Black money, a term used in India to describe funds earned from the black market, on which income and other taxes have not been paid or which is the proceeds of criminal activity such as bribery, kickbacks and corruption. While the total amount of black money that India has not been verified, some reports claim that at least US$1.06 trillion is held in Switzerland. So why does this matter? To combat the black money problem in India, on Nov. 8, 2016, the Indian government placed an immediate ban on the 500, and 1000 rupee notes (worth $7, and $15 in the U.S.).
According to CNN money, India is a country heavily dependent on cash transactions, with the percentage of transactions in cash being 98 percent. While Prime Minister Narendra Modi insisted that these two specific notes were to be considered “worthless pieces of paper,” both the 500 and 1000 rupee notes made up 86 percent of the total cash in circulation in India. Optimists and supporters of the currency ban stated that initial changes would be rough for all to recover from, and the prime minister himself stating that the “difficulties” would last no more than 50 days, however it is now 2017 and the whole country has yet to show a significant recovery from the sudden cash shock. Although the decision to ban the notes was meant in good faith, it has been shown to be increasingly rough on the people it was originally intended to help. As of now the auto industries as well as jewelry and housing industries have taken major blows due to the currency change.
About 233 million Indians do not have a bank account, according to a report from Price waterhouse coopers. Of the 1.3 billion people currently residing in India only 25 million credit cards exist between them all with more than 660 million debit cards being used only to retrieve cash out of ATM’s. The Reserve Bank of India tried to lessen the stress of the currency ban and attempted to force new 500, and 2000 rupee notes through banks and ATM’s. However, the chaotic scenes outside of banks around the country showed how frantic the situation was. The lines mirrored great bank rush that happened right after the beginning of the Great Depression in America. The overall country’s GDP has been increasing at an impressive rate of 7.3 percent, with economists predicting that the overall GDP would shoot past USA’s GDP in the year 2050. But now that prediction hangs in the air as the fate of India’s economy hangs in the balance. What will happen next? With a new nationwide sales tax slowly heading towards fruition in the next few years, it’s not hard to imagine Indian citizens bracing themselves for another rough transition that they are all too familiar with. Still, some optimism is needed because while these policies are causing a lot of strife and trouble, in the long run both the currency change and the new sales tax are slated to help progress India’s economy in a positive way.