The Great Cash Clean-up: Here is everything you need to know

The government is learnt to have been working on this proposal over the last two months.

Written by P Vaidyanathan Iyer | New Delhi | Updated: November 9, 2016 1:54 pm
rs 500 ban, rs 100 ban, rs 500 invalid, rs 1000 invalid, currency ban, money ban, black money, narendra modi, money surgical strike, money corruption, how to change money, indian express news, india news, latest news ‘Notes hoarded by anti-nationals will be worthless’

Making one of his boldest moves since assuming power, Prime Minister Narendra Modi Tuesday announced that Rs 500 and Rs 1,000 notes will be withdrawn from circulation at midnight, saying this decision was taken to break the grip of corruption and black money.

Addressing the nation on television at 8 pm, the Prime Minister said, “The 500 and 1,000 rupee notes hoarded by anti-national and anti-social elements will become just worthless pieces of paper.” This, he said, followed his government’s efforts over the last two-and-half years that brought into the open nearly Rs 1.25 lakh crore black money of the corrupt.

WATCH VIDEO: Rs 500 & Rs 1000 Illegal: Scuffle At An ATM With People Queuing Up To Withdraw Money

Read: Are banks equipped to replace 2,300 crore pieces of Rs 500 and Rs 1,000 notes?

The Rs 500, almost a staple denomination in India today, and the Rs 1,000 notes — that will not be legal tender from Tuesday midnight — account for over 86 per cent of the total Rs 16.42 lakh crore value of bank notes in circulation as on March 31, 2016, according to Reserve Bank of India’s latest annual report.

Incidentally, the decision comes close on the heels of the expiry of the September 30 deadline of the black money disclosure scheme under which income and assets worth Rs 65,250 crore were declared. The government is learnt to have been working on this proposal over the last two months.

People can deposit their Rs 500 and Rs 1,000 notes in their bank accounts till December 30 without any limit. They can withdraw upto Rs 10,000 in the first few days, and Rs 20,000 a week. While all ATMs will be shut on Wednesday, people can exchange up to Rs 4,000 from November 10 to November 24 by tendering equivalent value of Rs 500 and Rs 1,000 notes. This limit will be hiked from November 25 till December 30.

Read: Demonetising Rs 500, 1000 notes a very bold step to fight black money: RBI

The government has already introduced new Rs 500 and Rs 2,000 notes. Fresh Rs 1,000 notes will also be introduced later.

With almost 60 per cent of the economy estimated to be a cash economy, the decision is likely to be quite disruptive in the short-term, says Pronab Sen, former chief statistician of India and Country Director for the International Growth Centre’s India Central Programme. “Current transactions are getting affected. This disruption will have a real economic effect,” he said.

WATCH VIDEO: Rs 500, Rs 1000 Will No Longer Be Legal, Says PM Narendra Modi

Read: Rs 500 and Rs 1000 notes demolished: Here’s what to do with old notes

While the decision will adversely impact sectors which deal with unaccounted money such as real estate, stock market and gems and jewellery, it will also hit the livelihood of neighbourhood vegetable vendors who borrow overnight funds from moneylenders, kirana stores, small traders and even the labour class. The Prime Minister admitted there may be temporary hardships for honest citizens, but exhorted all to seize the moment. “In a country’s history, there come moments when every person feels he too should be part of that moment, that he too should make his contribution to the country’s progress. Now, we again have an opportunity.,” he said.

Read: Amit Shah says ‘fight against blackmoney will continue’

Welcoming the move, President Pranab Mukherjee called upon people not to panic and to follow the government’s guidelines for exchanging the Rs 500 and Rs 1,000 notes. But people started queueing up outside ATMs soon after the announcement. A private banker said, banks foresee a massive logistics problem. “Generally, we replenish at the margin. Each bank has certain amount of cash. Now, we have to replace the entire stock.”

Read: Congress ‘Will support any step against black money’

The utility of the move depends on how effectively the government is able to monitor the exchange of currency. It would serve no purpose if hoarders devise smarter ways to circumvent. “You cannot undermine the ingenuity of the Indian chartered accountant,” said the head of a top private mutual fund.

Experts, however, said the demonetisation decision only affects the stock, and not the flow. “In other words, you have taken care of the black money problem of the past. But what about the future,” said IGC’s Pronab Sen.

The decision to introduce the Rs 2,000 note also flies in the face of the argument that eliminating high denomination notes will put the black money problem to rest. Isn’t the Rs 2,000 note easier to stash, asked a journalist at a press conference after the Prime Minister’s address. “It will be easier to exchange the old Rs 500 and Rs 1,000 notes with a Rs 2,000 note,” replied Economic Affairs Secretary Shaktikanta Das. Moreover, the Reserve Bank of India will monitor and regulate the circulation of the higher denomination currencies, he said.

Read: Govt demonitises Rs 500, 1000 notes: Here is how India Inc reacted

Justifying the doing away of the current series of Rs 500 and Rs 1,000 notes, Das pointed out that between 2011 and 2016, the circulation of all currency notes, from the lowest to the highest denomination, grew about 40 per cent.

“In the same time period, the circulation of Rs 500 denomination and Rs 1000 denomination currency notes increased by 76 per cent and 109 per cent, respectively. The size of Indian economy during this period, however, expanded by only 30 per cent. So, obviously there has been a disproportionately high usage of high denomination currency notes,” he said, adding there were also reports about use of this money for storing unaccounted wealth.”

