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Modi's War Against Black Money Is Unlikely To Stop With Demonetization

13/11/2016 12:57 AM IST | Updated 17/11/2016 11:26 PM IST
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Hindustan Times via Getty Images
Prime Minister Narendra Modi addresses the nation from the rampart of historical Red Fort on the occasion of Independence Day celebration on August 15, 2015 in New Delhi, India. In his address he had said efforts to bring back black money stashed abroad are on. (Photo by Mohd Zakir/Hindustan Times via Getty Images)

The last few days have been full of surprises — from Donald Trump winning the US presidential elections to Prime Minister Narendra Modi's "surgical strike" on black money through the demonetisation of the old ₹500 and ₹1,000 currency notes. What's surprised me most though is the complete transformation in public opinion that took place ever since Modi broke the news. On the day the demonetisation of notes was announced everyone hailed it to be a masterstroke and an ingenious way to eradicate black money. The very next day the tide started to turn and people started criticising the move with the contention that it is only harming the poor and the middle class; that the rich will find ways around it or don't hold black money in cash anyway.

A government that dares to change 85% of the country's currency will go a lot further than you or I can imagine!

I'm sure the hours of waiting in line and the ATMs not working have severely impacted a lot of people. The lack of currency in some areas is also a concern. Yet, I think this move was done in a brilliantly systematic manner!

The moves that preceded this decision included:

1) The opening of over 25 crore Jan Dhan Yojana accounts.

2) Aadhaar coverage to over 100 crore people so that they have IDs.

3) Passing of the Aadhaar Bill.

4) Income declaration scheme to give people an opportunity to pay fines and convert their black money to white.

5) Demonetisation.

What this systematic progression has led me to believe is that this wasn't an impetuous move. It is well thought out. The secrecy and the months of planning show that it's been done by people who have thought a lot about this.

Now to the point that not all black money is in cash.

That's true and I'm sure that it's something that's been accounted for. In the coming days, I am certain there will be follow-up action on other black assets too. Prime Minister Modi's statement that he intends to trace the trail of black money as far back as the time of Independence indicates that he isn't done yet. The other places where black money is hoarded include gold, real estate and foreign countries. These may well be the next targets of the Prime Minister's strike on black money.

Here's what I think will happen next.

1) Gold transactions are going to be made tougher: Stringent ID requirements for buying and selling gold are likely to be instituted; these transaction that will likely be monitored through better mechanisms. It might even be that a gold transaction will compulsorily require an Aadhaar card.

2) Real estate is getting hit automatically and prices are dropping: The cash component will reduce automatically as prices approach the circle rate — the minimum rate at which the government charges duty for any real estate transaction in a particular area. If there is less black money in cash and gold in the system, people have less of it to use on real estate too.

3) Forex transactions will also get a lot harder: There'll be stricter regulations governing the conversion of forex into INR or vice versa to prevent the movement of money into or outside India.

In essence, if you have black money in the form of assets, the easiest way to keep it safe would be to take it out of the country and keep it there. The way things are progressing, it may even be advisable to follow the route that Vijay Mallya took and leave India with the black money!

At this stage this is all speculation. You may think the government will not go to this extent, but a government that dares to change 85% of the country's currency will go a lot further than you or I can imagine!

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