India Surprises with a Wealth Tax on the Black Market

TheEconomicTimes: In a move to curb the black money menace, PM Narendra Modi declared that from midnight currency notes of Rs 1000 and Rs 500 denomination will not be legal tender.

In his 40-minute address, first in Hindi and later in English, the Prime Minister said the notes of Rs 500 and Rs 1000 “will not be legal tender from midnight tonight” and these will be “just worthless piece of paper.”

This is a big deal as these notes account for at least 80% of all cash in circulation! Ken Rogoff has argued for eliminating cash but this doesn’t seem to be a move in that direction since the notes will be replaced with new Rs 500 and Rs 2000 notes. Rather it seems to be a wealth tax on the black market. Old notes can be turned into a bank for replacement so ordinary people won’t lose money. People in the black market, however, probably have a lot of cash that they are unwilling to turn into a bank because they don’t want to reveal their wealth. Imagine walking into a bank and depositing a million dollars in cash–that is going to create a record that the tax authorities can follow. The wealth tax on the black market interpretation is consistent with the surprise–if people knew that this was coming they could have laundered the money but that is going to be more difficult and costly now.

It’s impressive that a government could pull off this level of secrecy. Good for Modi’s image as competent, uncorrupt and technocratic. Indians are calling it a “surgical strike on black money” which is the imagery Modi wants. But what will happen tomorrow when people don’t have enough cash to buy goods and services?

And there is another issue. Why is the black market so large to begin with? The wealth tax will punish current holders of cash but if the policies that generate the black market aren’t addressed the black market will grow again perhaps using gold, USD or bitcoin (see my addendum). It would be better to reduce barriers to entry and encourage more economic activity to move out of the black market and into the formal sector.

Hat tip on twitter to Evan Soltas and Kevin Grier for some discussion.

Addendum: Bitcoin up today.


Yeah so this is kind of clever, but also a symptom of a pretty wild economic system.


As an expat here, this is a major inconvenience. But so is living in India.

As a Brazilian ambassador pointed out a few decades ago, after meating an Indian ambassador, India was not (and is not) ready for self-rule. The Indian regime is disaster writ large.

So bankers are not corrupt and not part of the black market?

Oops, not meant as a reply to the Brazilian uber-patriot.

So Brazilians "meat " Indians. Quite vicious !
Wonder what the current order of achievement is among BRICs.Certainly not alphabetical.

This is what I get for using this Korean garbage, the keyboard is too little and the keys are too near to one another. But anyway the Indians are prey. As a Brazilian Native Chief replied to an European prisoner who told him "men don't eat men", so he should not eat him, "But I am not a man, I am a jaguar." Even today, this is the best definition of Brazil, a nation of jaguars. Anyway the Brazilian had brought sandwiches, so there was no need of "meating" anyone.

"Wonder what the current order of achievement is among BRICs.Certainly not alphabetical."
The average Indian produces less than 40% what the average produces. It is their nature.

Just as it's a Brazilian's nature to be easily defeated in war by the US.

It never happened! Brazil crushed all who dared to challenge the Brazilian might.

the ambassador was stating that based on his experience as a Brazilian, I suppose?

No, he was stating that based on his meating with the Indian guy. The Brazilian ambassador and the English one had brought sandwiches for the very long wait they woud have to endure (I don't recall what the occasion was), but the Indian one had appeared empty-handed, proving he was improvident and careless, with a very high time preference.

* meeting

"after meating an Indian ambassador"


Then why dont you just pack your bags, you silly immigrant

"No, he was stating that based on his meating with the Indian guy. "

Are Brazilians, apart from being bad at governance, also poor at getting sarcasm, or is that just you?

The irony of a Brazilian citizen, a countyr which saw hyperinflation of >100 for more than a decade commenting about the economic governance of another nation. Ignorance is truly bliss.

I can get sarcasm as well as anyone else, but I don't care about it. "Sticks and stones may break my bones, but words will never hurt me" because I am sure of the moral superiority of our people.

AlexT hits a home run. Usually I'm a critic of AlexT but this sentence is great. It's also true in Greece (people in the black market do not use banks for the very same reason): "People in the black market, however, probably have a lot of cash that they are unwilling to turn into a bank because they don’t want to reveal their wealth. Imagine walking into a bank and depositing a million dollars in cash–that is going to create a record that the tax authorities can follow. The wealth tax on the black market interpretation is consistent with the surprise–if people knew that this was coming they could have laundered the money but that is going to be more difficult and costly now."

