NEW DELHI: Surprising the nation, the Indian Prime Minister Mr.Narendra Modi has announced the demonetization of Rs 500 and Rs 1000 currency notes as an effective step to curb counterfeit currency and black money in the country. As a result, all the banks in India will remain closed on November 9 and November 10 to restock themselves with new currency notes issued by the Reserve Bank of India.
Announcing the major decision of the government during his address to the nation, PM Modi said, “The issue of black money has been prevailing in our Economy for decades and there has not been a significant success rate whenever the government tried to curb black money. In addition to this, there are terrorist organizations which are dumping counterfeit notes into the Indian markets to hamper the growth of India globally. To tackle this issue, we have decided to demonetize the circulation of Rs 500 and Rs 1000 currency notes with effective from midnight”.
The decision of the Government surprised the economists and the common man alike. However, the majority of the economists agreed with the views of the government and hoped that the step will create a pressure on the black money holders to come out clean. “There will be a changed scenario within 24 hours. The black money holders will think of making their money white and fortunately for us, the money should go through the official bank records through which they can be traced back. On the same line, money which has been kept in the denomination of Rs 500 and Rs 1000 in the Swiss bank will no longer be valid and that is the reason why the Central government has announced it all of a sudden without giving time for the public to prepare. The catch is if you give the public the required time, the black money offenders will use it to convert black money to white by investing in the purchase of physical assets”, an Economist Mr. Narendranath analyzed.
Though the government demonetized the notes with effective from November 9, it has allowed public transport systems, hospitals, Petrol bunks and crematoria to accept old currency notes for the next 72 hours so as to not to create a problem for emergency services.
What to do with the old currency notes?
Every individual must deposit the old currency denominations of Rs 500 and Rs 1000 in their respective post office or bank accounts by December 30, 2016. Further, if an individual is unable to exchange the old currency within the time period, they will be provided with an opportunity to deposit the notes in the banks till March 31, 2017, given that they provide valid identification documents.
Limitations on transactions
However, to handle the replacing of the old currency notes effectively, the Reserve Bank of India has laid down a few restrictions on the daily transactions done by a user. The RBI said that it has directed the banks to make necessary re-calibrations and make ATMs operational by November 11. A citizen can only draw up to Rs 2000 in a day and a maximum of Rs 10000 in a week from ATMs. This will be gradually increased to Rs 4000 in a day and Rs 20000 in a week after the circulation of new currency reaches the demand. On the other hand, an individual can only exchange up to Rs 10000 in a day and a total of Rs 20000 in a week from a bank. The RBI has totally scrapped the existing Rs 1000 notes and will issue new currency denominations of Rs 500 and Rs 2000 in its place.
How will it affect you?
Though the government allowed the public transport and other emergency service providers to accept old currency, it will be a tiresome job for the citizens to get new currency notes from banks, where, the entire country will be waiting to replace their old currency notes. In addition, the limitations on ATM transactions doubles the problem with the purchase of essential goods being affected.
How effective is the government’s move?
This has not been the first time that the Indian government has demonetised the currency notes, Earlier in the 1940s and in 1970s the government has demonetised Rs 1000, Rs 5000 and Rs 10000 notes to battle black money menace in the country. However, the measures did not prove effective as the decision of the cabinet always provided a time-frame for the citizens to exchange currency. This also enabled the offenders to make their cash white. With the new directive from the Modi government, it will not be the same this time as the demonetization announcement came as a surprise to everyone. However, there are a few backdrops. Economists opined that the sudden decision may impact the common man and small-scale business more severely than the big fishes investing in the swiss bank. Also, there is a probability that the black money offenders move towards buying idle assets like gold rather than depositing the cash in their bank accounts.