The newsflash on Tuesday night that Prime Minister Narendra Modi was about to address the nation caught many by surprise; there had been no pre-announcements of a national broadcast. But what surprised the entire nation even more was the content of the prime minister’s speech. In one svelte stroke the prime-minister swept-off Rs500 and Rs1,000 currency notes from the market.
Announcing withdrawal of the two denominations of currency notes the prime minister said: “There comes a time in the history of a country's development when a need is felt for a strong and decisive step. For years, this country has felt that corruption, black money and terrorism are festering sores, holding us back in the race towards development.”
“In the last two and a half years, we have brought into the open nearly 1 lakh 25 thousand crore rupees of black money belonging to the corrupt. The misuse of cash has led to artificial increase in the cost of goods and services like houses, land, higher education, health care and so on,” he added.
Acknowledging that people would be inconvenienced by the demonetization, the prime minister promised that the rights and the interests of honest, hard-working people will be fully protected. He asked people to bear with the inconvenience and see it as a move towards more credibility and integrity in the marketplace. He also revealed that new notes of Rs500 and Rs2,000, with completely new design would be introduced and that based on past experience, the Reserve Bank will hereafter make arrangements to limit the share of high denomination notes in the total currency in circulation.
In a country where most transactions in daily life are in cash and nearly half of those are in denominations of 500 rupees and over, the announcement caught everyone completely off- guard. Not a single news agency had any prior indication that the move was afoot. This in itself was quite remarkable in a country known for its lack of secrecy and bureaucratic bungling.
On Thursday, the International Monetary Fund voiced its support for the Indian government’s efforts to fight corruption through the currency demonetization. “We support the measures to fight corruption and illicit financial flows in India,” said IMF spokesman Gerry Rice. “Of course given the large role of cash in everyday transactions in India’s economy, the currency transition will have to be managed prudently to minimize possible disruptions.”
The idea behind the demonetization is to lock out money that is unaccounted for and make it visible for tax purposes. While banks will readily exchange a few thousand rupees and accept deposits of up to two and half lakh rupees, they will begin to ask questions of those who try to deposit hundreds of thousands or millions in currency.
There has been chaos at banks across India this week as people try to exchange notes that have overnight become invalid. For Indians living abroad and stranded with the demonetized notes, the government has not offered any specific respite. If the money is at home in India, you can either have it deposited in your Non-Resident Ordinary (NRO) savings account or authorize someone to deposit it on your behalf. If the money is in your possession abroad, then the only option is to travel back to India and exchange the notes before the deadline on 30th December.
Other highlights from Tuesday’s announcement by the prime minister include:
Persons holding old notes of Rs500 or Rs1,000 can deposit these notes in their bank or post office accounts from 10th November till close of banking hours on 30th December 2016 without any limit.
People can go to any bank, head post office or sub post office, show an approved identity proof and exchange their old demonetized notes for new notes. Till 24th November the limit for such exchange will be Rs4,000. From 25th November till 30th December, the limit will be increased.
There is daily cap of Rs10,000 along with a weekly cap of Rs.20,000 for withdrawal of currency at banks, up to 24th November. There is also a limit of Rs2,000 withdrawal from ATM until 18th November and Rs4,000 thereafter.
Those who, for some reason, are not able to deposit the demonetized currencies by 30th December, 2016, can go to specified offices of the Reserve Bank of India up to 31st March 2017 and deposit the notes after submitting a declaration form.