>>>so ordinary people won’t lose money. <<<

I'm not so sure. Depends on how they handle the transition.

When you have 1.2 billion people how many "ordinary" swap transactions are you going to generate? What's the penetration of non-paper money in India right now?

I thought very high, at least when gold is the measuring stick being used.

Breaking news: Amazon offers "Gold on Delivery" as a payment mode!

........"What's the penetration of non-paper money in India right now?"

A little better than before , but still not significantly high.

Rahul, good to have you back. Did you go tired of commenting ?

Ha, thanks! I just got distracted by some other blogs. :)

If you read up on things as diverse as the use of fruit trees or planting trees that produce decorative woods as a means of savings to pay for weddings, you will see that India is not lacking in ways to perform the functions of money. But I think the use of cash is quite high. At least, outside of perhaps some handful of international high end chains, and probably not even then, I wouldn't even consider for a second starting with the assumption that my data can be trusted for non-cash transactions.

No offense intended. If you've been there you'll understand.

When I found out how much palm trees sell for when fully grown, I considered planting a bunch for "harvest" in 20-30 years.

Now that this is a possibility, how much loss of trust will there be with the new bills? How feasible will it be for the black market to switch to Euros and US Dollars? Also, what's the time limit for exchanging the bills at banks? If it's long enough, won't the old bills be laundered by selling them at a discount to ordinary people to exchange in smaller quantities?

I also wondered about this, if they are in fact exchangeable for "legal" tender at any time, surely they are equivalent to legal tender? So why would the notes stop circulating? Apparently the only things that the notes could not be used for is paying you taxes, which if you are intending to not pay your taxes is no inconvenience. Could anyone taking these notes in payment argue that no taxes are due anyway, since the notes are not "legal tender"?

Here are the nitty gritty details:

" If it’s long enough, won’t the old bills be laundered by selling them at a discount to ordinary people to exchange in smaller quantities?"

I think that's why Alex is calling this a "wealth tax" and not a "wealth confiscation".

Perhaps, but if the exchange period is long enough, then the discounts will be small and, in any case, the proceeds of the 'tax' won't go to the government, but to those willing and able to do the exchanges at the banks.

It's an onus on those holding large sums of the black market bills. There are significant transaction costs to move that quantity of black market bills, even at a discount, into the hands of willing transactors.

Is the black market millionaire or his likely operatives going to engage in a concerted and obviously time consuming transfer of the bills into the hands of willing takers? Modi and the planners of this probably assume some level of this practice will take place, the question of course is how much and at what discount.

*onerous not onus

If they were a black market millionaire, they were already sitting on huge piles of cash because they couldn't spend it all at once. This just formalizes what had been informal.

Very few headlines make me say "wow", like literally open my mouth and have the sound w-o-w come out. This is one of them.

I was just in India the other month - many of the people I had economic transactions with strongly requested cash-only payment. Many of them are probably cursing Modi right now.

These will be interesting times. Should we judge him by intentions or results?!

Forget the tax evaders all I see is one giant logjam ahead. I'm conflicted about whether he's being brave or clueless. To pull this off would be a project of epic proportions.

It's not complicated. Announce that the old bills are not used, print new ones. People who want to use the new bills will ask for them at the bank, rapidly establishing a new equilibrium level of those denominations in the cash holdings.

You multiply anything by 1.2 billion individuals and it gets complicated as hell.

Already things are getting a bit messy. hospitals (private) and other essential services stopped receiving payment in 500Rs and 1000Rs notes. You can imagine the riot-like situation at these places!

Was talking to someone in India this morning who said 1000rs is already being discounted on the "market" down to 500-600rs by people trying to find someone who can legally redeem them.

Apparently, everyone was using the bills to place and collect bets on the U.S. election at the time of the announcement, so they really caught a lot of people off guard.

I sense a new interest in money laundering in India....

" In a move to curb the black money menace, PM Narendra Modi declared that from midnight currency notes of Rs 1000 and Rs 500 denomination will not be legal tender."
North Krea did it, too.

very common for any radical move to the compared to dictators. India is not North Korea, and I think you know it!!

If you say so... I mean, North Korea is a disaster by desigb, it is necessary to keep the Kims in charge. India is a disaster because the Indians just can't rule themselves decently.

