Some black currency will be used to buy gold : This will increase the demand for gold and increase its market price. Increase in legal gold purchase will bring it under the tax ambit which is good for us. Increase in illegal gold purchase will lead to increase in legal gold imports and gold smuggling. We have already increased gold import duty to 10 per cent – we are now increasing it to 15 per cent for the duration of the next four months, till March 8, 2017. After March 8, 2017, the import duty will return to 10 per cent. Additionally, we are going to take stringent steps to curb gold smuggling – the home minister will hold a press conference tomorrow in this regard. Remember that India is one of the largest importers of gold – 1,000 tons a year – and a third of it is reportedly used to hoard black money. Let me also add an important point here. If, assuming, all black money was to be brought out in the open through the scheme suggested by Dr Urjit Patel, after the new cycle of black money hoarding commences like it naturally will, hoarders will be careful not to hoard black money as cash. They will, instead, hoard in, say, gold. This would bring us back to square one, wherein demand for gold would increase and so would its import and smuggling. For this reason, one of the accepted aftermaths of war on black money is an increase in gold hoarding. One cannot escape this even if one were to make 500 and 1000 notes illegal tender overnight as suggested by Dr Urjit Patel.

Some black currency will be used to buy land and property : This will lead to growth in the realty sector, as well as an increase in government tax collections through circle-rate defined property purchase tax (PPT). Remember that, had we opted for overnight demonetisation, black cash hoarders would anyway have laundered their money into white using money mules and proxy Jan dhan accounts. Then, after a fall of 30-40 per cent in realty prices as a result of overnight demonetisation, the same hoarders would have bought properties through their now laundered cash, laughing all the way to their new homes.

Some black currency will be used to buy American dollars : This might weaken the rupee a little, as more and more Indian currency is exchanged for dollars. In fact, this is what happened during the introduction of the Euro in 2002. Between January 1, 1999 when the Euro (cashless) came into being, and January 1, 2002 when it materialised, some 32-40 billion worth of Deutschemarks that were hoarded as black money across Europe and especially Eastern Europe, were exchanged for American dollars. Many believe this weakened the Euro from 0.75 to a dollar to 1.15, but then after the introduction of the Euro in 2002, the Euro strengthened back to 0.7 to a dollar. Citizens, this currency exchange cannot be prevented. But two things are to be noted here. One, that a weak rupee will help in the export-led sectors of our economy, and two, this exchange would anyway have taken place at a later stage when a new cycle of black money hoarding commenced. Remember that hoarders would be wary and scared of hoarding in rupee for fear of another demonetisation, and therefore they would rather hoard their black money in gold or land or dollars.

Some black currency will enter our banks : Citizens, starting today, we are offering a generous VDS for those who have hoarded black currency. They would have to incur a tax penalty of 50 per cent, and 25 per cent of their returned money would be locked for a period of 2 years. Remember that a VDS in the context of demonetisation is very different from a VDS under normal circumstances. In the latter case, hoarders are under no obligation to come forward and declare their black currency, they can continue to hoard it albeit under the risk of getting raided. In the present circumstance, if the hoarder doesn’t come forward and declare the black currency, it would become useless in four months’ time. The hoarder has therefore no option but to buy gold, land, dollars, or opt for the VDS.

Some black currency will be used for terrorism: Citizens, there is no way this can be prevented, even if we were to carry out overnight demonetisation. Terror organisations will always find means to use black money for funding terror acts. For example, in the scenario of overnight demonetisation, terror outfits will ether purchase guns on credit or launder their black currency into white using money mules and then repay their “loan”. Second, the outfits that compensate the stone-pelters would continue to do so given that the stone-pelters would have a set period of time to exchange demonetised currency even under the overnight demonetisation scheme.