Since the NDA government was formed in the center in 2014, there was an uproar about the black money. In several attempts, the government was able to curb more than one lakh twenty thousand crore rupees in black money. The last date for declaring the black money was 30th September 2016. The Indian government has warned on several occasions that those who are not declaring their black money will be in big trouble. It looked like those were not just warnings.
In an unexpected address to the nation, the Prime Minister of India, Mr. Narendra Modi has announced that from November 9th, 2016, 12:00 AM, all Rs.500/- and Rs.1000/- notes will become invalid to be legal tender. This is a very bold step taken by the government to curb black money circulation. The decision will also remove fake currency from the country in a single strike. It is a known fact that those who produce fake notes often go for higher denominations as it is cheaper to produce them in terms of return.
Mr. Modi said in his statement that the government believes that the time has come to take strong steps so that we can tackle the major problems related to black money and counterfeit currency. He suggested that most of the counterfeit notes come from across the border in order to destroy our economy and feed terrorist activities.
In his address to the nation, PM said that when the government was formed in 2014, the formation of SIT on black money was the very first decision made by the new government. A new law was passed in 2015 that those who want to declare the black money in foreign accounts can do it by paying 60% tax. There were a number of agreements were made with different nations including the USA to share account details of Indian nationals. More laws were introduced to curb the “Benami transactions” which were used to deploy black money in the market.
What will be the effect on the general public?
If you are not holding up black money at your home and all the cash at home is properly accounted for, there is nothing to worry about. For those who have Rs.500/- and Rs.1000/- notes at home that was declared in accounts can deposit the notes in bank starting from November 10th and can do so till December 31st. Banks will remain closed for the public transaction on 9th November to streamline the new guidelines.
What are the steps to exchange the notes?
If you have some undeclared amount in hand, you can exchange it any bank or post office by showing your ID card. There is a catch, though. You can only exchange up to Rs.4000/- and too before 24th November 2016. Any higher amount will not be accepted by the banks or the post offices.
So what is the single and most effective way?
You can deposit the declared amount in hand in Rs.500/- and Rs.1000/- notes in your bank account without any limit. All you need is a valid ID card like PAN card or Adhaar card while depositing the funds.
Are there any withdrawal limits from ATM or bank?
Yes, in order to make sure that the Rs.100/- notes are available for every ATM user, there is a cap on daily and weekly withdrawal. You can only withdraw Rs.2000/- per day which will be increased to Rs.4000/- in coming days. Also, you can withdraw up to Rs.10000/- per day and Rs.20000/- per week from the bank. The limits will increase in coming days.
What are the steps taken by the government to minimize public inconvenience?
The government has allowed some public establishments to accept Rs.500/- and Rs.1000/- notes for next 72 hours. These are government hospitals, railway ticket counters, government buses ticket counters and airline ticket counters on airports. Also, the petrol pumps authorized by public sector oil companies along with consumer co-operative stores authorized by state or central governments, milk booths authorized by state governments and crematoria and burial grounds can accept large notes for next 72 hours.
Has this happened in past?
Yes, the Indian government has taken similar steps on two different occasions in the past. In 1946 before Independence, Rs.1000/- and Rs.10000/- notes were demonetized. RBI introduced Rs.1000/-, Rs.5000/- and Rs.10000/- notes again in 1954 which were demonetized by Congress government in January 1978. The reason was same, to curb the corruption and black money floating in the market and to stop the circulation of fake currency.
What could go wrong?
There are many big establishments which often circulate money in cash. They have to stop the proceedings immediately and remove cash transactions from their system. This will also have a direct effect on those companies who pay the salaries in cash to their employees. The negative effect of the system is very limited but it may have some bad effect in the long run on a few big establishments. Other than that, this decision will definitely help the Indian government to keep the money flow in check.