India sounds like the ultimate libertarian state -- a place where the government can barely manage to tax the people. The more I hear about India, the more I feel like moving there. I've been told Bangalore has a climate very similar to Palo Alto.

I assume you're joking, otherwise I'd call you a fool. The weather is great here, unfortunately nearly impossible to be outside and enjoy it. Smog, traffic, terrible roads, non existent sidewalks...

Anarchist, you mean?

"...a place where the government can barely manage to tax the people"

That's Greece, too, and it undoubtedly has a Mediterranean climate, so there you are. And half the homeowners in Detroit don't pay their property taxes, so that could be another option (notwithstanding the weather). Seriously, though, tax avoidance generally means a large government sector and high tax rates such that evasion becomes widespread. Rather the opposite of an ideal libertarian state.

I'd rather have a govenrment that taxes people at 20% and collects 20% than a government that taxes people at 30% but only collects 15%.

Tax evasion is a tax on honesty.

Yep -- there's the libertarian ideal. A small, efficient, limited government with low, simple tax rates and high levels of honesty. People trust the government because it doesn't try to do to much and provides very few opportunities for corruption.

That's just Gurgaon.

"Imagine walking into a bank and depositing a million dollars in cash–that is going to create a record that the tax authorities can follow."

Presumably, the black marketeers will trade their soon-to-be-obsolete currency (admittedly, probably at some discount) with others, who will then deposit the currency into banks. People have until Dec. 30, and possibly until Mar. 31, to convert/deposit their currency. How long does it take to "launder" currency this way? This move certainly would seem to be a boon for black market currency exchangers/traders, if that is even a thing in India. (If not, it may soon be.) Finally, what does it mean for the currency to cease to be legal tender immediately? Presumably, private entities will continue to accept the currency until Dec. 30, albeit possibly at some discount, knowing that they can deposit it at a bank, right?

Also, would we expect the black market going forward to move at least partially to other currencies, e.g., USD? Again, that would seem to help black market currency exchangers.

If cash is no longer a reliable store of black market value, then we can expect the composition of black market wealth hoards to change accordingly. Now that Modi has set a precedent for this kind of move, why risk another tax in the future? Hoards will probably transition to "safer" assets like precious metals, foreign currency, and maybe even the smaller bills used by poor people. Also, one of the stereotypical "black market operators" in India is a politician who takes cash bribes. If that's true, there will be a lot of political push-back and maybe even an extension of the redemption period.

>>>Why is the black market so large to begin with?<<<

Therein lies the limitations of this move: It attacks the store of black money. Not the flows.

Ergo, I just fear that the black money flows won't be stanched, but people will just find a different medium of storage in the long run. Gold? USD? Bitcoins?

Rs 1000 note gone only 2000 introduced.
Saw this one
"wanna get married?
Minimum bribe rate gone up from 1000 to 2000.
We will be rich"
(To Rahul's point)

Perhaps this was just the nudge that the black money system needed to make it more robust against external shock.

After all, Modi couldn't have de-denominated a bitcoin, right?!

Rs.500 is also coming back along with Rs.2,000

So is this like the ancient year of jubilee? We wipe the slate clean to enable fresh talent on the black market?

For all I have heard, the new denominations are integrated with a reflector nano GPS chip that acts using some sort of signal reflection and not transmission, thereby free of power requirement. That means each of the notes is trackable, even up to 120m depth inside the earth.
If this all is true, the launderers of black money certainly need to explore other options than cash. Although RBI hasn't declared anything of the sort, but well, not was this denomination use known about either.


You mean RFID? Possible.

But it's sort of orthogonal to the problem. You think in status quo, it is the lack of knowledge is what is preventing the taxman from finding the black money stashes? Hardly.

So I'm 'good' with any effort to reduce criminal/illegal activity but... There would not be a black market if the government didn't create the situation. How about solving those problems too.

"Black markets" are just markets that politicians don't like or can't prey on.

In india many politicians are some of the biggest enablers of the black market.

Pretty much, "all" politicians.

If we tried to make a list of clean politicians in the parliament I doubt we'd need more than half a page.

Suppose I am Ravi Patel, very rich guy from black market activities.
I can just hire a couple of regular guys to go to the bank with a bunch of my Rs 1000 and Rs 500 bills and exchange them. So the transaction is recorded under these other guys names and they don't normally do anything illegal, and Ravi Patel gets his money!

The top wins, the bottom wins, the middle gets shafted. Ravi Patel co-ordinates his assembly line of hired minions to launder his money at the bank.

