“I promise to pay the bearer the sum of five hundred rupees.”

These words till yesterday were otherwise taken for granted; till the Prime Minister in a landmark move declared that the five hundred and one thousand rupees notes shall from midnight cease to be legal tender.

While the move is intended to actively curb the parallel economy by stifling movement of black money, the move is a well thought out one, with room for logistical implementation. There might be a few teething problems, but largely these would be limited to the short term.

The far reaching implications of this policy, are not only restricted to immobilizing the undisclosed income, or curbing cross-border terrorism, or to increase tax collection as coupled with GST the medium term tax collection is expected to rise, it will enable the Reserve Bank to write-off a substantial liability off its books.

At 12%, India is one of the countries with largest money in form of hard cash. In value terms, this amounts to INR 16.42 lakh crores which is in circulation as cash. Of this, almost 86%, or INR 14.18 lakh crores is in form of five hundred and one thousand rupee notes. It is estimated that, approximately 20-30% of the total outstanding currency is unlikely to get deposited and/or exchanged, which amounts to approx INR 3-4 lakh crores that the Reserve Bank, could write-off its balance sheet.

This write-off provides various options to the RBI which it can utilize. It could, for instance, it could declare a dividend to the Government of India, which would narrow the fiscal deficit by almost half. This could lead to a fall in inflation, and the strengthening of the currency and a subsequent improvement in ratings.

Another course of action could be recapitalization of the Public Sector Banks. The Finance Minister had set aside INR 75,000 crores over a three year period for this purpose in his Budget speech earlier this year, the additional infusion could help in strengthening the balance sheet of PSU Banks.

Lastly, the government could increase spending on welfare schemes to benefit the marginalized section of society. With the push already provided to inclusive banking and direct benefit transfer, the increased spending would be more efficient and impactful.

This move shall go a very long way to structurally strengthen the Indian economy. PM’s continued efforts to curb black money, corruption, tax reforms, bring transparency & accountability in governance are the reforms India needed for long time and I am happy that he is taking them one by one but in a coherent manner.

It required a bold and courageous person, to implement such a decision, and no one fit the bill more aptly than my personal hero, and the Prime Minister to our billion people, Mr. Narendra Modi; and like he rightly said, there comes a time in the nation’s history where its citizens must come together and support radical initiatives undertaken by the government. We stand behind him and the nation, to make acche din a reality, sooner than later.