A welcome move, but accompanied by economic hardship

The financial sector has welcomed the decision of Prime Minister Narendra Modi to scrap notes of Rs 1,000 and Rs 500 denominations as legal tender, though it seems worried about the hardship that may hit the economy as a result.

 “In a single masterstroke, the government has attempted to tackle all three malaises currently plaguing the economy — a parallel economy, counterfeit currency in circulation and terror-financing,” Rana Kapoor, MD and CEO of YES Bank, said, welcoming the move.

“On the first appearance, this announcement appears to be the most significant change made by the Modi government till date, its impact could be even bigger than GST,” Girish Vanvari, Partner and Head (Tax) at KPMG in India, said, adding that it will cause hardship in economy.

“All the players will have to play a crucial role in this now. We need to ensure that ATMs keep functioning properly. Banks also need to ensure that the Rs 500 and Rs 1,000 notes are removed from the ATMs, and are filled with legal tender,” Navroze Dastur, Managing Director, NCR Corporation (India and South Asia), told DH, adding that it will add a short-term pressure on liquidity in the country.

“This is a welcome move by the government, and is on course with the Prime Minister’s promise to take steps to eradicate the menace of Black money. However, it would have been more effective if the effective date was September 30, 2016, as it would have ensured greater success for the income disclosure scheme,” Riaz Thingna, Director, Grant Thornton Advisory, said.

“By this decision, the government has taken the fight against domestic black money to the next level. In the backdrop of other developments such as the Black Money Act, voluntary disclosure scheme and the introduction of Benami Transactions (Prohibition) Bill, this is a significant change, as people will have to provide an ID while exchanging the notes going forward. This way the government will be able to identify undisclosed income and can be considered akin to a forced disclosure scheme,” K V Karthik Partner, Financial Advisory Services at Deloitte, said.