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Unprecedented. Historic. Surprising. These are only a few adjectives that are being used to describe the Modi government’s move to scrap Rs 500 and Rs 1,000 currency notes, starting midnight.
With one stroke, the government has addressed issues ranging from black money, counterfeit currency, and the Prime Minister’s vision of a cashless economy.
Most tax experts, lawyers and economists BloombergQuint spoke to agreed that the move was positive but there would be short-term repercussions.
Prem Rajani, Managing Partner at law firm Rajani Associates, said that the rationale of the move is to deal with and defeat corruption, terrorism and black money – all of which is weakening the nation. It is within the government’s powers to take such steps and it had taken similar measures back in the 1970s, he added.
In the immediate future, there will be serious hardship for large section of the public (honest citizens) till such time they can exchange old notes for Rs 100 or new notes.
Mukesh Butani, Managing Partner of law firm BMR Legal, said that a combination of national security concerns and a wider agenda to filter out unaccounted income would have guided the government to make this move.
It will be a difficult night for people who are hoarding cash, said Amarpal Chadha, partner of people advisory services at Ernst and Young.
Anis Chakravarty, lead economist at Deloitte, points out that on a sectoral basis, the commodities and agricultural sector, including the market for consumer non-durables is expected to feel the heat. However, the biggest impact in the medium to long term is likely to be on the real estate sector, he added.
Girish Vanvari, national leader for tax at KPMG India, said this will force hoarders of black money to disclose the amounts. The Income Declaration Scheme gave immunity from penalty. The ones who didn’t make disclosures under the scheme can make their money official and the consequence will be that the tax department will ask them to pay taxes, Girish added.
According to the Department of Economic Affairs, there are 1,650 crore notes of 500 denomination and 670 crore notes of 1,000 denomination in circulation. The total amount that will be withdrawn works out to Rs 14.95 lakh crore. The government has also announced the introduction of new Rs 500 and Rs 2,000 notes as part of the effort.
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