What are the downsides of demonetization of 500 and 1000 rupee note? Its effect on Indian economy?

While it is a great scheme and would lead to a huge unearthing of black money and with extension, corruption, everything has its share of negatives. These are a few negatives that I could think of :
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  1. It is very obvious that this scheme will affect the middle class substantially. We have about 60 million small and medium scale businessmen whose earnings are mostly kept as black cash in their houses; now they would face substantial losses or risk a jail term (although I am not aware of what will happen if the person decides to deposit the money in the bank, I think authorities would be keeping a keen eye on big transactions in the coming days). As their earnings are affected, it would lead to a less consumption of upscale goods like cars, smartphones etc., which in turn would lead to a negative impact on a lot of industries. We would see negative prospects of this scenario in the capital market, in the coming days.
  2. Property rates would go down in the coming months due to inability of the consumers to cough up the money in cash. It will likely affect a lot of people who are dependent on buying and selling of properties for their livelihood (this includes certain communities who are in direct conflict with the National Government, like Patidars, Jats, Gujjars). It can lead to a law and order situation although I maybe assuming a little too much in predicting this.
  3. Poor people who would not be aware of the scheme due to limited access to media will face a lot of hardships in the coming months. People would ‘dump’ a lot of cash in hands of the lowest strata and later these people would be harassed and ill treated and would be forced to give these notes at throw-away rates. Government has to do something to prevent such a situation!
  4. The worst thing I fear from the scheme is the genesis of a "workaround". The rich people have access to good analysts and may come out with workarounds to save their money. In such a situation, we would face an exacerbating inequality in the society where middle class and poor will become poorer and rich would likely retain their wealth.


Having said this, every BIG PUSH has to go through a lean time and this PUSH is no exception. In the long term, it could lead to a lot of positive changes.








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