News of an announcement flickered in around 7.50 p.m. IST, an address to the nation was on the cards. What followed is fairly accurately described as India’s biggest take on black (think money acquired through non-documented means) money. Some quick facts:

• The existing (as of Nov 8, 2016) INR500 and 1000 notes will no longer be legal tender. Essentially you cannot use that to make purchases anymore*. Lower denominations continue as is.
• * Various establishments including Petrol pumps, government hospitals will continue to accept these notes until midnight on Nov 11.
• Banks will be closed during the day Nov 9, 2016, as will ATMs. Various ATMs will stay closed on Nov 10, 2016.
• As a citizen, what you can do: starting Nov 10, you can deposit existing 500/1000 rupee notes into banks, post offices via accounts and you will be credited, until Dec 30, 2016.
• After Dec 30, special RBI centers will continue to accept these denominations for deposit into accounts until end of the fiscal year, March 31, 2017.
• New notes of INR500 and INR2000 will trickle into the banks over the next few days and weeks.
• A full RBI FAQ is available.

If we look at how this has come full circle since 2014, when the new Govt. took over, you can almost see the plan coming together:

• Financial inclusion via Jan Dhan Yojna (accounts for every citizen). Bringing the average Indian into mainstream banking, where India lacked severely.
• Income declaration scheme (IDS) in 2016. The Indian Government gave an opportunity to every citizen to declare black money until Sept 30, 2016 with penalties (45% of declared amounts), but without prosecution. Various notices of large transactions were sent to business owners before the window closed to serve as a warning.
• GST beginning next Fiscal year, with centralized tax accountability.
• Finally, the demonetization of the notes. By conservative estimates, even if 20% of the money is a no-show, approximately 3 lac crore of unaccounted money will be wiped clean from the system. Additionally, GST gets a near-clean accounting slate.

Yes, there will be an inconvenience around getting all the existing notes into banks; and while businesses and shopkeepers refuse to accept the old notes. If people however give it a chance, and look beyond the next few weeks, a massive move towards accounted, and cashless economy is in the offing. But stories are already coming out of shopkeepers who are offering items on credit until the new notes trickle out.

Spare a thought for those who hoarded black money over years and years, stored in the highest denominations, in cash, that just became food wrappers. Being unable to deposit this money in banks today, unable to exchange it for gold or other goods stifles them in ways that are unexpected. Add to that the announcement being made post 8 p.m., barely 4 hours before closing and post close of markets. It is being said that it was a closely guarded announcement between the Prime Minister, Finance Minister and RBI Governor. I wouldn’t be surprised if most/all in the Cabinet were unaware until their meeting the hour before the announcement, as evidenced by the lack of understanding within the media what the announcement was for, until it was actually made.

This was indeed a colossal move. Watch it unfold.

Update, 10 Nov:

• Unexpectedly, people are queuing up outside banks all morning in panic.
• Announcements filtered in late evening that unaccounted deposits, as compared to the declared income of the previous FY would be subject to a 200% penalty. In essence, one would pay 30% tax + 200% penalty, essentially 90% of the cash deposited.
• Entirely expectedly, people are leaving cash on the streets, or burning it.
• Banks will operate normal working hours Sat, Nov 12 and Sun, Nov 13 to ease the transition.
• CEA Arvind Subramanian is right is calling it a ‘transfer of unaccounted wealth’. In other words, this is the first time in a long time where honest tax-paying citizens will finally be glad to have been that way.
• I expect real estate markets nationwide to crash for a while. As the industry with a large amount of unaccounted money paid, a massive inflation remained in property value which would be wiped clean due to this move. That said, in a few months, expect a gradual correction would bring prices to a more realistic value.