Grandma-on-a-pension stands in line all day at the bank to exchange the five or ten bills she has, with a horde of hired money launderers in line ahead of her.

But he had to pay those guys

As close as it gets to Friedman's helicopter drop?

Direct wealth transfer from the rich to the poor without the intervening inefficiency of the state's redistribution machinery?

What's Ravi gonna do when nobody brings his money back? Call the cops?

Who does your friendly neighborhood drug dealer or bookie call when you don't pay up?

Alternate headline "Prices for strippers and blow go asymptotic; expected to crash at midnight, return to normal next month".

I live in Peru and almost nobody accepts the 100-soles bill (= 30 USD). Same effect, without any government orders.

Hold on -- 1000 Indian rupees is just 15 dollars.

Seriously, guys?

And 500 is less than $8.

Reminds me of Nigeria where because of ego issues (devalued currency compared to earlier times) , in the 9os, they refused to have a higher note than 50Naira ( equal to 50 cents ) then. Fortunately, times have changed.

Great times for wheelbarrow manufacturers!

So what? The Fascist Japanese's Yen is worth less than a cent.

And they have bills going up to 10,000 Yen (~$100) :-p

And we has 500,000 cruzeiros bills and they were awesome!

The use of cash is only a "menace" to government, because it misses out on a piece of the pie. The people are quite willing to use cash. The people are not the ones suffering this "menace."

Waaaah! We can't destroy people's liquid savings whenever it's politically convenient!!!!

I am surprised that the perception seems to be the PM dreamt this up in evening and announced it to the country a couple of hours ago leaving them to deal with it.

The whole thing has been in the making for months, with reserves of new cash ready for pumping into the system already in place by the RBI. Springing a surprise and creating a filter with a limit per person and a short timeframe was the only way to get this done. There are a lot of problems in the system, and this looks like part of fixing them.

I don't think the PM has said that this is the one and only solution to all the black money woes or the underground economy of the country. Why is it being treated as such?

You are right.

Context and nitty gritty matters:

1. Last year there was a big drive by the government to get the bottom tier into the formal banking system by opening accounts. Claimed to be a big success by the government and "not-so-big success" by opposition. Which means in reality it was reasonably successful.
2. Earlier this year a big drive to link biometric-based "Aadhar" identity cards linked with bank accounts and all subsidy payments.
3. Income Declaration Scheme "IDS" was offered to those with undisclosed income / wealth to pay 45% tax and make it "white". Came with a message from the PM "Expect strict measures after the deadline is over".
4. This is a logical follow-up step. Might not be perfect, there will be execution challenges, but is still a big step in the right direction.
5. Those claiming that black-money holders will enlist others to exchange money for them - one person can only exchange Rs. 4000/day. Has to provide identity proof while doing so. All this means huge transaction costs - imagine how a person holding Rs. 10 million (and that is nowhere close to being big fish, or even medium-sized fish) would be able to manage this.
6. The regular guy on the street will suffer a bit. But assume he has saved Rs. 100,000/- in cash - he has the freedom to deposit into his bank account in one go. If he's saved more, he should have declared in his income tax returns anyway!
7. Immediate transactions (taxi guys not accepting Rs. 500/- notes) etc will be a big pain. But this is for a few days and some pain is to be expected if you work towards a goal as big as this.
8. USD / Euro / Gold Hoarding : Some leakage will happen, but will be quite small, IMO. It is not easy to convert any significant amount of cash into foreign currency. Little easier with gold, but you can safely assume gold dealers are going to be monitored.

All in all, revolutionary move, IMO. There will be some pain - but you cannot have a revolution without pain. Execution challenges are also huge - but I am optimistic it will be managed.

Yes exactly, People like to make assumptions There are other plans he have, that he indicated in a speech in Goa recently. So i would say stop making any assumptions and just look forward to what's coming and this pain is just for one month, and i think it is being managed well.

Red Money! (almost)

I'm reading the Rogoff book now and learning quite a bit from it. Good post.

India has done in the past ,

However the note demonetised then was approx $95.

Currently the lowest one being demonetisedis approx less than $8 , so there will be chaos.

And there is another issue. Why is the black market so large to begin with?

Decades of socialist misrule by the Nehru-Gandhi dynasty. The BJP can only undo the damage so quickly.

That's one problem with decades of misrule: People use that backdrop to now justify almost any policy.

