YOU cannot exchange Rs 500 and Rs 1,000 notes from tomorrow. That was the announcement today but if you heard the Prime Minister on November 8, read the Ministry of Finance statement the same night and then again an RBI press release on November 11, it wasn’t so clear.
On November 8, in his address to the nation announcing the decision to demonetise Rs 500 and Rs 1,000 notes, Prime Minister Narendra Modi said, “From 10th November till 24th November the limit for such exchange (of old notes) will be four thousand rupees. From 25th November till 30th December, the limit will be increased.”
But the government on Thursday went back on this assurance.
It said exchange of old 500 and 1,000 rupee notes would no longer be allowed. “…there will be no over the counter exchange of old Rs 500 and Rs 1,000 notes after midnight of 24.11.2016,” it said in a press statement.
On the day the Prime Minister announced demonetisation of the higher denomination notes, the Finance Ministry said in a statement, “The limit of Rs 4,000 for exchanging Old High Denomination Bank Notes at bank branches or at issue offices of Reserve Bank of India will be reviewed after 15 days and appropriate notification issued, as may be necessary.”
But three days later, the Reserve Bank of India, reiterated the Prime Minister’s assurance. In a press release on November 11, it said, “The facility for exchanging the withdrawn denominations of Rs 500 and Rs 1000 is available for nearly 50 days. The Reserve Bank appeals to members of public to be patient and urges them to exchange their old notes at their convenience, any time before December 30, 2016.”
Indeed, decisions have been reviewed several times on just exchange of notes, with the initial Rs 4,000 limit being hiked to Rs 4,500 on November 13. But with the queues for exchanging notes increasing, the government asked banks to use indelible ink on the right index finger of people to prevent multiple exchanges.
Four days later, it cut the limit to Rs 2,000. This led to drastic reduction in the amount of notes exchanged, to just Rs 300 crore per day in this week, from the daily average of Rs 3667 crore between November 10 and November 18, government sources said.
The finance ministry justified today’s move stating there was a declining trend of such over-the-counter exchange of notes. “It has been felt that people may be encouraged and facilitated to deposit their old Rs 500 and Rs 1,000 notes in their bank accounts,” the ministry said in a statement, further adding this would “encourage people who are still unbanked, to open new bank accounts.”
Queries regarding scrapping of the exchange facility despite the Prime Minister’s November 8 assurance to increase the limit sent to Economic Affairs Secretary Shaktikanta Das and Ministry of Finance Spokesperson remained unanswered.
To partly ease the cash crunch, the government expanded the list of exempted categories for which old notes can be used, while Finance Minister Arun Jaitley asked bankers to push digitisation and electronic transactions.
In its fresh set of tweaks, the finance ministry allowed people to use old Rs 500 notes for paying school fees up to Rs 2000 per student in government schools and colleges, but put a limit of Rs 5000 for a single purchase from consumer cooperative stores. Foreigners have been allowed to exchange foreign currency up to Rs 5000 per week. While national toll plazas are free since December 2, the government said old Rs 500 notes can be used from December 3 till December 15.
The use of Rs 1000 notes has been disallowed for these extended transaction windows.
Meanwhile, in order to ease the cash crunch, the government set up a task force to expand digital banking and to significantly increase the number of POS (Point of Sale) machines from 14 lakh at present, Jaitley said after a videoconference with the heads of state-owned and private sector banks.
Any shrinkage in currency should be substituted and increased through digital means to ensure that economy and trade continue to expand, he said. The government’s currency withdrawal move is expected to shrink stock of currency (or money supply) and affect growth prospects adversely.
“One of the principal objectives of the government’s reform with regard to the currency that has been undertaken (is) that physical currency must shrink. (But) the economy has to expand and the trade has to expand and therefore what shrinks has to be substituted and further expanded by digitisation,” Jaitley said.
The task force to promote digitisation will be headed by Anil Kumar Khachi, Additional Secretary in the Department of Financial Services.