Even the Prime Minister said in his address that the magnitude of cash in circulation was directly linked to the level of corruption. “The poor have to bear the brunt of this. It has a direct effect on the purchasing power of the poor and the middle class,” Modi said.

RBI Governor Urjit Patel said, “Notably, in recent years, fake Indian currency notes in high denominations — Rs 500 and Rs 1000 notes — has been increasing. The government has also observed the misuse of genuine high-denomination notes in terror-financing and also for holding black money.”

The opportune moment for withdrawal of the old series, Patel said, was when the RBI and the government were ready with the new series of banknotes for an effective replacement. “As of today, and over the past weeks and months, we have ramped up our production and are ready to meet such a requirement in the weeks and days to come,” he said.

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    Onkar Singh
    Nov 9, 2016 at 7:31 am
    Also remember that BJP President has also opened his mouth on black money,that means BJP has converted all the high value currency to smaller denomination in these two months.Good planning.Now BJP can safely splash new notes during the election.So Modi is definitely a great leader.But he is not initiating criminal proceedings against Adani in the money laundering case! Modi is still greater,because that profit from money laundering can be used to fund Modi's election.
    Reply
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      Onkar Singh
      Nov 9, 2016 at 5:18 am
      Bring party funding under RTI and ensure Criminals cannot enter Parliament and the State emblies,and introduce state funding in elections,these are preliminary steps toattack the genesis of black money.By Demoniation of currency notes of Rs.500/- and Rs.1000/- Modi is diverting the attention from his promise of bringing back BLACK MONEY in foreign countries.Because he has not initiated action against Adani in the money laundering case.He is not interested in bringing back the black money from abroad,because by now his crony capitalist friends must have deposited money in the accounts of ruling elites and ministers in foreign countries.This is just a eye wash for the public.His friends by now must have got all their currency notes to be distributed in the next election exchanged.The govt had been contemplating all this for the last two months.Do you think that during these two months BJP'S people have not converted their currency? Don't be foolish.Whar apparently seems a bold step, has many " if's"and "but 's",but the greatest hardships will be to the poor and illiterates who store money for a rainy day.And those who have to keep money always with them ,who have old parents and relatives suffering from some major diseases,like heart problems etc.to meet emergency hospital expenses.This step apparently seems to be a political stunt ,a posturing on black money,as a prelude to the forthcoming elections due sometime next year.This announcement was actually with in the purview of the Finance Minister.But Modi in order to " Survive" needs all the "attention " for himself,hence he announced the Demoniation.He likes to take credit,for all things.He is India.And that perception of his is wrong.Its the125 crore people of this country is ,what consutes and comprises of, the Indian republic.So countrymen should judge every single step of his on the touchstone ,which reflects that he is taking steps to make the life of the majority of the poor people comfortable and happy.But all steps taken so far are beneficial only and only to the crony capitalists .And to the right wing affiliates.So what today seems to be a bold step may after a few months turn out to be a hoax on the people,like his bringing back of Black Money and depositing Rs.15Lacs in everybody's account.Always judge him on his " kathni and " karni".How muchof this statement he has full filled ,to inspire confidence in his work.Or how much the people of this country can rely upon him , especially the promises he makes during elections,and subsequently he leaves it to his party President to controvert and deny that they were only " election Jumlas".Think! Think! Whether he is making a fool of us or not ,like a trickster , as of now?
      Reply
      1. S
        Srividya Jayaraman
        Nov 9, 2016 at 6:01 am
        May be you are.the.one fake.moron.
        Reply
        1. S
          Srividya Jayaraman
          Nov 9, 2016 at 5:40 am
          May be you need to grow up .
          Reply
          1. H
            Hari Neendoor
            Nov 9, 2016 at 2:19 am
            The boldest, powerful and decisive step a Prime Minister of India has ever taken at such a short notice. The Beauty of it is the Hon'ble PM announces it at 18:00 hrs that the notes are no legal tenders after midnight.
            Reply
            1. M
              Mohan
              Nov 9, 2016 at 6:11 am
              A sulking and defeated congi
              Reply
              1. M
                MyTake
                Nov 9, 2016 at 1:26 am
                (“Generally, we replenish at the margin. Each bank has certain amount of cash. Now, we have to replace the entire stock.”)lt;br/gt;lt;br/gt;Not true. Get the account number and transfer the money straightaway for those who want quick response!
                Reply
                1. S
                  SubbuI
                  Nov 9, 2016 at 6:33 am
                  NALAYAK NMODI CAN ASK THE BJP DONERS TO DEPOSIT BLACK MONEY IN TO THE JAN-DAN SILENT A/CS AND TRANSFER THEM ELECTRONIC METHOD TO BJP OR RSS OR ANY OTHER A/CS with the cooperation of FAVOURABLE BANKS SUCH AS BANK OF BARODA OR DENA BANK OR OTHERS.-50 DAYS ie UP TO DEC END IS SUFFICIENT TIME FOR ALL WELL PLANED SCAMlt;br/gt;NALAYAK N MODI AND KALNAYAK GANGSTER SHAH ARE JUGAD EXPERTS AND JUMLA MASTERS.ACE LAIRS AND GREAT DECEIVERS TOOlt;br/gt;EVERY HING THIS FELLOW DOES IS ONE MAN SHOW.NO FM ON THE SHOW.ALL DICTATORS DO THAT LIKE HITLER AND PERISHED AT END
                  Reply
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