India has done this before. In 1946, all 1,000 and 10,000 rupee notes were recalled. In 1978, 1,000, 5,000, and 10,000 rupee notes were demonetized.
The Indian Prime Minister Narendra Modi announced the radical step to demonetize the currency notes in order to tackle the rampant problem of the so-called “black money” – billions of dollars’ worth of cash in unaccounted wealth and fake currency notes. The government has decided to introduce a new 500 rupee note and also introduce a higher denomination banknote of 2,000 rupees. However, ever since the announcement on November 8, thousands of people have been waiting outside banks to exchange old currency notes for new ones. While analysts and celebrities across the country have applauded this move, the crowds have been getting more and more restless with every passing day.
Demonetization Of Indian Currency To Impact Students Coming To Study In The U.S.: One of the key motivations for demonetization was to flush the black money generated through tax evasion and corruption and take India towards a “cashless economy.” However, cash was also the mechanism of short-term borrowing for many Indian students. Visa approval processes for international students requires showing proof of availability of funds for the first year of tuition and living expenses. Given that total annual expenses can range from US$ 30,000 to US$ 70,000, many Indian students were using short-term borrowing for visa approvals and education abroad.
Modi’s demonetization initiative caused a sudden breakdown in India’s commercial ecosystem. Trade across all facets of the economy was disrupted, and cash-centric sectors like agriculture, fishing, and the voluminous informal market were virtually shut down, with many businesses and livelihoods going under completely — not to mention the economic impact of millions of people standing in line for hours to exchange or deposit canceled banknotes rather than working or doing business..
“In certain parts of the country there used to be always an official amount and an unofficial amount of the property,” Nangia explained. “Now with this so-called black money going out of the window people are expecting that the price of real estate is going to fall, which is going to make it more affordable for honest, tax paying people.”
Results from a much-publicized survey were recently published which claimed that 90% of Indians support the demonetization initiative. However, the methods of this poll are highly suspect, as it was only delivered via a smartphone app — a technology which only 17% of the country has access to — and was also reputedly loaded with “leading questions and a multiple-choice questionnaire that often did not even give users the chance to disagree with the plan.”
“I think the expectation is that for the economy there will be long-term benefits, there will be short-term pain,” Nangia concluded. “The long-term benefits are that there will be more tax compliance, the government will be able to collect more and hence spend more on infrastructure, etc. The short-term pain is that this has gone ahead of the demand.”