A way of life in India has changed. Narendra Modi is the Prime Minister of India. In November he made an announcement. He told the Indian people they would not be able to use their 500 and 1,000 cash rupee notes after the end of 2016. These notes are now worthless.
Indians held vast amounts of cash in large notes. They used cash to pay for everything. That will not be true in the future. About 80 percent of all the business done in India is in cash. That number is a little more than 20 percent in the United States.
The notes would no longer be legal tender. Modi did this because India was a nation known for its corruption. People use cash to buy housing or even to build housing. They call it ‘black money.’ Billions of rupees go untaxed. Much of the cash does not end up in banks. It makes politicians corrupt. There is large-scale counterfeiting. The cash funds terrorists. It makes bribery a way of life.
The big question after the announcement was what will happen? People had until the end of 2016 to turn in the notes. They would get rupee notes in smaller amounts in return.
That was not all. If they turned in more than 250,000 rupees ($3,670) in large notes, they would have to prove they paid taxes on it. In the United States, for every $100 paid in income tax, about $20 is not paid. In India, for that same $100 in taxes paid, $200 more is not paid.
Because of the change, people are without cash. Businesses all over India are hurting. The program is causing hardship.
It is a big gamble by the government. The government is printing new money for smaller amounts to replace the higher amount bills turned in. Experts say this reform will reduce corruption, but it will not end it.
Ahead, Modi is looking to continue making changes in the tax system. He has already changed the tax rules on goods and services.
All the changes will increase the nation’s revenue. This will help the country improve education and health care. It will help India to compete in the world economy. Modi just has to have the political skill and good fortune to see it through.