The Parallel Economy of Old 500 and 1000 Rupee Notes

Prime Minister Narendra Modi’s decision of demonization of 500 and 1000 rupee notes has taken a new turn. It has given birth to a new kind of economy that thrives on the old illegal tender.

The new parallel economy welcomes the old notes, but at a price- at a discounted value- that often amounts to about 30%.

Key Details

•  Despite demonetisation, old illegal currency is still being accepted at several local departmental stores, private chemists, small eateries, vegetable vendors and local retailers.
•  The acceptance of the notes comes at a price. The consumer will only be able to purchase goods amounting to about 80% of the currency’s total value, that is, if you give a 1000 rupee note, you can only get goods worth around 800 Rupees.
•  The places that are not taking any cut from the price, expect the consumer to buy goods worth the entire domination. This holds true for small retailers and privately-owned pharmacies.
•  Even those having the new 2000 notes face the same problem. They have to buy goods worth the entire amount as no change is being given in return.

Repercussions of this rise

•  With takers still being there for old notes, the black income still continues to flow.
•  Savings of the middle class affected, as they have to now pay more in order to purchase daily utility goods.
•  The resurrection of Black economy.

What is Parallel Economy?

Parallel Economy, also known as Black economy is an economy that functions on the basis of black money or unaccounted money. The transactions conducted under this system are kept hidden from the government and hence, go unrecorded and untaxed.