In a decisive step to root out corruption and black money, the government on Tuesday abolished currency notes of Rs 500 and Rs 1000. In a televised address to the nation, Prime Minister Narendra Modi announced that ‘from midnight Nov 8, 2016, Rs 500 and Rs 1,000 notes are no longer legal tender”. He also said that new notes of Rs 2000 and Rs 500 will soon be introduced in the market. The announcement led to a chaotic situation as minutes later people rushed to their nearest ATM to exchange their notes in their wallet and withdraw Rs 100 notes to meet their daily expenses. As most ATMs are programmed to dish out higher denomination notes of Rs 500 and above, people were withdrawing smaller amounts of up to Rs 400 to avoid getting a Rs 500 banknote.
Reaction from politicians
The decision evoked mix reactions from politicians with many appreciating the move against black money as a ‘positive step’. However, they slammed the manner in which the decision was imposed. West Bengal Chief Minister Mamata Banerjee called it “a drama” and said the decision was heartless and ill-conceived blow on the common people and the middle class in the name of anti-corruption. The Congress on the other hand questioned the government’s decision to introduce Rs 2,000 currency note. The party expressed concern over the difficulties faced by the farmers in buying fertilizers due to the new decision. Swaraj Abhiyan leader Yogendra Yadav called the announcement a “positive move against counterfeit currency” and condemned the Opposition for overplaying transitional problems.
President Pranab Mukherjee welcomed the government’s step saying it will help unearth unaccounted money and counterfeit currency.
RBI calls it a bold step against black money
Calling the government’s decision a bold move against corruption and black money, the Reserve Bank of India said the most important reason for the ban was the abnormal rise in fake currencies of higher denomination and higher incidence of black money in the system. RBI Governor Urjit Patel linked the government decision to use of high denomination currency notes for terrorism financing and also for holding black money.
While the government imposed strict cash withdrawal limits – Rs 2,000 from ATM and Rs 10,000 from bank account in a day and Rs 20,000 in a week, Patel said there will be no impact on liquidity in the markets including financial markets.
What the experts said
Welcoming the step introduced by the Prime Minister, bankers and industry leaders said that it has been “a bold and revolutionary” move, and affirmed their commitment to smoothen the transition. According to ICICI Bank chief Chanda Kochhar, the “significant move” will curtail the parallel economy and give a sharp boost to all formal channels of payments which in turn will help the formal economy to grow at a faster clip in the long term. HDFC Chairman Deepak Parekh believed that the decision will have an impact on people who are hoarding money and not disclosing money for tax purposes. IT trade body Nasscom said the government’s decision will accelerate the push towards electronic payments system, which currently has relatively little penetration in India.
Deposits not to enjoy tax immunity
Training guns at the black money holder who intend to deposit now-defunct old Rs 500 and Rs 1,000 currency notes in bank accounts, Finance Minister Arun Jaitley made it clear that those deposits will not enjoy immunity from tax and the land of law will apply on source of such money. Jaitley asserted that the new initiative is not an immunity scheme and it does not provide any relief from taxation on new deposits. “If the money is legitimate which had been previously withdrawn from bank or earned legally and saved and had been disclosed, there is nothing to worry about. But if it is illegal money, source will have to be disclosed and if it is a crime money, or bribe money, then it is trouble, Jaitley said.
However, housewives, farmers and those whose annual income is within the tax exemption limit may not be hounded by tax authorities for depositing up to Rs 2.5 lakh of the now-defunct higher denomination currency notes in bank accounts.
Inconvenience to public
People faced inconvenience in buying milk, vegetables, medicines and other daily essentials and in commuting in auto-rickshaws and taxis Wednesday morning. As ATMs and banks were closed, harried people explored various options to get smaller denominations notes such as Rs 100 and Rs 50 which were in short supply due to the heavy demand. Long queues were witnessed at petrol pumps as well but in most filling stations, people were asked to buy fuel in multiples of Rs 500 or Rs 1000 due to shortage of cash in smaller denominations.