We, as the citizens of India, have heard various Indian Prime Ministers over the years talk about curbing black money, terrorism and corruption in their speeches. However, our current Prime Minister, Mr. Narendra Modi, took a major step on November 8, 2016, to tab black money across the country with the demonetization of Rs. 500 and Rs. 1000 currency notes from the legal tender of the country.
Smaller denominations survive
The lower denominations such as Rs. 100, Rs. 50, Rs. 20, Rs. 10, Rs. 5, Rs. 2 and Re 1 continue to be the legal tender of the country. The Prime Minister also announced the introduction of new notes of denomination Rs. 2,000 and Rs. 500. He further added that other forms of payments i.e. cheque, DD, or credit card and debit card will not be affected in any way.
The Prime Minister in his announcement admitted that the common man will face some hardship because of this sudden step, but it was necessary for the reconstruction of a nation free from corruption and black money. Mr. Modi also expressed his confidence in the staff working in banks as well as post offices in their capability to effectively handle the situation at such a short notice.
Why was this move necessary?
The rise of black money and circulation of fake currency notes was helping illegal and anti-national activities in India. With the scheme to withdraw the high denomination notes of 500 and 1000, the rising incidence of black money and fake currency notes has been contained for once and for all.
How will it impact small and large businesses and urban customers?
The move has certainly led to a shortage of cash flow in the economy. Stability in the economy is expected after a span of 1-2 weeks in the semi-urban and urban areas and at least after a month in the rural areas.
Small businesses in urban and rural areas that are cash-intensive, will be crippled for a while. Also, sectors such as real estate have received a major setback with this move. They are expected to experience chaos for a few weeks.
How will it impact the lower strata of the population?
The lower strata of the society, i.e. the daily wage earners, plumbers, electricians, etc., who provide informal services and get cash payments on a daily basis will be adversely affected because of the lack of currency in circulation.
How will it impact rural India?
If we look at rural India, even after the Jan Dhan Yojana scheme introduced by the Prime Minister in 2014, there is still a major chunk of the population that doesn’t have access to bank accounts and rely only on the high-value currency notes. Well, their fate seems to be in trouble. The rural citizens having a significant number of the now-banned currency notes with no formal source of identification will face a tough time in getting them exchanged.
Here’s what you must know about the demonetization:
- At present, there is a limit on the bank withdrawal of cash of Rs. 10,000 per day and a cap of Rs. 20,000 per week. However, as per the orders of the Government of India, this limit will be increased in the upcoming days.
- The Government of India has not put any kind of restriction on the non-cash payments done through any mode, be it cheques, demand drafts, banker’s cheque, credit cards, debit cards or electronic fund transfers.
- In the initial days, a cap for ATM withdrawal of Rs. 2,000 per day per card has been imposed, which will be increased later.
- You will get the full value of the currency notes you deposit in banks or post offices. However, you will get only Rs. 4,000 in cash irrespective of the currency size you deposit in your account.
Here’s what you can do:
- You can deposit old notes of Rs. 500 and Rs. 1,000 denominations in your accounts maintained with banks or at post offices starting from November 10, 2016, until the midnight of December 30, 2016.
- There is no restriction on the transfer of funds from your bank accounts through modes such as RTGS and NEFT.
- You can exchange old notes of denominations Rs. 500 and Rs. 1000 at your nearest bank branch, irrespective of the fact that you are not banking with that bank/branch. You can also exchange old notes at the head post office and sub-post office.
- You need to show your ID proof for exchanging old currency notes. The Government in collaboration with RBI has set a cash limit of Rs. 4,000 per day till the midnight of November 24, 2016.
The bottom line
This move by the Government of India is aimed at combating the menace of black money, fake notes, terrorism and corruption. It will indeed lead to a temporary pain as well as chaos for the common man. However, it is a stepping-stone towards a corruption-free India.
On the whole, the severity of the impact depends on how smoothly the Indian Banking system, the Government of India and the citizens of the country manage and sail through this phase of transition.