Our dear Prime Minister is known for surprise, and the biggest was on 8th evening, when he announced to demonetize INR 500 & 1000 currency notes. It’s a known fact, that in India we have a parallel economy running on black money, also known as shadow economy. Whatever measures & schemes offered by government, still they were not able to control or stop the flow of black money. Finally, the masterstroke!!!
As per world bank 2007 report, the black money or shadow economy accounted for almost 23% of the GDP. Assuming the same ratio, we have more than INR 29 lac-crores unaccounted money floating around. With the demonetize move, government expects this amount to move to the mainstream.
With this government expects tax collections to go up considerably, improving the tax to GDP ratio, improving tax compliance, & above all, help the government to stick to its fiscal restraint path.
Do we need to worry?
Not at all. We are tax paying citizens, as a matter of fact we should be happy that now everyone is on level playing field. Whether you’re salaried or a business men, now your money is accounted & you must pay tax.
It’s a simple logic, how will government run and uplift our country or economy, if each of us don’t contribute in the form of taxes? when our income is well beyond the basic tax exemption limit.
Short term (one week max), yes it may pinch a bit on cash front, as circulation or flow of INR 100 notes & new INR 500 notes may take some time. We Indians panic a lot, which can be seen with long serpentine queues at petrol station, railway ticket windows etc. since yesterday. But most of it were the people who are having black money, they want to USE it fast 😉
People with black money, my suggestion is to be honest & deposit your entire money in-hand into your bank account, consulting your CA or financial advisor, and plan next course of action in terms of tax liabilities, other formalities, and come clean. I been hearing number of schemes from various sources, on how to further evade or hide this money… please do not fall prey to these unscrupulous parties.
Real Estate, will have the maximum impact, where black money was used considerably, resulting in prices to go downward, on an over-heated market prices (since quite some time). One can expect prices to correct, developers to become more professional, and with real estate regulatory bill coming to force, to bring transparency in the sector further… fuelling big growth later!!!