 "Surgical strike on black money")
Currency notes of Rs 500 and Rs 1,000 denomination that are currently in circulation will no longer be legal money and cannot be used as medium of exchange from Tuesday midnight, as Prime Minister Narendra Modi in a surprise move clamped down on black money as well as counterfeit notes in circulation. Instead, the Reserve Bank of India (RBI) will issue new Rs 500 and Rs 2,000 currency notes.
“The arrangement of buying and selling through existing Rs 500 and Rs 1,000 notes will not be available. These will be just worthless piece of paper,” Modi said in his hurriedly announced address to the nation on Tuesday evening.
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.
Economists said the move would immediately press a pause button on transactions that were planned in black money. On the other hand, ordinary transactions such as buying of vegetables from the local market might be hit for a month, they added. Also, commodity prices might move up as black money supply gets choked. However, 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.
According to one estimate, the cost RBI is incurring for printing a Rs 1,000 note is Rs 3.17, while a Rs 500 note costs Rs 2.5.
The PM said the steps taken by the Government would strengthen the hands of the common citizens in the fight against corruption, black money and counterfeit notes.
To enable people dispose of their existing Rs 500 and Rs 1,000 notes, Modi announced these could be deposited in banks and post offices between November 10 and December 30 by showing ID proofs. There will be no limit on such deposits. However, if old notes are exchanged for new notes, there will be a cap of Rs 4,000 till November 24.
There will also be a cap of Rs 10,000 a day and Rs 20,000 a week on withdrawals from banks and Rs 2,000 a day from ATMs. This limit will be increased in the coming days. However, ATMs will not work on Wednesday and in some places on Thursday, while banks will be shut on Wednesday.
Those unable to deposit Rs 1,000 and Rs 500 notes by December 30 this year can do so in designated RBI offices till March 31 next year. But, they will have to fill a declaration form along with proof and reasons, the Prime Minister added.
The scrapped notes would be accepted by government hospitals, railway booking counters, airports, government buses, fuel stations authorised by the public-sector oil companies, consumer cooperative stores authorised by the central and state governments, milk booths authorised by state governments, crematoria, and burial grounds for 72 hours (till Friday).
A senior department of financial services official said for transaction purposes, banks will ensure that ATMs are fully equipped with smaller currency. He said banking correspondents will be deployed in full strength in rural and unbanked areas.
There will be no restriction on any kind of non-cash payments by cheques, demand drafts, debit or credit cards and electronic fund transfer, Modi said.
In his address, the PM shared insights into how the magnitude of cash in circulation is linked to inflation and how the inflation situation has worsened due to cash deployed through corrupt means. This, Modi added, would adversely affect the poor and the neo-middle class people. He cited the example of the problems faced by the honest citizens while buying houses.
Describing illegal financial activities the ‘biggest blot’, Modi said despite several steps taken by his government over the past two-and-a-half years, India's global ranking on corruption had moved only to 76th position from 100th earlier.
“This shows the extent of the web of corruption in the country. The disease of corruption is the domain of some vested people who are flourishing. Some people have misused their positions and benefited. On the other hand, honest people are suffering,” he said.
He linked fake currency to terrorism and questioned how enemies of the countries are using such methods to harm India.
“We have to get rid of this termite of corruption,” he said.
Economist and former professor of Indian Statistical Institute, Dipankar Dasgupta said, “At a single stroke, a large volume of black money will become defunct. But in the long run, this is going to have an adverse impact on commodity prices. Because even though we are reducing money supply, the market will be having same kind of transactions and hence price will increase.”
Rahul Garg, leader (direct tax) at PwC, said: “It is a step which was waiting to happen for a long time to deal with menace of black money. In one stroke, it will cleanse which many schemes and action would not have achieved.”
