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Demonetisation: Four positive side effects of PM Modi’s note ban

23 December, 2016

On 8 November, Prime Minister Narendra Modi shocked the country by declaring that Rs 500 and Rs 1,000 notes, comprising 86% of the currency in circulation, will no longer be legal tender. 

The Modi government first sold this move as a surgical strike on black money. The exercise seems to have failed as most of the outlawed currency has come back into the banking system, indicating that most untaxed wealth may have been laundered. 

Yet, if news reports are to be believed, demonetisation has had a positive impact in certain respects. Here are at least four ways in which this has reportedly happened:

Human trafficking has been severely hit: A 22 December report in The Guardian newspaper said that illegal sex trafficking has been massively hit by the note ban. Citing advocacy and rescue groups, the report said that the illicit trade is down by as much as 90% since the government sucked old currency out of the system. 

Other reports by news agencies such as Reuters also cite similar stories of demand for commercial sex having gone down drastically as people simply do not have much spare cash. Each year, India sees more than 135,000 girls trafficked into sex trade, with more than 18 million people living in slavery. 

Illicit drug trade has taken a beating: A 5 December report by The Indian Express newspaper from Mumbai said that drug-related cases fell to less than a third in the city, as demonetisation had hit illicit drug cartels hard. Citing data from the Anti Narcotics Cell of the Mumbai police crime branch, the report said that only 200 drug-related cases were recorded in November compared with 700 in October. 

A 10 December India Today report said that, hit by the cash crunch, suppliers were pushing cheaper drugs and were mixing grains of chocolate malt drinks into opium, to cut costs.    

‘Dabba’ trading and ‘satta’ bazaar at a standstill: The most dramatic impact of demonetisation has perhaps been felt in the illegal ‘dabba’, or off-exchange share trading market, and the ‘satta’ bazaar, or the betting market. Reports immediately following the note ban said that soon after Modi’s dramatic announcement, there was a scramble to settle trades in these illegal markets, which are essentially off-book parallel trading centres dealing with stocks, political and sporting events. 

Hawala trade is down: The ‘hawala’ market reportedly came to a sudden halt following demonetisation. A 10 November India Today report said that one Mumbai-based hawala operator apparently destroyed old currency notes worth as much as Rs 500 crore within a day of the announcement. There have been several reports of Enforcement Directorate and income tax officials raiding hawala operators across the country in the last month and a half. 

Having said that, several bank officials have been accused of being hand in glove with hawala operators, helping facilitate laundering and illegal exchange of large sums of money.  

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Demonetisation: Four positive side effects of PM Modi’s note ban

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