Some may call it a "master stroke", others a "surgical strike" and even others may see this as a political stunt, coming a few months before crucial state elections in India. But whatever the reason, will have a major impact on the Indian economy.
The Indian High Commissioner to Australia, Mr Navdeep Suri spoke to SBS Punjabi Radio, below:
Discussing the possible ramifications of the move, Mr Suri said “I think the move was sudden because without the limit of surprise the impact is lost. And the Government should be complemented for maintaining the element of surprise in its announcement.”
“As a student of the economics, I can tell you that this is something that has immense implications for Indian economy.
“It is something that is aimed at combating corruption, lots of people have hoards of cash at their homes, which is unaccounted for, illegally acquired, or on which they do not pay any tax. Today it is discovered that this money is worthless, unless deposited into a bank.
“The second impact which is apart from tax compliance is that it improves the liquidity of banks, and that kicks of positive cycle in the economy. When banks have more deposit they are able to lend more money.
“Thirdly, we have probably the most overpriced real estate sector in the world. That’s because prices continue to be driven up by speculation and by cash transactions.”
Mr Suri advised that the currency move could be a positive thing for aspiring home-owners, "Now, with the absence of cash transactions would bring down the real estate prices down for ordinary people to more affordable levels."
"So the way I see it is going to have initial negative impact perhaps in the sense when there is not enough cash circulation, it does slow down the economy."
"But I see this impact as temporary. In the medium to longer term it is a real boost to Indian economy in terms of cracking down on corruption, moving towards a cashless economy, and in fact I’d say it is really taking Indian economy to 21st Century."
When asked about the $217 billion of currency taken out of circulation in India, which equates to 86% or the currency notes in circulation, and how it is going to impact Indian economy given the results of the US elections, Mr Suri said, "I don’t usually employ the example of stock exchange market.
He continued: "But if you look at what happen at Bombay Sensex yesterday. It immediately, after the combined impact of US elections and demonetisation, it plunged to 1800 points but by the end of the day it stabilised and was only down by 300 points. In fact, today it is up by 300 points."
"I think people are factoring it into their calculations. And they realise unless you are in the business of generating black money, and deploying black money everything from running elections to using funding terror activities. This is the plus for the country as a whole."
For the many non-resident Indians living overseas, what to do with their scrapped notes has proved quite confusing.
For those people, Mr Suri had some advice: "Firstly, I know that many Indians living abroad care deeply about the well being of India and its economy. And surely they do know considerably the larger inconvenience right now for 1.2 billion people living in India, who need that money today and tomorrow for basic purchases.
“So empathise with your brothers and sisters in India who are going through a fairy disruptive period. And many of them are taking in their stride that they see this is in the long term good for the economy.”
“Secondly, we have received a number of calls from our friends in the Indian community who have a certain amount of these Indian currency notes. We have heard them and have put this on our Facebook page as well that we have conveyed their concerns to the authorities in India, to the ministry of finance in New Delhi, and the Reserve Bank of India in Mumbai.”
“And we are not the only ones. We have 6-7 millions of Indians in the Gulf. They are also in the similar situation. So similar sort of representations have been made from there as well.
“We are very confident that once the initial phase is over, we’ll get a response which we will share.”
“But I do believe that the problem overseas shouldn’t be of a very large magnitude, because technically one can only bring about 5000 Indian Rupees during travel, which is about $100. So I hope that we are not taking about very large sums of money.”
So does that mean there should be declarations required if the amount is more than 5000 Indian Rupees?
“I don’t mean that and it is not our intention," Mr Suri advised. "It is not mandatory, we are part of the Indian government, and we’ll follow the instructions that the government lays down for Indian citizens and the others.”
