are anguishing the most. Though it is being said that the action is being done for the greater good and that it will bear fruitful results in the future, what to do today? Let us wait and see.


Meghna Dhar is an opinion contributor for The Daily Campus. She can be reached via email at meghna.dhar@uconn.edu.