Almost any stupid policy is going to look like a stroke of genius when you compare it to erstwhile government quotas for manufacturing cement or banning Coca Cola.

If only the socialists hadn't set the bar so low.

This also has to do with thwarting counterfeiting, which terrorists use

I'm still skeptical of that excuse. If counterfeiting was the target the swap could have been gradual & pre-announced. The element of surprise was unnecessary.

If I were a counterfeit bill distributor, I would support your view. It would give me time to expedite my distribution of what I have on hand.
So, you either aren't considering that perspective, or you are perhaps just a skeptical person in general?
Moreover, it's a 'reason' rather than an 'excuse.'
The sudden move left the distributors with lots of bills that they won't be able to use.
If they purchased the bills at a discount rather than obtaining them free from Pakistan to fund special projects, then they will lose money.
That's a good result from the Indian government's perspective.

A blitheringly stupid idea that only a technocrat could love.

The black market is simply keeping the greedy and corrupt local functionary away from one's meagre savings. Modi should clean up government corruption first.

Where I lived the black market replaced the major employer who was regulated out of existence.

Would a move like this maybe cause the black market to collude on holding the value of the newly outdated currency?

No, that wouldn't work. Its not like Bitcoin. It holds itsvalue only if its guaranteed by the Reserve Bank of India ( Federal Reserve).

Uh, its exactly like Bitcoin. Which holds its value specifically because other people pretend it has value. Exactly like fiat money all over the world. Exactly what guarantee does the RBoI give? That a Rupee will be worth a Rupee? That's kind of tautological.

The only long-term solution to "politicized" money will be the emergence of deep (quantum) encrypted "cyber" currency that is truly decentralized. Breakthroughs in quantum computation will make this a reality. Only when money is freed from the monolopy of government and central banks will it actually be worth something.

Why does it need "quantum"? Aren't Bitcoin or bitcoin-like non quantum algorithms good enough?

'Quantum' is special Rahul. Its *better* than ordinary non-quantum stuff that does the same thing.

Seriously though Abelard - I know what you're saying but we simply don't know enough about the possibilities of quantum computing to say for sure how much more secure it could be or how capable it will be in breaking n-digit non-quantum cyphers.

Nobody can tell black money from any other money. The idea is to juice up the economy by getting the rupees out from under peoples' mattresses and into cash registers, increasing velocity, transactions and, of course, tax receipts.

I'm currently sitting at breakfast in the agra Marriott. While a very interesting move... let's just say that my trip has gotten even more interesting.

I don't think Bitcoin's rise has anything to do with this; it's pretty clearly Trump-related. Cryptocurrencies are commonly advertised as a hedge against geopolitical risk; perhaps here we actually see them starting to play that role.

"Good for Modi’s image as competent, uncorrupt and technocratic."

The very fact that India has such a large black market in the first place does not do good for his image as competent or uncorrupt. Its certainly a forseen outcome of technocratic impulses though.

Maybe if his government spent less time creating regulations that allow petty bureaucrats to withhold permissions unless bribed there would be less of a black market and *further* interventions to correct the completely forseen consequences of previous interventions would not be necessary.

Yeah, how dare he not successfully reverse decades of his opposition's policies in a mere two years of government!

Except all he's doing is indulging in his desire to interfere and order other people's lives - the 'technocratic' part of his image - which is the same damn policy of his opposition going back decades.

Technocratic interference is the core policy here - the only differences are in *where* to interfere, not whether you should or not.

Start pulling out some of the regulations that make this black market economy lucrative and the 'black market wealth' goes away. It naturally gravitates back into the gray and open markets where it can be tracked and traced - if only because there's less of a risk premium meaning people doing this stuff will be willing to take less of a risk to make that money.

Instead he's doing another intervention to 'fix' the previous interventions. And that *NEVER* works.

It’s impressive that a government could pull off this level of secrecy.

It is pretty fucking amusing to me that you actually believe they kept it secret, Tyler. It is also amusing that you think ordinary people won't lose anything in this action.

Actually, the secrecy worries me that they haven't done much of planning at all.

Don't worry, unless the value of the old bills you will be exchanging is too great for you to be able to account for having them. ;-)
They have it all nicely planned out, and you have several weeks to do the exchanging.

By your reasoning, the Allies in WWII must not have done much planning for D-Day.

