It is hardly going to fix the black money problem. Rich people have so many employees to do the bank run for them. Within the next month, you will see a huge spike in real estate market. People with black money will dump it in the real estate market. (If you are not an Indian, this is how it works. You buy an apartment/home/building for the amount X. But you declare it to the government that you bought it for X/10. The guy who sold it now has the black money which he can reinvest or based on his income level, can deposit in the bank. If he is a farmer, he can pretty much claim it as agricultural income and pay no taxes). So, basically, black money will trickle down rapidly in the next month or so.
The government has become pretty smart - their standard rates have increased quite a bit (since they lose tax revenue)
Secondly, I don't think people are going to touch the old notes - just too much risk involved.
Infact, I would speculate that since a lot of black money is now worthless, we might see rates go down, especially for new constructions
I second this comment. Real estate in tier-1 India cities is fueled by black money. Now with people not having black money to invest in the market, I'm expecting to see the trend go downwards.
"Dumping in real estate" will require the seller to "convert" that money which isn't trivial, keep in mind the seller himself would be trying his best to get it converted. Will it completely solve the black money, probably not, but at least it is the biggest step towards any kind of a solution in future.
On the contrary, real estate market will stop for next couple of months. Cash is a big component of the price for the seller. And the current cash is useless as it has to be deposited in banks and declared, thus removing the whole rationale for taking cash. The seller is already paying tax on the non-cash portion.
Actually dumping into real estate, gold etc. is not bad because your govt will get taxes out of the transaction at the least. Problem with black money is not that some body hoarded it. Problem is some body hoarded it with out paying taxes.
Not really. Conversion to cash is limited to Rs.4000. Rest goes into your account. If you convert more than 2 Lakhs, that is notified to the IT authorities. You can't withdraw more than Rs.20000 per week or some such limit. Trickling down will take a long time, and even then most of it will be watched. If someone is withdrawing more cash than they ever did before, the govt., will probably question them beyond certain limits.
Real estate? No. What builder/seller would want to stock up 500/1000 notes?
Same for gold. How much can one goldsmith/jeweller's revenue increase in a year? Same for agricultural income. Can you suddenly declare 500% increase? (Oh well, agriculture income could have been declared earlier too anyway).
I am not sure how that will work out if the denomination itself has been declared illegitimate. Why would anyone accept 'black money' of any kind if he can't spend it elsewhere?
If you are in the low income bracket or a farmer, you can accept the money and deposit in the bank without any ramifications. All this will happen before the deadline.
