If I burn a 1000 rupee note, will India get poor by a thousand rupee? How will it affect India’s GDP?

Arpin Gajjar

3 min readNov 7, 2016

Lets find out, shall we?

Have a look at this Rs.500 note

Read what is written above the governor’s sign.

‘ I promise to pay the bearer the sum of five hundred rupees’.

Its a promise by the governor of RBI that when you hand over this note to the bank, it will pay you the equivalent of 500 rupees.

This promise is written over notes of all denominations.

You must understand that the Note actually costs very little. It only has symbolic value. Each note, made up of paper and a few other materials in minute quantities costs just about Rs. 3. The 1000 Rupees Note costs Rs 3.17 to make.

Now, suppose you have a job. You go to work everyday and work hard. At the end of the month you get your salary. All in notes of rs. 1000 denomination.

Lets consider one of these 1000 rupees notes.

This note is the payment for the services you offered. Earlier this note used to belong to your employer. By the promise on the note, the governor was supposed to give your employer the sum of a thousand rupees.

But instead he took your services worth a thousand rupees. Now you are the one who the governor is supposed to give the equivalent of a thousand rupees.

But you decide to go ahead and burn it.

Now, you no longer have a note.

You can no longer claim anything at the bank.

The governor no longer has to give you the equivalent of a thousand rupees.

So now, the governor without having to work or give you any service or product has earned a thousand rupees as he is no longer under obligation to give a thousand rupees.

So you actually made the governor richer than before.

BUT WAIT!

The governor is only an employee of the RBI.

SO, you actually made the RBI richer by a thousand rupees.

The RBI is for the nation.

So now, India is richer by a thousand rupees.

How?

You gave away your claim to the thousand rupees the nation owed you for providing your services.

So you are poorer by a thousand rupees.

Fun fact : But since the RBI spent the amount of Rs 3.17 on the note to print it( there is a currency minting ‘factory’ under the RBI), you did lose the Rs. 1000 but the nation got richer by Rs 996.83 .

Where will this money be spent?