KUSHAGR SHARMA
Despite the numerous schemes and changes in regulations targeting black money, India has only risen up to the 76th position on the corruption rankings, from the 100th place, as Prime Minister in his address to the nation on November 8. Unsatisfied with the growth and being ambitious, the Government took the biggest step so far in combating black money by choosing to abolish the most widely used Rs 500 and Rs 1,000 notes. To give effect to his fight against corruption, he has proven again with his latest action that he is a man of his words.
Modi announced that all notes of Rs 500 and Rs 1,000 will cease to be legal once the clock turned to November 9. From the November 10 to December 30, citizens will have the opportunity to exchange their old notes with a valid ID card such as a passport, PAN card or Aadhaar card at their nearest post office or bank. Those unable to meet the deadline will be given a final chance to declare them with the Reserve Bank of India till March 31. In the meantime, the Government will start rolling in the new Rs 500 and the scarce Rs 2,000 rupee notes.
As people will be forced to declare money into banks and post offices, this will target all undeclared cash people hold known as black money. The substantial reduction of black money will only help the GDP grow and India rise in the corruption ranking but also have a anti-inflationary impact. As Nirmal Jain, chairman of IIFL Holdings Ltd states, “It will have a deflationary impact in general and more specifically on real estate prices and make homes affordable.” This will ensure that honest people can buy homes with honest money. The economic effects have created a great sense of optimism among economists and economic papers as the have had nothing but praise for the Prime Minister.
However, this will have more than mere monetary effects on the country. As Prime Minister Modi stated in his speech “Notes hoarded by anti-national, anti social elements will become worthless piece of paper.” What this means is that this measure will have a direct effect on the financing of terrorist activities in India, which often utilise counterfeit notes and black money channels. In return this measure is saving lives as terrorists will have less money to go around and in return less “missions” resulting in lives lost. This measure could even affect the ongoing-drug epidemic in Punjab where drugs primarily come from Pakistan in return for some good old 500 and 100 notes.
This move to demonetise notes and replace them is not an unprecedented move. The Indian Government has in the past demonetised bills during the years of 1947 , 1958 and 1978. Many other countries in the world have demonetised bills and changed the design. The whole purpose of switching the design is to target counterfeit currency as newer designs usually come with better security features. These security features end up driving the counterfeit statistics down. Countries that use paper-money usually change their design every 5-10 years so that criminals cannot develop ways to counterfeit items. India has not changed the design of the 500 note since 1991 with only few minor adjustments happening ever since. This negligence has significantly added to the high corruption and black market growth in India.
The official Government press release states that the “Introduction of new series of banknotes will be distinctly different from the current ones in terms of look, design, size and colour”. Despite the ambiguity (for security reasons) there are two possible scenarios. The first is the retention of paper money with a new design and more security. The second is the adoption of the new technology called Polymer banknote. Polymer banknotes are much more powerful than paper notes and have the ability to intensely destroy corruption.
These polymer banknotes use a plastic called BOPP. BOPP is a non-fibrous and non-porous polymer. Banknotes made using BOPP are a much better than paper notes. They fulfil the primary function of combating black money as they have very advanced security features which are easy to verify and they are hard to counterfeit. Besides this these notes are water and soil proof, harder to tear, burn and are shreddable and recyclable makes them more environmentally friendly as the end of their lives. However there will be some repercussions of these bills as they feel different which makes them slippery and are quite costly to make.
Polymer banknotes are now becoming the future as more than 20 countries have adopted them with more countries committing. These notes have shown a tremendous strength in fight against corruption. For example when polymer notes were introduced in Canada, the number of fake bills passed on to retailers in dropped by a staggering 74%. Australia, one of the first countries to adopt polymer banknotes has had the same effects as it enjoys one of the lowest counterfeiting rates in the world.
No matter which type of paper the Government adopts, the results are quite clear. India is no longer going to tolerate any corruption under the government of the Modi. This is the starting point in the downturn of corruption which will see India reach new heights in the 21st century.