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Banning high denomination notes: To clamp down on black money, introduce cashless transactions
The decision of the government to ban the Rs 500 and Rs 1,000 currency notes has been welcomed by the common man. Although aimed at combating corruption and black money, this move will cause short-term pain and chaos for the working class, small businesses and those who deal in cash on a daily basis.

The RBI has taken all possible steps to avoid inconvenience to the public as well as to the businessmen by allowing online transactions. However, the decision of slow strategy of replacement of notes will be troublesome.

PM Modi's historical decision to decommission notes is not likely to hurt most individuals in the long-term, although it will have a significant negative impact on the working class and small and rural businesses in the short-term.

Keeping aside in what other forms black money is stored in India other than currency or physical notes such as gold, real-estate, jewellery or any other form of wealth, the banning of notes will tackle the black money that exists in the form of hard cash, although not affecting other forms of black money.

At the same time, people in rural India who don't have access to bank accounts – estimated to be around 200-300 million in population – and depend upon high-value cash transactions will remain crippled until new notes come into the market.

Economist Ajit Ranade's back-of-the-envelope calculation shows that the highest face value of currency note in India should be around Rs 250; simply put, Rs 250 is the highest-value note that most Indian individuals should require.

In case the supply of smaller notes are constrained in the days and weeks ahead, it is likely to put quite a number of people in a pickle.

Frankly speaking, it is not understood as to why this step has been taken in haste when the UPI (Unified Payment Interface) system is not likely to be fully operational before January, 2017. It would have been better to wait until then if this move to ban higher denomination notes was also intended to stimulate India's shift towards a cashless economy.

In this high-tech era, slowly and gradually, the economy is getting digitized and ultimately moving towards a cashless system. Electronic transactions ensure a clear money trail and make life very difficult for tax evaders. In fact, it is a good idea to start with bigger transactions and extend it to smaller transactions gradually once you give the facility to everyone to transact through electronic means.

At the same time, in a report made public, the SIT also suggested capping the cash holdings of companies and individuals at Rs 15 lakh. If accepted by the government, both these measures could check cash transactions, ensure a paper trail for every high-value transaction and prevent tax evasion. High-value transactions in cash are a common feature, especially in the real-estate sector where buyers try to get away with lower stamp duty.

To clamp down on black money, government should introduce cashless transactions by fixing a little higher limit following recommendations from the Supreme Court appointed Special Investigation Team (SIT).

Editorial NOTE: This article is categorized under Opinion Section. The views expressed in this article are solely those of the author and do not necessarily represent the views of In case you have a opposing view, please click here to share the same in the comments section.
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