From Mihir Sharma's article on Bloomberg:

As with everything the Indian government does, there’s a complex system of exemptions and exceptions to this demonetization. If you’re in an accident, for example, you can still pay the emergency room in 1,000-rupee notes. Also, for some reason, if you want to buy milk. Meanwhile, withdrawals from ATMs have been limited to 2,000 rupees a day for the next few days; returning bills to banks will require some form of government ID; and so on and so forth. Typically for India, a simple enough policy -- indeed, one perhaps too simplistic in conception -- somehow had enough fine print to confuse people.

As might be anticipated, it won't take us Indians -- the really corrupt ones, in particular -- too long to figure out how to use these "complex system of exemptions and exceptions."

I remember reading on the BBC's website that when Sunday trading was banned in Britain except for food, there was an enterprising guy who sold oranges at the rate of £99.99 for one orange -- with one lawnmower free. We have learned well from our former colonial masters; arguably, in this regard, we have left them far behind. Some enterprising researcher can, if interested, track the sale of milk and medical emergencies in the days to come. The data should be interesting.

The policy is not likely to succeed in its aims but perhaps, as Mihir Sharma suggests, that is not the objective. This is about giving the appearance of doing something on an issue that was one of the central planks in Prime Minister Modi's election campaign. He is too astute not to realize that remaining silent on this issue will provide a useful weapon to the opposition when it comes time for reelection. That's about it.

It's a wealth tax on a small proportion of the black market - currency suffers the inflation tax, and people who take on the nation state to evade tax don't like paying it away in inflation if they can avoid it. it's unlikely that a large part of ill-gotten wealth was parked in currency notes. Mostly it's the near-term black market transactional demand will get caught in the net.

It's an anti-counterfeiting move for sure.

Isn't this selectively penalizing the *liquid* component of black market? It is essentially sending the message that it is OK if you converted your ill gotten gains to assets but shame on you if you kept it as cash.

It does nothing much to penalize the process of corruption itself. Are we going to see a shift to more of transactions of corruption in kind than in cash?

Yes, yes and yes.

What I cannot fathom is I see among educated Indians like a complete acceptance of this move like its the best thing since sliced bread!

No dissent, no reservations. I just don't get it.

correctly said.
If some corrupt person who is stupid enough to Keep all his money in cash, he is penalized.

Where are all you smart guys hiding?!

The Indian media seems to have bought Modi's antics hook, line and sinker! God help the nation if this causes a prolonged economic downturn.

smart people keeps his black money in circulation, like purchase land, runs hotel with 0% profit, or simply loan to others.
may keep 1 to 10% of total black money in cash as emergency fund.

500Rs = $7.50 Isn't this going to create chaos in their economy?

Somehow outsiders like you seem more acutely aware of the impending chaos than Indians themselves.

As they say, Ignorance is bliss!

Few random comments:
1. Converting denominations to USD to assess impact is stupid. Stuff costs much less in india than US. Additionally, as the 'expat' in the thread complained, this is just one additional inconvenience. Culturally, tolerance for inconvenience in india is very high -- which is both good in the short term, and bad in the long term.
2. Chaos? -- i'm a little tired of people 'multipliying by 1.2 billion' and suggesting that makes everything difficult. You should also be multiplying the number of banks, ATMs, standby staff, government and police and every other logistical apparatus by approx the same number. Does it scale 1:1? No. Little scary? Yes. Chaos? Hell no. Inconvenience for sure, but not dramatic. If you can run elections with 800mm voters every 5 years, you can certainly do this.
3. Solves black money? -- we can all be armchair experts here, but we don't really know. There are many arguments to be made against it, but largely speculative. USD/bitcoin? -- not sure, it will require a bank transaction and therefore be tracked. Eventually maybe, not soon. Storage in assets -- yes, but unless they switch to barter, which some might, they cannot monetize assets in the black market anymore without creating an official footprint. Again, will blackmarket recover in a few years? certainly, but not immediately. Larger objective is to shock and awe (ha!) the underground economy. Every marginal black marketer will think twice now, esp those who got burnt with this move. The 'expectations' impact cannot be discounted.

That said, this is a phenomenal opportunity for economic researchers. You have a major real world experiment happening that can answer a lot of interesting economic questions. If I'm an economist, I want to be in india right now studying the impact of this move. The monetary impact, fiscal impact, social response, inflationary/deflationary impact, organizational dynamics.... you could learn so much if you ask the right questions and set yourself up to collect the relevant data. This is a godsend for field economics.

The only coherent post (in addition to ChocolateSeller) in this whole thread.

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