In what can be seen as an unparalleled move by the Indian Prime Minister Narendra Modi, during a special address to the nation, he announced that currency notes of Rs 500- and 1,000-rupee denominations will be illegal starting 12 midnight on November 8. “Currency notes of Rs 1,000 and Rs 500 will be just paper with no value,” Modi said. That was not even four hours after the surprising announcement was made.
The move is hailed as a strike against the hoarding of black money. The most important reasons for the ban were the abnormal rise in fake currencies of higher denomination, and also the higher incidence of black money in the system. Importantly, India’s shadow, or “black”, economy is estimated to be the size of about a fifth of its gross domestic product (GDP). The move is a surgical strike on this ‘black’ empire of corruption, black money and terror funding. In a series of tweets, the Prime Minister’s Office said real estate prices, health care and higher education would come within the reach of the common man thanks to this move.
“A few people are spreading corruption for their own benefit,” he said, adding that “corruption and black money is (sic) something we have fought for immediately after assuming office…There is a time when you realise that you have bring some changes in society, and this is our time to feel the same”. The PM also linked fake currency to terrorism and questioned how enemies of the countries are using such methods to harm India. It was then that he announced that the Rs 500 and Rs 1,000 notes will be deemed illegal starting midnight. Instead, the government will introduce new design for the Rs 500 note and add an Rs 2,000 note.
The first and most important phase of the scheme will close on 30th December, 2016 until then one can exchange the banned notes at the branches of commercial banks, regional rural banks, urban cooperative banks, state cooperative banks and special RBI counters. As per the announcement, from November 10 till December 30th, one can deposit the old notes at these centers without any limit. Higher value notes can be deposited through ATMs; cash deposit machines and cash recyclers. The old notes can be exchanged for value, to a limit of Rs. 4000 at any of the 19 offices of the Reserve Bank, any of the bank branches or at any head post offices or sub-post offices.
But withdrawals from banks (including withdrawals from ATMs) are capped at Rs 10,000 per day and Rs 20,000 per week for the first fortnight-up to 24 November. As per the declaration, this limit may be increased in the coming days. On withdrawals/exchanges through ATMs, the Reserve Bank of India (RBI) said banks will take time to recalibrate the ATMs. Once the ATMs are functional, one can withdraw upto an Rs 2,000 per card per day up to 18 November. The limit will be raised to Rs 4,000 per day per card then onwards. Even no frills accounts under the Jan Dhan Yojana can also avail of the exchange facility subject to the caps and other laid down limits in accord with norms and procedures. But for all the exchanges, the person has to furnish valid identity proofs. This can be conducted at any branches of the bank that one is banking with and can also be done at other bank branches provided one provides a valid identity proof and bank account details.
As per the announcement, the electronic transactions (NEFT/RTGS/IMPS/ online banking/mobile banking etc) can be done with no limits. Also, in case of emergencies such as hospitalization (only at government hospitals), travel (State PSU bus, railway and airlines), life saving drugs, one can use the old notes to pay but within 72 hrs after the notification. The existing currency notes of Rs 1, 2, 5, 10 and 100 denomination as well as coins continue to be legal and could be used for buying and selling.
Even for those who are outside the country can get their exchanges done by authorising in writing another person in the country to deposit the notes into your bank account with the authority letter and identity proof such as Aadhaar card, driving licence, voter ID card, passport, NREGA card, PAN card etc. The NRIs can also deposit the banned notes to NRO account. A visiting foreigner can purchase Forex equivalent to Rs 5,000 using these illegal notes at airport exchange counters within 72 hours after the notification, provided you present proof of purchasing these notes.
Though, the a some sort of pandemonium is inevitably going to ensue at the country’s banks and post offices where people will have to line up to exchange their notes. The demonetizing of the existing Rs 500- and 1,000-rupee notes will be a tough task for the banks to handle in the short-term as people will be queuing up to exchange the notes.
After demonetizing the high-value notes, the unaccounted wealth created in the form of front companies, and Benami equity stakes, may come next in the Modi agenda of fighting the black money. Hopefully, we’ll be a country with a lot more digital transactions and payments now.
Though India’s abolition of these high denomination notes with virtually no warning has caused some confusion and concern among ordinary people, but as a form of solace for this inconvenience, the PM also reminded the nation that honest citizens would gladly shoulder these hardships for the sake of the country. No wonder, the common man is rejoicing, appreciating the move and is providing full cooperation; there is a collective sentiment of merry!
by Ashwani Srivastava